If Austrians are such idiots and unable to predict, please explain the glut of “peter schiff was right” and “ben bernanke was wrong” videos, and the some lower number (0) of “paul krugman was right” videos, on you tube please.

And your claim that the fed saved everyone last autumn will, as austrian theory predicts, be shown in time to be 180 degrees off. Last autumn simply guaranteed a future storm of unprecedented magnitude.

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I suggest to you that if the Fed could perform as well as you state it can, what just happened in our economy should never have happened, never mind the ups and downs during the preceding 100 years. All I see are tremendously powerful bankers, world leaders at their chosen profession, getting handed hundreds of billions of our taxpayer dollars by the very same Fed that, for being such an effective mechanism, should have seen this coming and prevented it in the first place. Should I accept the idea from some one who seems very well read, gives me the impression they have a solid handle on global finance, that the Fed had absolutely no idea what these large banks were up to? Thankfully the Fed “saved” us but didn’t prevent the need for our being saved in the first place? Even if I grant you success on some of the smaller economic downturns of the past, how is it that this last very serious downturn came to be? This failure took years to put together, years. I’m looking for the expertise here, the command and control, the rigorous oversight, and I’m just not seeing it.

I’m not quoting banking rules, monetary or legal theories, Congressional amendments. I don’t know what they are. I just read your comments about how great the Fed is and then look out my window and the two circumstances just don’t match!

What happened?

The reason for World War II can be explained on a bumper sticker… Ego’s strive for world domination.

I’m looking for the short answer. There is one.

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Here’s the problem though. We’re arguing about fractional-reserve banking, an argument which came out of talk about commodity (e.g. gold) versus US Dollar fiat. Fractional-reserve banking still has the same effect on money supply in both monetary setups. Furthermore, even under the gold standard that you seem to be promoting, there are still inflows and outflows of money and/or gold into the system, there’s still inflation and deflation, and this all happens regardless of the presence of a central bank or not. It’s really a matter of economic history to prove that this happens under any monetary standard.

I think we’ve strayed from the point and I’m wondering what it is we’re arguing about.

~RJM

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You lack a fundamental understanding of how the fractional reserve system works if you don’t see this. When borrowing increases under this system, the money supply increases. This causes inflation. When loans are defaulted on or paid back, the money supply decreases. This has no effect on the actual paper currency in circulation but has a real effect on the value of our money including its paper form.

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Banks can lend, under what I think you were trying to say, up to 9/10 of their reserves. If a bank has $100, it can lend $90 (90%). That $90 gets put into a bank and 9/10 are lent again. That’d be another $81 and so on until the total theoretical amount of money equals approximately (Original Amount)*(1/reserve requirement %). In the 9/10s lending example, that ends with $10 circulating for every $1 originally made. Note, however, that the amount of actual paper currency stays at $100. Each bank just shaves off a bit to keep in their vault.

If you care to restate your argument, by all means do so. However do realize that while there’s arguments to be made for and against fractional-reserve banking, the concept bears no resemblance to your above example.

~RJM

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Now Imagine Fractional lending to a country. Lets say I start a federal Reserve Bank of the imaginary country. Lets say I have 1 million in reserves. So therefore I can lend 9 million and charge interest on that. So I do and the country pays me back the 9 million plus interest. Now I can lend this country 81 million and so forth until they can’t even pay me back the interest alone and all they do is work for me in a very low quality of life.

The Federal Reserve is a for profit business and I understand why you people defend it so much. It makes you very rich and powerful with very little investment.

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For someone who claims to understand the Federal Reserve so well, I’m surprised to see you claim it was set up “by the banks, for the banks.” That’s completely false. Allow me to correct you: The Federal Reserve was established by Congress via the Federal Reserve Act of 1913. This was in response to the Panic of 1907 and the Fed was created to provide liquidity in times of crisis. Your claim is simply wrong, sorry.

As for your argument about interest rates and blaming the Fed for the economic catastrophe we just weathered, I’d also call you out as being wrong. Greenspan was in command of the Fed from 1987 – 2006 and, contrary to your claim, it wasn’t a big orgy of low interest rates and economic explosion. There were a few recessions in there and they had little or nothing to do with the interest rate.

The Federal Funds Rate is a tool that is implemented by the Fed to control recessions. It does not cause them. In times of economic hardship, interest rates are usually lowered to increase the supply of funds. It’s simple monetarist theory and has been shown to be correct through decades of statistical data. Loosening the tight belt kept on the money supply allows the economy to recover quicker and lightens the downturn a bit.

Finally I’ll come to your assertion that “Money should be backed by gold or silver and only expanded or contracted to correspond the economic growth of the country. You will then have no inflation and maintain purchasing power.”

I think you fundamentally misunderstand the nature of inflation and deflation. Actually I don’t think, I know. Even during the periods of the strictest gold standard in the United States there was inflation and deflation. The purchasing power parity of the dollar changed a lot. I’m really not sure where you’re getting your information from, but you need to do some serious research if you care to keep arguing economics.

As for the Austrian School of Economics, it has been discredited so many times over my economists both Neoclassical and New-Keynesian. Friedman called Austrian business cycle theory wrong as it contradicts both logic and historical statistics. It simply isn’t true. I’d recommend the following article as a brief introduction into what is considered the largest economic contradiction in Austrian theory: http://www.slate.com/id/9593

Cheers,
~Richard Jesse Markel

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Also, every dollar that is printed and loaned to the gov’t or used for bailouts of the banks (conflict of interest, again) is not free. The principal and interest are charged to the the gov’t and the taxpayers are on the hook. That is why there is an income tax. That is why the national debt will never be retired. I do not think you understand that point.

Also, the FED caused the economic crisis – the artificially low rates from the Greenspan years was a primary cause of the crash. Of course they had to intervene, its ‘shareholders’ were on the brink of disaster. The MARKET should set the interest rates, not a private monopolized central bank. The fed setting rates are what causes the boom and bust business cycle.

Think Austrian economics. Money should be backed by gold or silver and only expanded or contracted to correspond the economic growth of the country. You will then have no inflation and maintain purchasing power. Interest rates should be set by the (free) market. Right now the fed is expanding the money supply many times over; the economic growth is hardly positive. It is hard to believe that they will mop up the excess liquidity.

The FED needs to be dissolved and nationalized so the country can once again return to a sound monetary policy.

I can’t undertand how anyone can be a Fed cheerleader. They are the cause of essentially every crash since the Great Depression.

I suggest a good video to watch. Cheers.

http://www.youtube.com/watch?v=iYZM58dulPE&feature

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Contrary to your belief, you do benefit from monetary policy. You’re benefitting by being able to have money to buy yourself food and medicine and water. Without the Fed, we would be in a dire situation following last fall. You can thank the Federal Reserve’s economists and bankers for preserving the wealth of the nation last year when the nation was teetering on the brink of collapse.

As for your first point, the Federal Reserve is not a typical “private company” in the sense that it is de facto a governmental institution. The Fed, created by the government for the purpose of seeing to economic matters and monetary policy, does not have private shareholders. The Federal Reserve is structured such that it’s “owners” are banks that hold United States dollars. The largest of these are companies like JP Morgan Chase, Bank of America, etc… You cannot purchase Fed “stock” like a typical private company. Banks, by their keeping deposits with the Fed, are the sole providers of its equity. As for the liabilities of the Fed to even out the balance sheet, we’re holding those in the form of dollars.

Also, I would encourage you to further look into the creation of money in the United States since the Federal Reserve is not the sole body of money creation. Coins are a direct liability of the Treasury. Finally, regarding your question as to why the government cannot print its own money for free, I’m not sure I understand what you’re saying. The Bureau of Engraving and Printing, a subdivision of the US Treasury, prints and sells said money to the Federal Reserve at cost. The government creates its own money and gets paid for the cost of paper, labor, and ink. I thus am not sure what you’re getting at.

For your second point, I do not think you understand the nature of monetary policy. The Fed does not just create money at some arbitrary rate. Its money creation is aligned as best it can to economic growth. This thus creates a stable growth rate and a small, controllable level of inflation. They do so because deflation is significantly more problematic than a sustainable, low-rate inflation. That’s basic Chicago-School monetary theory and it’s validity has been demonstrated by Milton Friedman, Anna Jacobson Schwartz, and their peers. Finally, I might point out that currently, the FOMC is conducting operations to drain excess reserves out of the banking system to prevent said inflation.

My rebuttal was anything but tough. I’d recommend you take an intermediate macroeconomic theory course.

~Richard Jesse Markel

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Nobody is happy with the moneraty policy, excpet the people that benefit from it, which unless your work for the fed or in gov’t, makes you sound very dumb.

There is no reason for:

1. A private company to print money out of thin air, backed by nothing, lend it to gov’t at interest and result in the taxpayers being on the hook for all of it. Why can’t the fed be nationalized and the gov’t print its own money for free? Would that not result in a better economy? No more income tax, which will result in more money to save and invest instead of being put into the pockets of the fed and big banks.

2. Having the money not backed by a physical asset such as gold or silver, which would result in the dollar keeping its purchasing power. Constantly increasing the supply of money, greater than the growth of the economy causes inflation, erodes savings and destroys purchasing power. Explain how this is a good thing. And even though we may be in a temporary depressionary period, unless all of the excess liquidity is taken back by the fed, the inflation will be brutal.

Rebuttal? Its going to be tough.

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