What is the Job of the Fed Res

I thought one of the main functions of the fed res was to smoothe out the ebbs and flows of the economy so we didn't get wild gyrations to boom and bust cycles.

They failed and they are still in charge. What gives?

http://www.npr.org/blogs/thetwo-way...k-of-foresight-into-housing-crash?ft=1&f=1001

Yesterday, the Federal Reserve released transcripts of the 2006 meetings of the Federal Open Market Committee. While it's well known the Fed missed glaring signs of a housing bubble about to burst in a big way, the transcripts show that top officials not only dismissed the warnings, but they were really worrying about the economy growing too fast.

Here's how the Los Angeles Times frames the story: The transcripts, released Thursday after the usual five-year wait, "reveal in painfully embarrassing detail the high degree of overconfidence and lack of foresight just ahead of the real estate collapse and financial crisis that engulfed the nation."

 

The simplified version is the fed controls the money supply.

It does this by setting intrest rates, reseve levels for banks, and open market operations (buying and selling of bonds). Using these three tools it controls booms and busts in the economy unemployment inflation growth and inflation

However it is much much more complicated than that.

 

And yet, no one in the fed saw a housing boom? How does that happen?

 

The Fed doesn't control "booms and busts". They do not regulate markets. They simply control the demand for money in this country by affecting the borrowing cost of reserves between banks.

 

And by controlling interest rates, makes it easier or harder to borrow. That is why interest rates were climbing near the peak of the boom. To slow growth, but it was too late.

 

Ron Paul saw it while it was forming in the early 2000s.

 

This is true...

 

The answer comes in the form of a question: who has their fingers in the pie?

 

Look up Fannie Mae and Freddie mack and their roll in the housing boom and bust to get an understanding of how and why it happened.

Thomas Sowell has a book out called the housing boom and bust that is good if you want to check it out.

 

The Fed has done a fairly good job at maintaining stability with our dollar over their history. You need to look at it as a whole and not specific instances.

 

Not sure if you're joking or being serious...

 

The written textbook answer to this question will be a laundry list of things including maintaining steady prices, controlling unemployment, lender of the last resort, and maintaining the value of the dollar.


The simplest possible definition of the Fed is that it is their job to move against market forces that are not politically agreeable.

 

I am very serious. Our dollar has been relatively stable over the years..care to prove me wrong?

 

Inflation over the course of a Century and the consistent Busts & Booms say otherwise... Unless of course you wish to discuss how America became great after WWII simply because the rest of the Industrial World was in ashes, ass backwards, in massive debt or had a great number of their people dead. There is nothing so far that the FED has done to help make anything Stable other than for the Top of the Top... Or allow the Government to print vast amounts of money to give the people their Circus and Bread.

 

The Feds job is to not keep the dollar perfect in every instance. Its to keep it relatively stable. They've done that. Period

 

So there has been no inflation?

 

Of course there has...The dollar has remained stable however, not perfect. The Fed has done their job..I don't recall the dollar crashing do you?

 

I do recall multiple recessions and a depression directly created by Federal Reserve's practices. Though when the currency loses ~98% of it's initial value when the Federal Reserve took over it's not a bad thing at at all! Right..?

 

Yes there has been inflation but also our dollar has remained stable.

 

The dollar has never crashed and become worthless has it? Point made.

 

Oh so because it's still around it means my entire case is ruined? You're trying to prove stability yet, my evidence points out that it hasn't done a good job at all. Thanks for trying to end a discussion on the mere note on whether or not the currency crashed when that wasn't even the discussion.

 

My point was that the Fed has kept the dollar stable even through ups and downs. You can't dissprove that. Arguement over.

 

It hasn't because of steady decline of the value of the currency... With it's constant influxes of cash into the system itself and creating artificial interest rates it has only create Busts & Booms. When the Busts come along they inflate the currency to spare the loser Corporations like they've done countless times. If you look at FIAT currency in History it has always become useless in the end... It doesn't work at all. Argument over. (Lol...)

 

What something has been is really not germane when what where it is heading - instability - is the result of the same policies and leadership.

Just like a Nuclear Reactor taking 3 years to go critical due to overworked fuel policy didn't mean that 2 years and 11 months of it was a great thing.

I wrote a post on what the real downside of the FED was. I got no responses to it. I'll repost it here:

This is going to be an important answer - at least for those who have never considered the value of money over time. Our current money policy - in place for going on 100 years - is doing damage to our society, and is greatly responsible for providing the metrics from which the class warfare battle has been waged for political gain.

Exactly. The rich aren't getting richer on the backs of everyone else - at least not in the manner most think. The rich are getting richer than the next class below because they have more money with which to get rich, and more savvy to employ to get rich, and more connections to exploit to get rich. These facts are self-sustaining. Same is true of the next class wrt to the class below them, and - to decreasing degrees - downward. This natural event is something that would happen regardless, but there is a huge factor that is greatly exaggerating the phenomenon.

