Granite_StateMasshole, just curious then what your thoughts on the fed are? Its my understanding that one of the main resaons our founding fathers opposed the crown was impart to the centralized banking in England. And we functioned fine as a nation for nearly 200 years without a central bank. I understand we are too far along now to really do anything but all that a central bank is good for is indebting a nation to private owners. They have such a drastic effect on our currency value and in turn the economy and it scares me that that control is out of the hands of our government and in the hands of private bankers.
I personally am strongly against a centralized banking system, its actually pretty anti-capitalistic. Just curious if you agree with the system or not. And feel free to clear up any misconceptions I may have.
Note, I haven't studied the ABCT or Austrian School in almost 2.5 years, so I am a little rusty. If you want more info I will take a look at some papers I have saved and get back to you.
So, let me first dispel the why I and many other frankly more intelligent economists HATE the notion of politics in the Fed which is what the Audit the Fed movement is calling for. The Federal Reserve is long-term, ie they are thinking about 5, 10, sometimes even 15 years down the road. That means what they implement now may not take hold for 2, 3, or even 4 years. US Politics is short-term, ie they are thinking for their term and not much further along. This means if you bring politics into the Fed, you will have a conflict of methods. It is a recipe for disaster.
This is not even mentioning the fact that most economic policymakers in the Fed are PhDs in Economics and understand the system much better than a politician ever will. The Fed actually does more research than anything else. It also is not made up of just private bankers acting on private interests. The Federal Reserve sets the rates it believes will help spur economic growth through monetary policies, which can be used in combo with fiscal policies set by the President/Congress. Yes you do have members of the big banks on some committees, but that is because their institutes often are the ones who are helping carry out these monetary policies.
I am not sure about the history of our Founding Father and central banking, but what I do know is that we have had a long and frankly tumultuous history with Central Banking. But let me get to the only alternative (without politics) for banking.
The concept of no Federal Reserve is not a new one. Two economists in the Austrian School of Economics, Hayek and Mises, saw an interesting relationship between banking and crisis, coining a term called Austrian Business Cycle Theory. This theory states that business cycles come about due to excessive growth in bank credit due to artificially low interest rates due to central or fractional banking.
As a result, there have been some economists who have, as a result of this ABCT theory, that believed the concept of free banking was the solution. In the most literal sense, free banking is a system where private, unregulated, and independent banks produce a currency whose supply is based off of market conditions. This means there is no governmental or central influence in any sense, there is no deposit insurance, there is no lender of last resorts, etc.
Unfortunately, there have only been a few instances in modern history that have been "successful" enough to look at as case-studies. First, you have Scotland from the 18th-19th century, where you had 3 major chartered banks and numerous unchartered banks competing. Then you have the Free Banking Era of the US, which wasn't "free" like the I described above, but rather with separate state-run entities that created extremely rigid and tough barriers to entry. Ultimately, both failed for one reason or another. Google/wikipedia will bring you to some high quality academic papers discussing the results.
I don't like free-banking because A. if you choose the wrong bank and it fails you lose everything, B. your money is not backed by anything except the word of the bank, and C. it makes international trade a nightmare. Yes it certainly is the most libertarian option out there, and on paper is a great one. But numerous papers have come out attacking the ABCT theory, thereby nullifying the need for a free-banking system.
I just see the Federal Reserve as the only option and frankly want to keep out politics because of this instance.
