while i am in favor of a lender of last resort.....that is the only EXPLICIT mandate a central bank should have......... as far as "setting interest rates".........the eurodollar pit would do just fine.
Deflation is the natural state of any economy. *PRICE* deflation. Not wage deflation. Technology and innovation drive production costs down while maintaining profit margins (and wages). Wages stay constant, but things get cheaper. People BUY more. Standard of living goes up. Profits go up on volume. THAT is the natural state of any economy. Think about it. TECHNOLOGY IS SUPPOSED TO MAKE THINGS CHEAPER. Yet, shit costs MORE THAN IT EVER DID!! Any of you FED-lovers want to explain how that astronomical savings from technology got sucked down a black hole??? You first, Bwolinsky. Deflation is not the anathema bankers paint it to be. Now, they wouldn't have a vested interest, here? To dissuade us from outlawing their counterfeiting power??? Com'on. 1930 is a red herring. The FED purposefully shrank the money supply ENORMOUSLY. Under a fixed credit system (or slow growth), that simply wouldn't happen. Another argument against Central Banking. They brought about and exacerbated the very thing (Depression) their mandate was designed to prevent!! Money supply affects inflation and deflation, in a BIG way. So the idea is to have only enough credit to accommodate steady, market-determined, interest rates. Under that system, money supply would grow modestly. A precious metal-backed currency would WORK FINE. Silver and Gold. Or commodities. Whatever. Just tie the currency to a slowly growing key resource, and its good. Most deflation in that scenario would be PRICE deflation derived from production efficiencies. Not wages. So debts owed, still get PAID. People argue market-determined rates too volatile. Once fractional reserve banking is gone, leverage doesn't exist. Market volatility is 99% leverage. Take away free cash to play the casino, and prices settle nicely to fundamental value. As traders, we earn our livelihoods from the parasitic relationship between leverage and fractional reserve banking. So what do we choose? A good life for us? Or a good life for the Country? And our progeny?
If by "work fine" you mean "also fail at preventing massive credit bubbles", then we are in complete agreement. This is a demonstrably false statement. Leverage ALWAYS exists. ALWAYS. Regardless of monetary scheme or policy.
In the emotion of times such as these, it's easy to forget that financial volatility existed long before central banks existed.
Care to back up that absurdity with fact? You missed the point. Yes, some leverage will exist. BUT NOWHERE CLOSE TO WHAT WE'VE GOT. That's the point. Are you that oblivious to colloquial expression? Or just like splitting hairs? Cause' i think its the later. Yea, you just like to argue irrelevancies.
Sure, like when 19th century American banks issued their own currency and ramped up supply astronomically? How about when the Spanish or Dutch conquered South America and imported vast quantities of gold? Their prices did the same thing. See a pattern here? Perhaps you'd like to cite a few historical examples where strong asset inflation wasn't accompanied by an equally disconcerting expansion of money?
I got your point - unfortunately your point is simply wrong. You don't have to look any farther than the economic history of the US, where massive speculative bubbles formed during - or if you prefer, despite - very long stretches of gold or gold/silver standards. The reason "fixed" money doesn't stop credit bubbles is because there will always be economic agents who are perceived as "no worries, they're good for it". Asset bubbles aren't a function of the monetary system, they are a function of human nature, and that nature will find a way to express itself regardless of monetary structure.
This is a meaningless question, as credit IS money. The correct question is "do asset and/or credit bubbles routinely occur under gold or other fixed monetary systems?" And the historical record is clear - they do.
I'm yet to hear how the resident autrians gold standard advocates would prevent free economic agents in a free market from initiating levered derivative transactions between each other to the tune of multiples of GDP(which they ocasionally use as 'evidence' that the financial system is phony). After all, they are just a piece of paper stating two parties are making a bet on an outcome