Free book about how banking works: http://mises.org/Books/mysteryofbanking.pdf Banking is very complex. Many of us out of ignorance are defaulting to simplistic theories to explain the problem.
On one hand I agree with both of you... on the other hand,sadly, I feel that MG is making this stategic move to often... delaying the full answer but saying it's wrong... If I recall weel in it too ( http://www.elitetrader.com/vb/showthread.php?s=&postid=2981376#post2981376 ). Pekelo, I have a point... I know that some times arguments can be really thin in appearance, no more than a piece of paper even ^^ I think that the point that I raised on your interresting question is essential. Why is there only in the US questionning on the role of the Central Bank ? Central Banking System poses the same risks in every country where it's applicated even if they haven't the "$". Furthermore on your last post how to show you something that don't exist yet ? I am sorry about the American History in the XIX... I am not familiar with this period. However I know that banks are like any other biz... some perish other grow... Furthermore by eliminating the weakest player all the time only the strongest have emerged... you still know their names today. But please what I found really weak in your all argument is that you try to put two thing that are timely so different that it doesn't work. To compare the world of the XIX to todays high frequency world is astoning in the context of financial services. No matter what is tried boom and bust cycle will be present. Do you know why the banks didn't accept the money in the XIX ?
This is the key concept that I have come to understand by reading The Creature. The government should print its own money, not the Fed. However, if the government printed its own money, it would need to do so responsibly. If trillions of dollars were printed without anything like gold to back it up, it would be obvious to the American people and to other countries that the dollar was next to worthless. Who would have faith in a piece of paper created by the government out of thin air without anything to back it up? However, by having a central bank print the money and loan it to the government in exchange for government bonds, the whole process seems official and too complex for 99.99% of the people to understand. As a result, large amounts of money can be printed without the American people understanding what is happening. Unfortunately, other countries and sophisticated investors understand what is going on, so they are selling the dollar. The American people will not understand until everyone starts dumping their dollars and buying American assets and goods with them, creating hyperinflation.
I really don't see a major difference. Congress could print money as much as the feds, that wouldn't change the ability to go into debt or making budgets that can't be managed. It is not the Fed's interest rate that causes the long term problems, but irresponsible politicans not trying to maintain the budget and spending way more than what comes in in form of taxes.
Your argument that "everyone else is doing it" is not sufficient to prove that central banking is the best system to employ. Everyone else was doing a lot of things in history that we now know with certainty were very bad. As society progresses, the mistakes of the past become obvious. One day, central, fractional-reserved, legal-tender banking will be seen for what it is. A sham a scourge a farce. This country and probably every other country did a lot better economically before the central banks came along and fcked everything up. Growth was higher and inflation was lower. In fact, for the most part there were long, sustained periods of deflation pre 1913. What do you think Bernanke thinks about that? Deflation: something to avoid at all costs? Well, if you have a stable money, then deflation is a natural phenomenon, and really just a side effect of rising productivity. The fed's mandate is supposed to be maximum employment and growth, and low inflation right? So how can you possibly reconcile that with the fact that employment was higher, economic growth was higher and inflation far lower, (deflation was the rule) in the 1800s vs. the period 1913 to present. If that is the mandate, any rational person would have to conclude that the fed has been an utter failure. I mean let's say government were to start a department against adolescent obesity. It's charter stated that its goals were to lower the rates of obesity in teens, increase their athletic performance and lower instances of diabetes. Ok, so they start the group and it turns out that after kids follow the orders of the group the diet and exercise program, everything to a T, they get unbelievably fatter and can't even run a 100 yard dash - let alone a mile. Oh yeah and almost every one of the kids in the program is on his way to type 2 diabetes by the age of 16. Wouldn't you say that this program has been a total failure! I would and more than that I would say it seems to have caused the opposite of it's stated purpose. Well, since