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05/23/2010

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joshua blumenkopf

While I agree that the Fed should have some degree of independence from the government through long,irremovable terms, there is no reason why the banking industry through the local federal branches should have any say in a body that they have a direct interest in which may be different than that of the general populace. This influence is especially unsettling under some proposals that would give the Fed some power to regulate the banks.

Jack

Joshua: I've similar thoughts. Is an all banker Fed too incestuous? If, as some claim, low rates were a contributor to the housing bubble, they met regularly for eight years as all sorts of anomalies showed up in housing/banking. Were they blind to it? Or was their heads turned because banking was doing so well? Or did they see, but not have the tools to deal with it four or so years in?

It's tempting to have non-bankers on the fed. Surrounded by bankers and with expert testimony surely leaders in other fields can grasp the issues and bring the wisdom of a differing perspective. But would seating someone from business, labor or non-banking academics politicize the process and Ha! take away from the illusion that Fed decisions emanate from unanimous agreement among wise men well above petty politics?

For most bodies 14 year terms sound very long; perhaps staggered ten year terms would do as well in limiting short term political influence.

Don the libertarian Democrat

I'm a follower of Friedman on this issue, but you make good points, and I could live with your suggestions.

NEH

The only question in my mind is "How do we maintain a constructive balance between independence and control"? As we have seen in most "balanced" systems, they are much like pendulums swinging from one extreme to the other. The only time they strike a true balance is when they are passing through it from one extreme to the other.

This is the tough nut to crack and is time and situationally dependent. Ahh..., the joys of Social, Political & Economic Engineering.

Jack

NEH, Ha! Like capitalism itself; ever seeking the elusive equilibrium, and at times having no more stability than a kite with no tail, going far astray. Such is human nature. In some local and even statewide processes (AK) I've seen good process bring forth more intelligence and better policy than could have been designed by any one person. (Usually lobbyists are not there to hijack the conclusions and in a small state those who infiltrate with self-promoting agendas are known or quickly found out.)

BTW....... a close decision on what candidate to support I've a theory that those who like people in general, women, even perhaps too much and pets are a better gamble than Machiavellian loners like Nixon or those overly imbued with ideology like Bush the younger. FDR, Truman, Ike, JFK (after he grew in office) LBJ (but for his curious blindness to the wasteful futility of the Viet War) Carter, Reagan kinda makes the cut, Clinton........ most of whom would be more reluctant to order our people into wars without strong justification.

NEH

Jack, I never did like Dulle's Dominoe Set and as Johnson put it in unguarded moment, "Those people #*!%@&" lied to me." Sounds a lot like what's coming off Capital Hill these days. Whether it's Congressmen, Senators, Wall St. Exec's. or BP, TransOcean or Halliburton. And we wonder why the Country's so screwed up. It's all about the roundabout and CYA. Meanwhile, we're all scrambling to keep from being pushed over the edge into the Abyss.

Stan Sitruc

I think this is the wrong argument. A citizen should be able to opt out of the federal reserve system if he believes the Fed is too political or too close to member banks. We are prevented from exercising our freedom to choose because we are forced to do our business in US dollars. We should end legal tender laws and let citizens conduct their business in Gold, DMs, Yen, bullets--whatever currency they want. Also we should not be taxed by government caused inflation.

It is also disappointing to see the argument put forth that does not acknowledge high inflation without CPI increases. Based on the tremendous amount of productivity increase over the past 20 years, one would expect CPI to be negative for the vast portion of those 20 years.

We should also have the right to choose banks that are not fractional reserve banks, banks that are outside of the Federal Reserve System.

Jack

Stan: When we were on the "Gold Standard" Americans were not allowed to own gold as a store of value, thus we were virtually mandated to use US currency, albeit that currency was theoretically convertible to gold or silver.

Today? if you think the Fed is pursuing inflationary policies you're absolutely free to convert your savings into gold or any other currency. Thus......... perhaps we're on the ultimate gold standard today.

"over the past 20 years, one would expect CPI to be negative for the vast portion of those 20 years."

Ha........ nearly my lament as well, though I focus more on ALL of the wage gains of that era having gone to the top 10%. But you could look at it that prices are too high as in terms of what wages are paid. For many things, especially medical care, prescription drugs, on down to cell phones and cable TV we pay far more than those of other nations.

But! the Fed does not set prices and you'd have a tough, tough job making a case for prices being high due to "too many dollars chasing too few products" as the most of the world is and has been suffering from over capacity -- under utilization of production facilities.

There seems a reaction of blaming the wholesale corruption of the banking and R/E system on the Fed, but truth is corruption is corruption and what took place over the last decade could have as easily taken place under any central banking system or a system not having a central banking system -- and been more disaterous.

joshua blumenkopf

Stan: Do you actually think that it would be practical to conduct business in currencies other than the dollar. No consumer would go to a store that only allowed yen. Additionally DMs don't exist anymore.

NEH

Stan, The U.S. once had a system where every bank could issue its own script. Talk about a disaster and it's negative impact on trade; locally, nationally and internationally.

Personally, I prefer rocks as script. Thank God for the Commerce clause.

Stan Sitruc

To those that responded to my comments, thank you for giving them your consideration.

I feel compelled to respond though:
1)Prior to 1933 we did not have any legal tender laws and our currency was gold. Additionally our contracts contained gold clauses that allowed payment in dollars or onces.
2)Today, if you convert your dollars to gold and then convert back to dollars to use in a transaction, you will pay a capital gains tax on the value increase of gold relative to dollars.
3) The Fed does set prices--it sets the price of money (interest rates)
4) With the destruction of the Euro, we will have DMs very soon. Plus the Germain people are converting their currency to gold now. This is why the price of gold is increasing even though the dollar is also increasing relative to the Euro.
5) Lastly, when we were on a true gold standard with individual rights to hold gold, the United States grew from one of the smallest economies in the world to the world's largest and became the leader in international trade.

Thanks again for reading my comments.

Stan

Stan Sitruc

Sorry, I met German people, not germain people....

NEH

Stan, Most Germans I know are "germane" if not "germain". And is it scrip or script? Ahh... the joys of English and phonetic spelling.

Preahps tihs Bolg needs a sepll chckeer. Is Cambridge right?

lady kingdom

very great overview about central bank ...

regards

Abuhatem

I went to a conference in monetary economics at the Heritage Foundation a month and a half ago with Steve Hanke of John Hopkins and the Cato Institute, Robert Mundell the Nobel Laurette, and Judy Shelton of the Atlas Foundation and formerly Jack Kemp's economist.

Mundell argued for a global currency with a global central bank which would reduce currency conversion problems and enhance global trade. Hanke argued the case for fixed exchange rates based upon a rule. But, even though this post makes a good case for our current Fed system but more rule-based and standardized and subject to audits, I agree with Judy Shelton who said let's all go back to gold.

All of these problems outweigh the benefits and I think that the, formerly seen as fringe, case for free banking is making more and more sense after the crisis of 2008, for instance see Joseph Salerno at the Cato Institute, Hayek, and others. Shelton had a good article here:

http://online.wsj.com/article/SB123440593696275773.html

NEH

What's all this talk about a return to a "Gold Standard"? The only value gold really has is as an industrial commodity. I won't even mention the issue of "Bi-metalism". Remember gold equals "Stagflation".

"You will not crucify us on a cross of gold"! W.J. Bryan

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The only question in my mind is "How do we maintain a constructive balance between independence and control"? As we have seen in most "balanced" systems, they are much like pendulums swinging from one extreme to the other. The only time they strike a true balance is when they are passing through it from one extreme to the other

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