What would happen without the FED?

I'm new to politics I'm more of a programmer. Please make it easy to understand thank you.

 

Well the market would set interest rates, instead of it being centrally planned. This is the main reason we have the boom and bust cycle. No one person or group has all the information that the market does, therefore centrally set interest rates ALWAYS lead to inefficient allocation of capital.

Also, without the Fed the US Treasury could directly issue US dollars. They are the only ones with the Constitutional authority to coin currency, which under the Constitution can only be gold and silver.

I think the big impact on currency would be the issue of private currencies like Nobel prize winning economist Hayek advocated. Allow people to use whatever they like in transactions. If the US dollar really is that great and sound, people will use it, if it's debased and subject to inflation like it is now, people will use different currency.

 

Unlike Canada, with 4 major banks, the US regulated banks into "unit" banks, resulting in many banks being one building.

In Canada, a run on the bank was easily handled by moving money from other branches. In the US, with no branches to draw from, the bank failed, and people lost their money.

The Fed was formed as a lending bank, to compensate for bad regulation.

In Canada, a branch could start to fail due to bad management, management would be replaced, the losses made up by other branches, and the depositors weren't hurt. In the US, bad management hurt the depositors. Unit banking regulation strikes again.

Deposit insurance was added to compensate for bad regulation. Also, small banks were politically powerful, but couldn't compete with the apparent security of the big banks. Deposit insurance allowed the tax payer to provide that security. It also allowed banks to take bigger risks, just like the 2008 crash, they win on the upside, we lose on the downside.

 

What would happen without the FED?

I'd do a VERY little dance or joy...and then I would probably sell all my gold and silver.

I think central banks suck TREMENDOUSLY...but they are making me quite a bit of money (through gold/silver profits).

So I am slightly torn.

 

Depends on a lot of things.

The Fed was established by Congress as an independent governmental agency to regulate the money supply and provide some oversight of banks. It was provided with some independence because it was recognized that money policy is too important to be left to political whims. Bad fiscal policy is bad, bad money policy could destroy the economy in short order.

Without the Fed, the Govt (Congress and President) would probably manage the money supply.

The same yahoos that for most of the past thirty years couldn't even come close to balancing the budget, and to borrow from Braveheart, can't even agree on the color of shyte.

You can all find things to criticize the Fed policy about, just like any other institution.

But do you really want Congress in control of the money supply? That would be an absolute disaster.

 

?!? The money supply is "managed" by interest rates. Interest rates are managed by supply and demand.

Low rates results in lots of loans. Loans create money, how much depends on how much is loaned, which usually is limited by the reserve requirements (10% reserve grows the money supply by a factor of 10, a 2% by a factor of 50).

Consumer loans increase demand, business loans are taken out to fufill that demand.

Money is a commodity, if the demand is high, banks must / can raise interest rates (make as much money as possible before they hit their reserve limit)

High rates reduce the number of loans, less money is created. Money supply shrinks.

Lag time in the system results in boom and bust cycles (Read up on "the Beer Game"). A free market economy has many little boom and bust cycles going on all the time, which, like evolution, weeds out the weak, and rewards the strong.

On occasion there are big boom / bust cycles. Some are stupid, like the dot.bomb, some are classic Beer Game like the tech bust (broadband instead of beer). We get over those pretty easy.

The supposed goal of the fed is to adjust interest rates to moderate the really big boom and bust cycles by raising rates earlier than normal, and lowering them earlier than normal. This takes someone smart enough to know normal market fluxuations - get a room full of economists and the will all disagree on normal.

Has the Fed done a good job - point of evidence, the housing bust - not so much.

Historically low interest rates ran us full throttle into a wall. Why? I posit the government convinced the fed that high interest rates would hamper their ability to borrow.

The government can talk to the few people that run the fed, they can't talk to a million bankers.

Centralized control at work, yet again.

 

The Fed target interest rates. It also sets interest rates for its short term Fed discount window lending. But money supply is primarily governed by the Fed's Open Market activities, buying assets (primarily Govt debt) which injects additional money into the supply, or conversely, selling them.

Rates are a factor, sure. Lending create additional deposits. If you count deposits as money, your statement is correct.

See above.

What is a "free economy" in your view?

Generally speaking, the primary goal is to regulate rates consistent with a stable money supply (targeting an inflation rate of 2-3%). Within that objective is also the objective of promoting economic growth.

There were many reasons for the speculative housing bubble. The Fed's money policy affects the economy as a whole, and is less effective at countermanding a bubble in a specific market. The housing bubble was related to a specific market. The economy has a whole in the 2000s was not growing at abnormal levels (far from it) nor was there a problem with inflation.

Using money policy to address the abnormalities in a particular market would be akin to using a hammer to swat a mosquito on your forehead. You might get the mosquito but you could do a lot more damage.

For example, we arguably have such an abnormality today in the gold market. Should the Fed dramatically raise interest rates because gold prices have gotten historically high?

The Govt absolutely can regulate the banking industry.

You did not address the central point of my post. Do you think Congress would do a better job regulating the money supply? If so IMO you have a lot more faith in Congressional restraint than their activities over most the past 30 years warrants.

 

Yep, giving us 60 years of unprecedented growth and the largest economy on the planet.

The essence of the Fed's job is to regulate money supply for the goals of the Federal Reserve Act -- sustainable economic growth, job creation, reasonable interest rates.