the fed has been in business, employment and growth have dropped, and inflation has surged to the point that the value of the dollar has almost dropped by 98% since inception. Do you honestly call that a success story? There were bank failures left and right in the mid 1800s. But many of these banks were frauds. The free market has a very effective way of dealing with fraudsters and that is to put them out of business. Only trusted institutions will get long term repeat business. And I wouldn't call what they were issuing currencies, they were more like IOUs. No name two bit banks IOUs wouldn't be able to be used in the next city, but those from stable, trusted banks would. Murray Rothbard used to talk about Joachin's Thaler, a coin/currency used in Germany hundreds of years ago. It got the reputation for being pure and 'good as gold' so everyone from all over the continent used it because of its pristine reputation. the free market will almost always arrive at the best solution. Money is no exception. And the free market has time and again chosen gold (and silver) as the best money. If you are transacting in gold and not fractionally reserving, you cannot have a banking crisis. Nevertheless just because there were more banking crises back then doesn't mean that was a worse system. The way i figure it, if the government hadn't papered over all the problems of the last two years, stock markets would be near zero and nearly every bank, mutual and pension fund would be vaporized. Game over. A banking crisis that is as severe as that is worse than 500 minor ones. Would you rather have a cold for 3 weeks or ebola for one weekend? The FR system has outstayed its welcome and I suspect that by the time the next bear market is over it will be gone. any thoughts rearde, GofC?
It is kind of funny you compare societies 150 years and an industrial and technological revolution apart and you put every blame on then Feds. In 1850 the US population was 23 million, today it is 307 million. Back then there was aviable land to give away, untapped resources of everything. Unemployment was low? I am sure for you picking cotton on the fields sounded like a good time. Beside the Feds, technology and industrialization happened in the last 150 years. Machines pick cotton, not humans. How did the average American lived back then and how they live today??? And your fond memories about the times when the dollar's value was much better can be equaled by the British remembering the sterling, the Japanese remembering the yen,etc. Pretty much every country experienced the same. Oh yes, Germany had a huge inflation without the help of the Feds. It was caused by politicans, not bankers. I tell you what. Persuade a country to go without central banking for 100+ years, and we shall see how they do. If they do well, I change my mind....
Marquis, "Creature is absolute nonsense. Written by a guy who also writes about ufos chemtrail and other crap. I'm shocked anyone takes it seriously"...... You sound like someone who thinks they can order their economy from an Ikea catalogue and put it together in between coffee sips. And then move it 3 weeks later into the next room......
Therein lies the problem. If you give man the power to create money at will eventually you are going to have big problems. Whether it be a war in the middle east, the next generation fighter jet, or a road from here to nowhere, the answer is always the same. Print and lend. We'll pay later. Debt is a necessary tool to manage a country or even a household but there has to be a system of checks and balances. If a country needs to finance a war it didn't anticipate it needs to do so through the usage of debt but unfortunately, the US runs a deficit nearly every single year whether a war is being fought or not. The value of a paper currency needs to be based on something a bit more complex than a spreadsheet with a bunch of zeros on it. The Fed and the Government does need to have the ability to expand and contract the money supply but it seems nowadays the supply of money goes only in one direction -- up! We need a system of checks and balances with some sort of constraints. I don't know what the answer is but I do know that the current system will lead the country into financial ruin.
There are plenty of authors, scholars, etc., who have completely whacked-out ideas in some areas, and are on-the-money in others. Take Cass Sunstein, a highly-respected U. Chicago economist. I'm no fan of his, but I don't dismiss everything else he says out-of-hand just because he believes animals should have legal standing to be able to sue humans. As for the Fed, here's an interesting article (note: I don't necessarily endorse the sales pitch at the end and know nothing about his investing track record): http://www.gainspainscapital.com/in...d-within-five-years&catid=39:stocks&Itemid=70 I don't know if the Fed will be gone in 5 years, but the article is definitely right about their activities in recent years. They have been in panic mode, completely clueless re: how to apply their useless academic theories in the real world.