But is taking away control of the money supply from bureaucrats and technocrats a good idea? Surely, since the creation of the Federal Reserve was intended as a reaction to market panics, and abolishing it would get rid of much needed regulation.
There is logic to this, as is believed by the mainstream, but there is some evidence weighing against the idea. According to David Saied, the head of National Public Policy for the Government of Panama, Panama has no central bank and they do just fine. Although the US dollar is the money of choice, people are free to trade with what ever currency suits them. The result? Panama is the only country in Latin America that hasn't experienced a financial collapse or credit crunch since its independence in 1903.
Since the Panamanian Treasury cannot simply print money to repay its debts, it must be more careful with its fiscal policy; knowing that only levying taxes can pay for policy decisions. Even though banks can't generate inflation, there have been no bank runs and bank failures do not spread. There is no FDIC or Central bank, so banks cannot make risky decisions, and assume the government will be there to bail them out. In Panama, excess foreign capital does not accumulate, but is lent offshore through international banks, and avoid monetary and trade imbalances. The macroeconomy of Panama is generally good, even though they experience deflation when resources get reallocated. Contrary to Keynesian economist predictions, the deflation does not spiral out of control in a paradox of thrift.
I'm not suggesting that America should unquestionably mimic the Panama model, but it seems that everyday, as the Fed prints more money to monetize deficit spending and Obama proposes more spending policies, that the road towards central planning does not seem sustainable. Politicians stand too much to gain, and the taxpayers too much to lose, by letting our 'representatives' play games with our economy.
For real?
