Looking forward to Letemdangle's response as a fellow Econ major graduate:
Why do we have the Federal Reserve Bank?
The Federal Reserve was created in an attempt to control the business cycles. To make sure they don't go up too quickly or down too quickly. To try to keep the growth rate steady. They do this by controlling the money supply. They have no limits on how much control they have over the money supply which gives them immense power (and they are not governed and are not monitored - they do tell us the quantity of Open Market Operations and of course, the Fed Funds rate and the reserve requirement, but they don't disclose any other (much more relevant) activity)). But by doing this, they also cause inflation... and so you'll often hear them discussing how they intend to control that too, but that's not their purpose, that's a symptom of the Fed that they try to keep in check so they can keep working
The question is: can you control the business cycle with money supply?
When there was a downward cycle in the end of the 1990's and 2000-2002, the Fed DUMPED money into the nation and gave a LOT of incentive to the banks to lend money. They rewarded stupid moves to the banks who then rewarded stupid moves by the people. But their rewards were in the form of money which pumped up the housing market as well as the financial markets. This stopped it at the time, but caused a bigger problem by starting a bubble that lead to the most recent pop... which they are trying to save by pumping more money into the financial markets again... and I can only assume the consequences (insanity is repeating the same steps over and over and hoping to get a different result)
There is also a trend in the money supply - more money while approaching an election year. This gives the economy higher earnings without an actual increase in production. So things look better than they are as elections approach... seems fishy.
The Fed was created in 1913. My question is, what if there is no Fed? What if our money-system wasn't in the hands of the governemnt? Right now, the big corporations and largest banks are profiting like crazy because of this. The politicians are profiting like crazy. And who has paid for this in the long run? The lower and middle class. The Fed and gov't are doing all of this under the guise of redistributing wealth. But they're NOT! They're not taking from the banks or the biggest corp's, they're feeding the rich, which in turn, feeds them and increases our long term debt. The unrestrained national borrowing all starts with the Fed! The Fed simply treats symptoms of the problems caused by the Fed!
More money to create higher costs without an increase in production isn't increasing the economy! It's just changing the way it appears to the outsider who doesn't know enough to look for the man behind the curtain.
What if we just admitted that the Fed has done a horrible job. It certainly has stopped some medium-sized economic problems that could have occurred. But in each stopping of a medium size problem, they create an inevitable longer term LARGE size problem for the future. I would prefer to take our losses in stride and recover from them in stride rather than using band-aids that only solve the problems temporarily and are the cause of the more disturbing problems. If we find a way to truly stop the cycles, that would be great! But for now, it's obvious the Fed cannot do it. It was a nice try, but you cannot have your cake and eat it too.
The Fed is, by definition, a Ponzi scheme. We pay into it now (via inflation and a weakening dollar) for the increased money supply and it looks good short term. Then we hope that the future will produce enough and contribute more to the economy than we took out to solve our problems... but they'll take out too because they simply can't produce enough to pay for us and them, and they'll need to take more than we did with the hopes that their next generation will pay off their debt.
In an untouched market, as in the cell phone (for example), as they were introduced, their costs were high. As they spread through the market and became popular and competitive, prices are dropping. Price dropping/item is a sign of good production and good consumption - everybody is winning! This is basic economics. Price dropping is GOOD in most consumer markets. But the Fed insists on increasing the money supply so we are paying more today than yesterday for all goods.
I'm not saying any of the Gold Standards we had in the past should be the way of the future. But I am saying that this simply doesn't make sense as it currently stands. The Gold Standard guarantees market cycles naturally due to human nature. But that's better than the current system. So maybe it IS time to go back to a commodity based money supply until we can figure out something else to do. But maintaining a system that we know is WORSE than the old system is insanity.
We need something that if the government does control of the money supply, there is accountability - because right now The Fed is working for politicians and for the banks and big corp's and we can't even tell to what extent. The refuse to tell us what they are doing with all the money they are producing or even how much they are producing or even open their books despite requests from Congress. And there is no way to force them to do this. Ben Bernanke responded that it would not be in our best interests to see what is happening right now.
On MSNBC, I found a poll with over 19,500 responses of Should the Fed be abolished?
Bullish On Books Poll
Should the Fed be abolished? * 19848 responses
I'm no big Ron Paul supporter because I disagree with a lot of what he says. But on the economy, I think he's spot on. The less government control over the money supply, the better. You're just asking for corruption and misuse of unlimited powers over the infite elasticity of the current monetary system.
The Gold Standard will lead to business cycles, but it is the best we've come up with so far and it doesn't allow for corruption (unless Congress votes for change... which is well documented for the public!).
So I ask from EBW your thoughts on the Fed. Does it do more harm than good? I think my opinion is clear - it does no good in the long run.
The poll numbers can be found at the following link: