RE: 11 Reasons Why The Federal Reserve Is Bad

The original post can be found here 11 Reasons Why The Federal Reserve Is Bad

You oversimplify on EVERY point

#1. If the government just printed its way out of its debts that would instantly cause hyperinflation. All confidence would be lost in the dollar, countries wouldn’t lend to us anymore, and the people wouldn’t trust the government to pay its bills ever. They’d then need to introduce a new currency backed by something, which would stabilize the dollar and one day cause another depression as the currency doesn’t increase with the growth in the economy. Fiat currency has actually had much better results then hard money, and governments have time and time again misused fiat currency to be irresponsible. If it were up to Obama or Bush, we’d have hit hyperinflation by now…..the federal reserve is the one checkpoint we’ve had to slightly keep bureaucrats in check.

#2 This is both true and untrue. In some cases they print more money, in some cases they transfer money to other debt (e.g selling bonds). The first case is called diluting the currency. The same thing happens with companies when they sell off more shares in second/third offerings to raise funds. This is generally done when it doesn’t make too much sense to borrow because they have bad credit. It always ticks off the shareholders because it devalues their current share holdings. Same thing happens when you print more money, you dilute the currency, causing inflation, causing devalueation of your current currency holdings.

#3 – I commented on your other post about how silly your argument is, read it there for the complete comment, but essentially there is absolutely nothing wrong with this.

#4 – again you oversimplify. The last century has seen more prosperity and fewer runs on banks in history, in large part because of centralized banking. The federal reserve (and most economists) prefer a little inflation (e.g 2%) as it is easier to control inflation then deflation. Restricting the money supply has more predictable results then offering cheaper debt.

#5 – unfortunately you downplay politics when it plays a heavier hand then it should. The role of the federal reserve is to ensure bubbles don’t occur, therefore they don’t pop. However, because of politicians, the bubbles occur and the federal reserve is too afraid to be the party pooper to do what’s right. In essense, if they did what they were supposed to do, then we’d be in good shape…but instead they do what politicians want (usually).

#6. Their power to do so is the reason we haven’t had runs on banks. They screwed up during the depression, but there are so many other very bad factors like the Smoot-Hawley Tariff, almost all elements of the new deal, and yes, the constriction of the money supply. However, if they were unable to print money, then you’d have the same bank defaults just with no one to blame.

#7. Not fully government, not fully private either. Their chairman is appointed by the president, and most of the profits go to the US treasury.

#8. Transparency is debateable, and a tough subject. There should be more, but it isn’t simple. If everyone knew what the federal reserve knew, there would be less trust in the system. Less trust equates to more hoarding and less transfer of goods and services. So though there needs oversight, the public cannot be aware of everything or the economy would never move forward

#9 The federal reserve bank of NY has also always been the most stable, and it is by far the largest and has the largest gold reserve in the world.

#10. Fractional reserve isn’t a con, it’s quite simple actually, and has greatly helped out our economy. We’d still be grinding grain and milking our own cows if it weren’t for banking. I may actually agree that there is no real need for reserve requirements..reserves only exist to mitigate against fear. If the people are trusting and don’t run on the bank then the reserves are unnecessary, and more money can flow into the system. Though, I don’t know that I agree that they’ve come up with the right framework just yet, I think in time we may be able to progress to this, but only after several generations of stability.

#11. I agree there should be some sort of auditing watchdog. But the information that it takes out would have to be heavily detacted to be made public. Then you get into the whole ‘who watches the watchers’ debate…..yay, another oversight committee…

Do your history, America wasn’t doing just fine without them. They survived on bailouts from banks (JP Morgan did it on 2 occasions). When the guy died…who else was going to bail out the greedy Amercian government? Thus the Federal Reserve was established.

Our financial system may seem unstable to you, but it is still more stable then it historically ever has been.

Of course there’s room for improvement, but you aren’t suggesting improvement, you’re suggesting a downgrade. Your suggestions are simple minded, not founded on anything. They are ideological, not practical.