Confessions of a Central Banker

[davver]

http://www.encyclopedia.com/doc/1G1-20738581.html

I've been trying to study the 1970s as best I can. Below is a very interesting article. I have extracted what I found to be the most interesting of the excerpts, a confession. I suspect we need to relearn that Arthur Burns learned, just as painfully as he did.

After leaving the Fed, Burns gave a speech in 1979 called "The Anguish of Central Banking." He said (Burns 1979, pp. 12, 13, and 21):

Once it was established that the key function of government was to solve problems and relieve hardships - not only for society at large but also for troubled industries, regions, occupations, or social groups - a great and growing body of problems and hardships became candidates for governmental solution . . . .Their [government programs] cumulative effect . . . was to impart a strong inflationary bias to the American economy . . . . The pursuit of costly social reforms often went hand in hand with the pursuit of full employment . . . . This weighting of the scales of government policy inevitably gave an inflationary twist to the economy, and so did the expanding role of government regulation. . . . My conclusion that it is illusory to expect central banks to put an end to the inflation that now afflicts the industrial economies does not mean that central banks are incapable of stabilizing actions; it simply means that their practical capacity for curbing an inflation that is driven by political forces is very limited.

 

[kathy88]

Nice find. Thanks for posting.

 

[Zippyjuan]

Basically saying that the Fed has very limited ability to effect the economy and inflation. The best they can try to do is control the money supply with the crude tools at their disposal- the Fed discount rate (the rate at which banks can borrow money from the fed) and their open market operations (buy and sell securities).

 

[Paulitician]

Another good reason to have commodity money.

 

[hawks4ronpaul]

After leaving the Fed, Burns gave a speech in 1979 called "The Anguish of Central Banking." He said (Burns 1979, pp. 12, 13, and 21):

Once it was established that the key function of government was to solve problems and relieve hardships - not only for society at large but also for troubled industries, regions, occupations, or social groups - a great and growing body of problems and hardships became candidates for governmental solution . . . .Their [government programs] cumulative effect . . . was to impart a strong inflationary bias to the American economy . . . . The pursuit of costly social reforms often went hand in hand with the pursuit of full employment . . . . This weighting of the scales of government policy inevitably gave an inflationary twist to the economy, and so did the expanding role of government regulation. . . . My conclusion that it is illusory to expect central banks to put an end to the inflation that now afflicts the industrial economies does not mean that central banks are incapable of stabilizing actions; it simply means that their practical capacity for curbing an inflation that is driven by political forces is very limited.

Translation="Not my fault!"

For a recent version, see Greenspan, Alan.


http://hawks4ronpaul.blogspot.com/

 

[jon_perez]

Once it was established that the key function of government was to solve problems and relieve hardships - not only for society at large but also for troubled industries, regions, occupations, or social groups - a great and growing body of problems and hardships became candidates for governmental solution . . . .Their [government programs] cumulative effect . . . was to impart a strong inflationary bias to the American economy . . . . The pursuit of costly social reforms often went hand in hand with the pursuit of full employment . . . . This weighting of the scales of government policy inevitably gave an inflationary twist to the economy, and so did the expanding role of government regulation. . . . My conclusion that it is illusory to expect central banks to put an end to the inflation that now afflicts the industrial economies does not mean that central banks are incapable of stabilizing actions; it simply means that their practical capacity for curbing an inflation that is driven by political forces is very limited.

In other words, you can't have your cake and eat it too. If the people expect or believe that the government should step in whenever the economy sucks and unemployment is high, then they should be prepared for a central bank and its weapon of fiat money and the resulting inflationary bias. Having a central bank is socialism of a sort.

Commodity money certainly seems to be much more inflation proof than fiat (though still far from being perfect). Of course, to believe mainstream economists, the real danger with commodity money is that it is deflation-prone (deflation seems to terrify them far more than inflation). I, for one, don't believe that switching commodity money is a panacea although a good case can be made for it.