Question on the Fed from any gurus in here

I have a lot of glibertarian friends, and their constant mantra is "End the Fed". I also listened to a podcast with Michael Shermer, and surprise surprise, turns out he's another glibertarian. He said essentially the same thing. When the host of the show challenged him on the "free market" and how it has been discredited since the meltdown, his reply was "Well, the government changed interest rates, therefore it's the government's fault". I always thought that the Fed was independent and semi-private, so can he really get away with this argument. I guess my question is, what is the libertarian solution? Money based on what, gold? Can someone explain this obsession amongst our libertarian friends?

role government has is the Navy.

I gave up long ago trying to figure them out.

And yes, the Fed is private.

http://en.wikipedia.org/wiki/Federal_Reserve_Bank

These libertarians need to understand that the money system for 300 million people requires too much coordination to rely on the wims of some local private bank. Would they envision turning it all over to the Bank of America, Citibank? Give me a break.

We would all be left to burying money in the yard, defending it with our colt 45s and dragging around stuff from place to place everytime we went shopping if it were up to the anti government crowd.

But let's hear it from them.

Coordinated by whom, and for what purpose?

We've seen some coordination, all right, but I'd hardly say we need it.

I live in Massachusetts. I want to buy something in California. What do they take out there for money? Fortunately, Dollars. So I can do the deal...even on the internet, via Paypal.

Eliminate the Fed and you've got the private banks stepping in. The bank of California or whatever says I need to get approval from
them first to make sure my bank here in Massachusetts is using same sort of money they can use out there. They have to "Coordinate" with each other so I can make the purchase. You see the problem everytime you travel to another country and someone has to step in and trade around the currency in order for you to be able to make a deal with anyone in that country. In this case you are going to have to pay someone to "Coordinate" and get the currency traded so you can deal. Every deal has someone skimming a little off the top just to buy a banana. The Fed does all that "Coordination" in the US so we can trade nationwide without even thinking about it.

Maybe you have a better word? I'm open to suggestions.

The US dollar existed before the Fed, and will exist afterwards. The currency did a lot better before the Fed got its hands on it - they have devalued it something like 98% since they got their hands on it.

Control of the money supply must rest with the representatives of the people. This is written into the Constitution.

What the Fed is practically synonymous with is permanent war. It claims to be non-political but this is exactly what a managed inflation policy means, and everyone making those decisions knows it.

The US should end the Fed. The problem being is that they simply want to substitute a World Reserve Bank for the Federal bank.

So we have to be careful of what we ask for. After all, would a World Reserve Bank offer us Americans any better protections than the Federal Reserve has?

As far as the Federal Reserve goes, it was put in place so that it could prevent depressions. So how did that work out? Yep, sixteen years after its creation, the Federal Reserve allowed one of the greatest Depressions to come into being. All because of the inner circle fo banksters connected with the Federal Reserve insisting that there not be any regulations. The stock market frenzy of the twenties ws fueled bystocks being bought up with only marginal reserves in place for each purchase.

Because of the Depression, we had Congress put Glass Steagall and other restrictions in place. There was supposed to be a separation between the banks and the insurance firms for instance.

But in the nineties, the upper inner circle of bankers apparently realized that they could take this country for a wild ride. Glass Steagall was voted OUT of existence, with only something like eight Senators voting to keep it in place. (The Democratic Senator from Nebraska explained his vote - "Without Glass Steagall, we will face an economic collapse in ten years." The Good Senator was off by a year, I believe.

Meanwhile Greenspan kept artificially low interest rates in place, and this supported bubbles. We had the dot com bubble, and then the housing market bubble. The 1999 Banking Reform Act meant that insurance and banks could be handled within the same firm. SO we suddenly had many exotic financial items for people to invest in. These items became infamous eventually. Credit default swaps etc.

And now through the wonderful management at the Federal Reserve, we have had eleven trillion and counting go out the door over the last twelve months... No one really knows where it has gone - Bernanke stating that knowing who gets what money could cause the collapse of those firms, and additionally would be breaking the promise made to firms applying for funds.

If you google Alan Grayson and Bernanke you will see some interesting exchanges. At one point Bernanke is asked if any bank needing tens of billions of basically FREE MONEY loaned out by the taxpayers would refuse that money if they had to have the deal be made transperently.

The nation did do okay during Andrew Jackson's time without having a Federal Reserve. The only time in our history where there was no national debt. Again when Lincoln took office and needed to fund the Civil War, he created his own central bank. That worked out well also. So something like libertartians notion of abolishing the Fed could work out. But since Congress critters are so slimy, I don't know who we'd want to offer that resposnibility to.

would lead to a collapse? I think it was Dorgan and Wellstone.

Dorgan:http://boingboing.net/2009/03/24/democratic-north-dak.html

"'I think we will look back in 10 years' time and say we should not have done this but we did because we forgot the lessons of the past, and that that which is true in the 1930's is true in 2010,'' said Senator Byron L. Dorgan, Democrat of North Dakota. "'I wasn't around during the 1930's or the debate over Glass-Steagall. But I was here in the early 1980's when it was decided to allow the expansion of savings and loans. We have now decided in the name of modernization to forget the lessons of the past, of safety and of soundness.'"

