Federal reserve

[Kleptocracy]

The Federal Reserve is owned and run by the people that own and run private banks. Contrary to popular assumption the Fed is not nationalized or audited. Mainstream media as well as politicians refuse to discuss or acknowledge this. If Obama wasn't a corporate pawn he would have changed this, instead he, like the media and all presidents since Kennedy wont even acknowledge the issue.

video.google.com/videosearch?hl=en&q=lee%20greenwood&sourceid=navclient-ff&rlz=1B3GGIC_en___GB344&um=1&ie=UTF-8&sa=N&tab=wv#q=federal+reserve&hl=en&emb=0

[Roger Mexico]

Oh, god. Please don't tell me to vote for Ron Paul.

[Lucylie]

The Federal Reserve is owned and run by the people that own and run private banks. Contrary to popular assumption the Fed is not nationalized or audited. Mainstream media as well as politicians refuse to discuss or acknowledge this. If Obama wasn't a corporate pawn he would have changed this, instead he, like the media and all presidents since Kennedy wont even acknowledge the issue.

video.google.com/videosearch?hl=en&q=lee%20greenwood&sourceid=navclient-ff&rlz=1B3GGIC_en___GB344&um=1&ie=UTF-8&sa=N&tab=wv#q=federal+reserve&hl=en&emb=0

I agree with your ferver, but I think that they do 'pseudo-audits' (my words) in order to please the rule nuts. I could be wrong about this. I think that the Federal Reserve is crooked and criminal. Then again I'm not an economist. If any economist could give me any good reason that the Fed exist (I understand why it does, I just don't understand why it has to) I would be thrilled, b.c I could stop being so pissed.
Seriously, I would appreciate it.

[Lee]

I agree with your ferver, but I think that they do 'pseudo-audits' (my words) in order to please the rule nuts. I could be wrong about this. I think that the Federal Reserve is crooked and criminal. Then again I'm not an economist. If any economist could give me any good reason that the Fed exist (I understand why it does, I just don't understand why it has to) I would be thrilled, b.c I could stop being so pissed.
Seriously, I would appreciate it.The Federal Reserve doesn't have to exist anymore than a Soviet-style "Ministry of Playing Cards" has to exist.

The supply of money can be expanded and contracted by private institutions reflexively to changes in demand.

[Lucylie]

The Federal Reserve doesn't have to exist anymore than a Soviet-style "Ministry of Playing Cards" has to exist.

The supply of money can be expanded and contracted by private institutions reflexively to changes in demand.

Could you expound upon this "Ministry of Playing Cards" thing for me?

[Lee]

Could you expound upon this "Ministry of Playing Cards" thing for me?The supply of playing cards by private institutions is responsive to changes in demand. When demand increases, prices are bid up; high prices stimulate supply and prices are pushed back down. The market for money is, in principle, no different than the market for playing cards.

But imagine if we had a Ministry of Playing Cards who manipulated supply. Since the supply of playing cards would not be determined by the market, Mr. Dernanke, chairman of the MoPC, would need a playing card policy. Since Mr. Dernanke thinks it is good for the economy as a whole to have a playing card shortage sometimes, and a surplus at other times, his policy is to try and manipulate, by indirect means, the supply of playing cards to aim at some price. Now if this seems like a really silly way to organise the supply of playing cards, then you're right.

[Lucylie]

The supply of playing cards by private institutions is responsive to changes in demand. When demand increases, prices are bid up; high prices stimulate supply and prices are pushed back down. The market for money is, in principle, no different than the market for playing cards.

But imagine if we had a Ministry of Playing Cards who manipulated supply. Since the supply of playing cards would not be determined by the market, Mr. Dernanke, chairman of the MoPC, would need a playing card policy. Since Mr. Dernanke thinks it is good for the economy as a whole to have a playing card shortage sometimes, and a surplus at other times, his policy is to try and manipulate, by indirect means, the supply of playing cards to aim at some price. Now if this seems like a really silly way to organise the supply of playing cards, then you're right.

Wow. You're one of the few people that have ever really answered one of my questions and I thank you immensely for that.

[Lee]

Wow. You're one of the few people that have ever really answered one of my questions and I thank you immensely for that.I should point out that since the Federal Reserve does exist and will not be disappearing anytime soon, the best it can do is emulate what a free market in banking and money would achieve in its absence -- monetary equilibrium. In other words, a increase in money demand should be matched by an expansion in money supply, and a decrease in money demand should be matched by a contraction in money supply.

Macroeconomists usually focus on the "price level" (as measured by the CPI) rather than relative changes in the supply and demand for money. Although a fall in the price level may be a reaction to an increase in money demand, it can also be caused by gains in productivity. If central bankers respond to the latter with monetary expansion, then economic distortions will follow, i.e. a mucking up of relative prices. Since a fall in the price level doesn't distinguish between its possible causes, always responding to it with monetary expansion can lead to unintended consequences, e.g. booms, bubbles, and busts.

In any case, there are a bunch of other problems besides this: even a best case scenario with the Federal Reserve would be worse than free banking.