All the way back to 1950?

No. That's not why - if for no other reason than a minority percentage of the top 5% even have direct financial gain from outsourcing (I know I don't, for instance, even though I'd be considered the lowest end of the top 1%). It's because money is an employee when harnessed: it earns money without your direct "work": all you have to do is be smart enough to put it to work.

There is another factor that IMO will skew that chart towards those with money: the FED. The FED creates inflation intentionally, ostensibly to spur economic activity. They allegedly do this to create "maximum economic activity".

This is because when our currency is inflated, it has to keep moving in order to retain its value: money sitting in low-yield accounts actually LOSES value over time, so this policy is in place to PROMOTE SPENDING.

Or INVESTING in higher yield (READ: RISK) investment vehicles.

This also means that this policy counters the notion of SAVING - at least in the manner our grandparents thought was wise (savings, in their vernacular, was a haven of safety: deposit boxes, bonds, etc: no chance of losing it).

This has a couple of deleterious effects:

Forcing people to invest in higher risk vehicles means that some will win - sometimes BIG - but others will lose. The other issue is that being forced to repeatedly play the game means that - eventually - EVERYONE will get burnt at some point, by a bad investment.

In short, this monetary policy is the proverbial "shake the tree, to see which apples fall": you're the apple...and your ability to continually invest wisely determines if your apple is strong enough to continue to grow and ripen. But if you screw up, and you invest badly, you lose your money, and it falls from the tree.

I hate a monetary policy that continually forces people to engage in higher risk than they otherwise would in order to grow their own personal wealth. I additionally hate a monetary policy that counters saving, because SAVING also provides another GIGANTIC benefit that I want all readers to consider:

Savings stabilizes economic swings, by providing each participant in the economy a buffer from which to prevent holding off on spending decisions during harder economic times.

It is my belief that our collective lack of savings in this country is going to create FAR MORE VOLATILE SPIKES in economic activity, due to a lack of the buffer that having savings would create.

I was talking to a client the other day. He was describing two huge oil tanks in his dad's basement that his dad used to have filled up without concern - and without thought. Now, his dad has fallen on harder times. Instead of his past behaviour filling these tanks for several hundred dollars during good times, his dad now calls for the minimum he can spend to get someone out.

Why?

We all know why: lack of savings causes restricted spending decisions, the ripples of which exacerbate whatever negative factors led to the economic downturn with which to begin.

It can easily be argued that "maximum productivity" that is created artificially has negative repercussions - not the least of which is huge debt that requires higher taxes in order to pay interest.

The real issue with direct regard to class stratification is this: if:

(a) someone has no money and no skills from which to build economic value, their own personal value in society will be slowly diminished over time, as their ability to acquire wealth will be hampered by the inflationary costs of living outpacing their ability to earn money to pay for them, as well as save money to grow;

(b) if someone doesn't invest intelligently (read: in investment vehicles that hold the potential to return a %age greater than the rate of inflation, and actually grow consistently at that rate), they too lose personal value to an inflationary system that outpaces their ability to grow wealth.

What this means is that this system will automatically skew returns on invesment - and therefore increased wealth - to those who most intelligently manage their wealth, and those with the personal skills to grow wealth fastest. In short, it screws the Everyman.

Lastly: a FED inflated money supply (when are we going to stop being able to talk about trillions, and go into quadrillions?) will NATURALLY result in more money in the hands of the highest class. Our money supply is growing faster than our population, due to incentive to create "maximum economic productivity".

We're doing it at the expense of our happiness and solvency, however - while an űber-connected few gain great wealth, and while the FED earns 6% of the money they inflate. And - in nearly every case - those involved with the FED earn the 6% and gain great wealth from the system.

Every 3rd World country - including the US itself, in the 1500's - started with meager economic means. Regardless what people think of this hot button propagandic use of the word "exploitation", we're actually HELPING these 3rd world places become 2nd world, and then - eventually - 1st world. Their economies are incredibly immature and frail, and the workers there are GRATEFUL to have low wages, as it far outpaces NO wages. We should, however, ensure adequate working environments, etc: but a business should not be forced to pay more than necessary: that skews the competitive playing field.

Higher wages are a natural outcome of a continued economic playing field: China is the quintessential example of this. Higher wages also increase the yearn and call for freedom.

Our own outsourcing is literally going to eventually even the economic playing field, and these worries people have will be going away.

Exactly. While we build the economic viability of other nations, we also deflate our cost of living in the process.

Unfortunately, what the FED does is counter that deflationary effect with their inflationary effect, resulting in loggerheads, increased pressure, and - repeatedly - economic bubbles. We have just had a couple, and we're already building another one.

And this one is going to be huge, and - I worry - final.

 

bump for comments? I would like some input on the prior post - I've put it up in two different threads, and it garnered no response whatsoever.

I'm not sure what to make of that.