Also http://www.huffingtonpost.com/2009/05/11/glass-steagall-act-the-se_n_201557.html

Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century," said then-Treasury Secretary Lawrence Summers. "This historic legislation will better enable American companies to compete in the new economy."

"I welcome this day as a day of success and triumph," said Sen. Christopher Dodd, (D-Conn.).

"The concerns that we will have a meltdown like 1929 are dramatically overblown," said Sen. Bob Kerrey, (D-Neb.).



Read more at: http://www.huffingtonpost.com/2009/05/11/glass-steagall-act-the-se_n_201557.html

And thanks for the links and the actual quote from Dorgan.

If the dollar were backed by the gold standard wouldn't it be impossible to simply print more money or have trillions disappear in bubble economies?

Lack of liquidity, incredibly tight lending, etc.

There's a reason it's not terribly practical. But by all fucking means, audit the Fed. Shine a little sunlight into that stinking hole, see what scurries out. Buncha Goldman Sachs employees, no doubt.

They are obsessed because it is a step to government regulation of the banking sector. They pine for the days before 1913 when there was no Fed, just "bank panics". The Panic of 1907 was particularly bad (http://en.wikipedia.org/wiki/Panic_of_1907) and it led to the creation of the Fed, which pretty much staved off repetitions until 1929, when problems got too big for the limited set of tools they had. It took the crash of 1929 and FDR to get Glass-Steagall and the FDIC added to control the banks.

Libertarians are the naivest of thinkers on the planet. They want to be free of the government referees, thinking that they (or the market) can inspect meat better, allocate radio and TV bandwidth better, judge drug efficacy better, and yes, negotiate financial terms with bankers better than government bureaucrats can. They are a hapless bunch of shlubs, left holding their hat when the unscrupulous take advantage of them, but they certainly wouldn't want to file a lawsuit if that happens to them. Why that would be running for help to the government.

The problem with the Fed is not that it is semi-governmental, but that it is semi-privatized. They happen to be right about auditing the Fed, but only in the sense that a stopped clock is right twice a day. They are like a dog chasing a car when talking about such an audit; if they got one and began to look at the figures, they wouldn't know what to do with it. The Fed does need to be audited, and Paulson and Bernanke hauled back to explain where each billion dollars of bailout went, what the terms of the loan are, and how it is being paid back. Elizabeth Warren needs to have carte blanche to ask questions, and she NEEDS to get answers.

As much as I respect her, my fear is that she's targeted as a future patsy.

She needs to drop the detached demeanor of an academic and adopt a tough-as-nails, take no prisoners approach.

The Fed is not in any way semi-private. That's a libertarian myth, but certain elements of the left have adopted it. The Fed is as its name implies, part of the Federal government. The "private bank" myth arises from the fact that private banks are required to subscribe shares in the Fed, but if you look at the legislative history, this was a way of refunding the fees that they paid and does not imply ownership. The Fed often earns a profit, and those profits are credited to the US government.

The idea of all money being backed by gold is about as sound as the idea that the fossil record is only 6000 years old. It is lunatic antiquated thinking.

Look at it this way. For the money supply to be "sound" -- neither inflationary nor deflationary -- it should represent actual stuff, ie all the goods and services that the economy produces.

How much gold is there? Do you think that the current store of gold is as valuable as every person's work who goes to a job, every bushel of wheat, corn and soybeans, every ton of steel, every computer, all the oil, gas, electricity, every car, truck, bus or train produced, and on and on? Would you want to live in a world in which all the production of the nation was limited to the value of several tons of relatively useless yellow metal?

Of course, if we had a gold standard, the price of gold would soar and have to eventually reach the value of all the goods and services produced by the economy (which would end the useful industrial and commercial use of gold, of course, for electronics etc.) -- either that, or has happened before there was a Fed, all the goods and services would have to be constrained to the value of the gold. That's why progressives in the late 1800s made such a big deal about coinage of silver. There wasn't enough gold to represent all the goods and services and credit needs, so they wanted to add another precious metal that was plentiful -- silver. Left and right politics in this country for several decades was a brutal fight between "goldbugs" and "free silver" advocates. The goldbugs lost with a more rational idea, which was the Fed. How their dumb ideas continue to capture the minds of useful idiots to this day is beyond my comprehension.

... on most things but not economics. Lib economics are batshit insane IMHO. That said, the Federal Reserve is squarely to blame for this depression, their loose money policies enabled the bubble that has now inevitably burst. Of course, they are not alone, there are several culprits involved - but it was explicitly their job to control the money supply and they failed.

I'm squarely against Obama's plan to give the Fed more power. Why? They cannot handle the power they already have. On the other hand, I'm not sure abolishing them outright would be wise either.

None of these decisions can be taken lightly, and that is a reason I can't stand Libertarian economics - to them everything is crystal clear and simple rules apply to everything - unfortunately the world doesn't work like that really.