[Lucylie]

I should point out that since the Federal Reserve does exist and will not be disappearing anytime soon, the best it can do is emulate what a free market in banking and money would achieve in its absence -- monetary equilibrium. In other words, a increase in money demand should be matched by an expansion in money supply, and a decrease in money demand should be matched by a contraction in money supply.

Macroeconomists usually focus on the "price level" (as measured by the CPI) rather than relative changes in the supply and demand for money. Although a fall in the price level may be a reaction to an increase in money demand, it can also be caused by gains in productivity. If central bankers respond to the latter with monetary expansion, then economic distortions will follow, (i.e. a mucking up of relative prices). Since a fall in the price level doesn't distinguish between its possible causes, always responding to it with monetary expansion seems foolish to me.

In any case, there are a bunch of other problems besides this: even a best case scenario with the Federal Reserve would be worse than free banking.

Now even though I may potentially expose my supreme ingnorance on the actual facts of the Fed, I must say; I've always thought that there was something inherently corrupt in a privatized monetary system (is that the right terminology?) What do you think about that? I would love to hear anything worth knowing.

[Lee]

Now even though I may potentially expose my supreme ingnorance on the actual facts of the Fed, I must say; I've always thought that there was something inherently corrupt in a privatized monetary system (is that the right terminology?) What do you think about that? I would love to hear anything worth knowing.It depends what you mean by "privatised."

If you are merely referring to a situation where a monetary authority is privately owned, then the problem is not privatisation but having a "monetary authority" in the first place. The Federal Reserve, a privately owned monetary authority, is actually a good central bank when compared to others -- the standard is just that low. Should the U.S. Congress gain direct control over the money supply, I would expect them to abuse such power even more than the Federal Reserve, because the problem is actually the centralisation of power.

When I write about a free market in money and banking, or "free banking," I am referring to a situation where money is privately produced -- primarily by banks. In free banking there is no monetary authority, but instead competing money producers, each an authority only upon themselves. There is nothing inherently more corrupt about this kind of arrangement than any other market activity.

[Lucylie]

Okay, thanks, that clears up some of my ignorance about the subject. So what do you think would be the solution to what you call the "centralisation of power"? I always think that the monetary system could be better, but I never know exactly how. Any ideas?

[Lee]

Okay, thanks, that clears up some of my ignorance about the subject. So what do you think would be the solution to what you call the "centralisation of power"? I always think that the monetary system could be better, but I never know exactly how. Any ideas?There are improvements that could be made to existing monetary authorities, but central banks would not exist if their purpose was to emulate what free banking would do in their absence. Rent controls do not exist to emulate prices that would emerge in a free market, but to prevent them from emerging at all. In a similar vein, central banks do not exist to achieve monetary equilibrium, but to bring about prices which are more satisfactory to people in positions of power. Whether or not this is good for the economy as a whole is besides the point. For example, a good tactic in politics is to expand the money supply about a year or two before an election, because it will create an artificial boom when people come to vote; the bust which inevitably follows is then early in the politician's term and come next election nobody will remember.

In the absence of government suppression, and in what few historical examples there have been of free banking, gold money has been preferred by the market. However, most ordinary people would rarely come into contact with gold money of any sort, but would hold gold-backed paper or electronic money issued by banks. The banks would hold gold in reserves proportional to the rate of spending of its customers; it would be like any common debtor-creditor relationship. When depositors (i.e. creditors) call in their debts (i.e. spend their banknotes) less frequently, debtors (i.e. banks) can create more credit (i.e. banknotes for lending), without negatively effecting their cash flow. Any bank which tried to expand its money supply too much would find the gold in its vaults dwindling, and be forced to contract its money supply or go out of business. Thus the ordinary process of market selection disciplines banks to behave prudently with their money supply.

The central bank system, however, divorces expansion of the money supply from the underlying scarcity of savings, and thereby leads to all kinds of screw ups.

[Architectonic]

I always think that the monetary system could be better, but I never know exactly how. Any ideas?

The government can repeal the laws which create a monopoly for transactable currencies and let the market sort it out. The dollar can potentially compete with alternatives during any transitionary period.

With electronic banking, real transaction costs are trending towards zero, so a monopoly currency no longer has the same advantages as it did in the past.

All currencies are backed by something, the best choices include assets that maintain stable value over time; this means that the supply and demand of such assets are correlated to that of the general economy. Remember that value is always relative to something else that can be traded for.
Another choice includes lower risk investment classes. Obviously the backing must institute confidence. Historically, the most successful of currencies were gold backed. However gold backed currencies won't always have the most stable value unless the above condition of correlation to the general economy holds.
The value of the currency depends on the demand vs the supply (which depends on value of the underlying assets, but the supply does not need to be fixed relative to that value). Such currencies can float electronically in real time against one another similar to forex today. There is no reason why we cannot have 'stock market' dollars, or 'SOCAL land' dollars or 'all that stuff you're planning on purchasing in the next year' dollars.

Remember that rich organisations don't necessarily hold their surplus wealth in fiat currency - they only hold just enough to do business. Those who do not need to hold much cash are afforded much more choice than other entities, which translates into economic benefits.