Translated this means keeping credit available so the economy can grow, people can start business and hire people and standard of living can rise. Without appropriate increases in the money supply, that wouldn't happen, or it wouldn't happen enough.

Only in conservative bizarro world is that a bad thing. Here's a concept -- credit is a good thing. It's the basis of a vigorous, wealth producing modern economy.

 

Of course, you have to remember that Landru Guide Us is the same poster who typed the following:

'If the US printed dollars, it would have no debt.'

http://www.politicalforum.com/4455243-post131.html

 

Without the Fed we could enjoy all the fun and horror of privately issued money.

It would be like the EU before the Euro except with hundreds or thousands of currencies of dubious worth. A Bank of America dollar might get you a hamburger at McDonalds but a Google dollar could get you two depending on the news of the day. Fun, and horror.

 

translated: you've been rebutted again and can only bumble about like this. Pitiful.

Go read the Federal Reserve Act and report back in when you have something like a little knowledge of the topic.

 

What do you think those Madoff dollars you have could buy you?

 

Very good things.

 

without the fed you will first get a very severe recession for about 2 years ( the hangover) followed by 2 decades of powerfull growth like in the 80's

 

Ha ha, your hallucination of the 80s is quite hilarious. The 80s started in a recession and went into a fast and temporary boom with the deregulation of the Savings and Loan banks which quickly burst causing massive government intervention, and unprecedented deficit spending to keep the economy from collapsing. This was followed with the largest tax increase to date but government deficits continued because the tax rate on capital gains, which was reduced earlier but not raised, created a massive monetization of US industrial capacity as assets were stripped by corporate raiders. By the end of the 1980s the US was back in recession because the millions of layoffs from selling the nations industries overseas created a severe decline in consumer demand. By 1990 the economy was in recession and governments deficits were serious problems.

Economic growth resumed in the 1990s due to a program of reduced government deficits from tax hikes and spending constraints along with massive investment in computers by private business to boost productivity because computers and their operating systems had finally become reliable enough for wider deployment.

There was no two decades of continuous economic growth in the US from 1980-2000. It is a myth. Some parts of the US did not recover from the S&L debacle until well into the 1990s. Other parts of the nation were stripped of their industry and manufacturing and became known as the "rust belt".

 

Imo, no single institution is more to blame for the Great Recession or for the stagflation that America finds itself in then the Federal Reserve.

Their cheap money policies (along with Rep/Dem gov't. ineptitude) are slowly destroying the American economy.

 

the recession of 1979 and 1980 was due to stop the inflation of the 70's. this lead to the growth of the 80's. And for the 90's? That was due to economic stimulus by greenspan......the entire tech boom was just a bubble created by cheap money by the fed!

 

Economic growth was quite uneven through the 1980s and 1990s, which can be characterized by tax increases and a vast increase in government deficit spending during 12 years of republican administration. By the end of those 12 years the US was back in recession. The Bush 1 tax increases and the deal between Clinton and the republican congress to stop increases in spending lowered the deficit throughout the 1990s which made more capital available for private markets, which generated steady economic growth.

The tech boom was just a typical attack of market hysteria. It is a common occurrence in new market sectors. It was also partly due to the massive inflow of capital to the US as investors fled the financial crises of 1997 that started in Thailand and eventually spread across east Asia and on to Russia, Mexico, Brazil, and the rest of South America.

Fed interest rates were not below normal during most the 1990s but were lowered in response to the tech boom collapse at the end of that decade. The Fed supplied liquidity to banks which actually prevented the tech crash from taking the rest of the economy down with it. The recession caused by the tech boom crash barely registered in the larger economy.

It was the failure of Greenspan to remove the Fed stimulus in 2000 when the economy was fully recovered which set the stage for the overheated economy of the 2000s to collapse in 2008. Greenspan was also a major influence in congressional decisions to deregulate the financial industry and to not regulate derivatives markets and non-bank mortgage lenders. He even admitted that these were huge policy mistakes driven by his free market ideology.

 

but the fed still played a large role in it with its cheap money policy!

 

Individuals would no longer be forced to transact in government-issued money that can be manipulated and debauched for the sole purpose of maintaining the financial hegemony of a wealthy elite over the working classes, for one.

Also, the systemic and cyclic misallocation and liquidation of capital that results from the arbitrary and capricious manipulation of the money supply would all but cease.

Essentially, there would be more liberty, more prosperity, and more sustainability.

 

I would rather trust free market regulation. I don't trust the Fed and their ilk. Besides, I like to barter. Hard to tax bartering.

 

Don't listen to people on the internet. You have FED shills, people who support a plethora of private currencies, which is insane, and people who think the government should have a central bank but that is controlled by the state, which can coin without interest, and is based upon a commodity. The reason you want the last can be summed up in detail within the 1st few chapters of "Wealth of Nations" by Adam Smith. Iriemon is right in the fact that our leaders in Washington are in effect worthless, and would screw everything up, but it is because politicians on the take has been the norm for the 2nd half of American history, and revolution and removal of the global regime would be needed before any gains are made. But if we could get the traitors out of power, the last, by far, is what we want.

 

why don't you think the market can settle on an equilibrium currency, or two, or three? it seems to me the market can make that decision just like it can decide what type of cars to produce.

 

I personally think a bunch of currencies in-house would hinder trade as much as protectionism between the states. I don't believe in global solidarity, as humans need control groups to ensure our species survival, but to destroy national solidarity is to guarantee our doom as sure as participating in one world is going to.

 

So you don't think the market would decide on one or two currencies? Why not?