End The Fed - WHY?

[xFiFtyOnE]

Ron has said "End the Fed", even on national TV. I can remember it a few times.

 

[SonofThunder]

I wonder if this thread would get as much traffic if it was in the correct sub-forum?

Of course not. Sub-forums = fail

 

[The Gold Standard]

Hyperinflation is not even a remote possibility.

In the highly unlikely event(will not happen) that the fed is too slow and dumb to reduce money supply when aggregate demand picks up, and this results in runaway inflation, there can be no wage-price spiral, because unlike in 70's UK, for example, powerful unions aren't forcing 10% wage increases year after year to keep up with it. It's impossible, prices are too sticky now, especially wages.

After this crisis is over there will still be cyclical unemployment and high interest rates because inflation will indeed pick up, but only a few points. Inflation under full employment is unavoidable as long as income distribution is skewed. It is a long-term problem.

I pointed out how the Fed will not be able to reduce the money supply. It doesn't matter if they want to or not. They can't. They would take a huge haircut or even a complete loss trying to sell their assets on the market, which means the vast majority of the money they created will stay in the system. Just wishfully believing that won't happen isn't a very convincing argument.

And unions are required to have hyperinflation? How powerful are the unions in Zimbabwe? Argentina?

It is a hard realization that nearly everything you were taught in your economics courses in school was worthless or just plain incorrect.

 

[Brian4Liberty]

A comment on inflation: neither you nor I know what the inflation rate will be like in the future or what assets will see inflation. Inflation is a non-uniform event . . . it doesn't affect all assets equally. Some assets will go up while others go down. This is also why we have had so many bubbles in the last 15 years. We've had a stock bubble, housing bubble, going on a commodity bubble and a treasury bubble. We've never had so many bubbles so close together and this is b/c the monetary creation system has been kicked into high gear.

Great point that is often overlooked.

 

[Brian4Liberty]

Hyperinflation is not even a remote possibility.
... It's impossible, prices are too sticky now, especially wages.

Alan Greenspan, is that you? Inflate everything but wages. Such a wonderful, humanitarian goal. That could never backfire.

There is a point where suppression of wages will fail. When the pay is too low, people will not work. Greenspan himself said that he woke up in a cold sweat when it dawned upon him that the world might run out of cheap, easily exploited labor.

 

[ericthethe]

No personal attack, but this makes it sound like one who hasn't invested the personal time necessary to understand the issues.

Haha, I was just echoing what someone had said to me earlier. For the sake of fairness, I simply requested they do what they requested me to do.

Now that I've laid out some specifics, I ask for specifics from you on why the current system is good

First, let me make it clear that in no way do I believe the current system is perfect or necessarily good. But it's a hell of a lot better than Austrian economics, the laissez-faire capitalism of "getting out of the way" and "hoping for the best". Specifics? Only under our current system would the following points be possible to get the economy back on track. This includes realizing that the deficit is not a crisis, it is a problem. The real crisis is unemployment.

#1 Balancing the budget won't fix unemployment. The US government adding nothing to the debt for a whole year will not make businesses hire workers. The US government owing 0 dollars to foreign governments will not bring consumer spending back to life.

#2 States have to cut salaries and lay off workers because double digit unemployment numbers mean record low tax revenues. It's a vicious circle. You have to be retarded not to realize that reducing unemployment is a means to reducing budget deficits on every level of government.

#3 Tax breaks and direct spending are two sides of the same coin, and it is exactly what is needed(fiscal policy). Tax breaks are less effective though, because rich people tend to save their money and a big chunk of it ends up in treasury bonds, helping no one. Expansionary fiscal policy is not giving out free money, because ever since late 2008 the interest rate on t-bonds has been virtually zero, so conditions are such that taking steps to expand the money supply are the least inflationary and give back the most return on investment possible.

#4 There is no budget crisis or deficit crisis because it is a long-term problem that can be easily fixed by increased revenues if the economy goes back to normal. This is evidenced by the fact that long-term bonds are still giving out normal yields. No one in the market is panicking. If the US debt is not eventually reduced, then the world economy would have a problem, but only in terms of banks being able to procure money to lend out to businesses. But not now, as the fed funds rate is 0. People only like to be outraged about it because it seems like something bad and irresponsible, but they don't really grasp the significance of it. Neither do they understand that getting the debt down to 0 at the expense of employment is myopic at best.

#5 On the other hand long term unemployment is fucking the US economy for years to come. Not to mention it is destroying the prospects of an entire generation of young people. The opportunity cost of having high unemployment dwarfs the additional interest the US government would pay on its debt by investing in expansionary fiscal policy.

#6 Seeing as the rest of the world is in a similar situation, the US cannot hope to be bailed out by imports, consumer spending, or private investment, so absent a more proactive fiscal policy, unemployment will remain extremely high for at least 4 more years, perhaps even lasting a whole decade. It happened to Japan in the 90s.