Why do we need to abolish the Fed? What's the alternative?

[ShowMeLiberty]

A loaf of bread in Chicago, 1913 cost an average of 6.1 cents. http://historicaltextarchive.com/sections.php?op=viewarticle&artid=418
The same source says that a loaf in 2002 cost $1.49.

I am having difficulties finding median income for 1913, but according to this article http://findarticles.com/p/articles/mi_qn4188/is_/ai_n16786596 median income in 1915 was $687 or about 11,000 loaves of bread. Probably most people in 1913 made their own bread instead of buying it. Few people make their own bread today.
According to this US census report http://www.census.gov/prod/2003pubs/p60-221.pdf , median household income in 2002 was about $42,400 or over 28,000 loaves of bread. Are you better or worse off? Have you really lost 96% of your purchasing power? No. In terms of how much bread you can buy with a day's work, you are more than twice as well off.

Do your sources mention that in 1913 the median household income would have been almost always from a single wage earner? Do they mention that in 2002 the median household income was far more likely to be a combination of two incomes?

You're comparing apples to oranges and trying to say they make lemonade.

 

[Zippyjuan]

Provide me with alternative figures to show that you have lost 96% of your purchasing power since 1913. You can't. Not when you include changes in income to go along with price changes. But OK- let's consider that.

I had to calculate per capita income for 1915. Total national income was $36 billion http://encarta.msn.com/sidebar_461500429/1938_income_in_the_united_states.html and popluation was 100 million. That is about $360 per capita income. In our previous example, that translates to almost 5,900 loaves of bread.

Sorry I lost my link but per capita income in 2002 was a bit over $22,000 or nearly 15,000 loaves of bread. Even more than double. Not a decline of 96%. Apples now?

This is not a arguement that the Fed has been wonderful and always done a fine job controlling the value of our currency. It is to point out that we have not lost 96% of our purchasing power since the founding of the Fed in 1913. In fact our purchasing power has increased. Can the Fed claim credit for that? Not really. Nor do they solely share the blame for bad things which happen in our economy. There are multiple factors for both.

 

[Dr.3D]

Provide me with alternative figures to show that you have lost 96% of your purchasing power since 1913.

 

[acptulsa]

It is to point out that we have not lost 96% of our purchasing power since the founding of the Fed in 1913.

Well, Zippy, don't make me cast allusions to your namesake from ancient underground comix. I brought up the loaves of bread, and I used them to make the point that the lone piece of FRN paper a guy kept from birth to age 95 lost purchasing power. Not he. Not I. Not you. The piece of paper. And since it was his father who worked all day for that FRN, the only person you could say lost any purchasing power died along the way and doesn't care.

Arguments on that?

The point isn't can we earn, it is can we save? And how hard is it to get enough raises just to keep earning what you earn?

 

[Dr.3D]

I am on a fixed income, I am losing purchasing power on the money I have saved. Don't even try to convince me I am making more as they devalue the dollar. I'M NOT!

 

[Zippyjuan]

I asked for one which includes changes in income. Your graph does not. Thank you for sharing. Both your chart and this one only tell part of the story which makes both misleading.

 

[acptulsa]

I asked for one which includes changes in income. Your graph does not.

And I'm wondering what changes in income have to do with the OP's question. Because anything else is just a threadjack.

Edit: Including that graph you just added. Look, of course people get more devalued dollars for working all day than their grandfathers required--their grandfathers weren't working for devalued dollars. Now, what is your point? You saying that because of the devaluation of the dollar more people can call themselves millionaires than ever before, and you consider this some great social benefit?

As for who suffers, you're right--it tends not to be the workers. It tends to be, as my friend Dr3D just pointed out to all who have the good sense and propriety to listen to him, those who wind up on 'fixed incomes'. They get robbed of their savings, and inflation has led more than one elderly person to eat dog food. This is how you want to be treated in your retirement?

 

[Dr.3D]

So it is fine that they steal money from us as long as we are making more than they steal?

How about people who have retired and are not getting any more pay increases?

Is this just to keep those retired people from passing down to their children anything that might make life better for them when they get older? Or perhaps it is a way to make the slaves work longer into their lives and hopefully die before they retire.

 

[Zippyjuan]

I am on a fixed income, I am losing purchasing power on the money I have saved. Don't even try to convince me I am making more as they devalue the dollar. I'M NOT!

I am sorry. I do not mean to say that people are not hurt by inflation. I have not had an increase in my own income for over six years and I am still working. I was looking at an agregate situation. At any point in time some are doing better than inflation and some are doing worse.

I would like to ask what people think will happen to inflation if the Fed disappears. Higher rates of inflation were seen before the Fed was created. Will inflation disappear too? There was inflation before the Fed came into being. If the arguement for getting rid of the Fed is to eleminate inflation what basis is there to think that inflation will disappear along with it? The Fed has not gotten rid of inflation. Would whatever replaces the Fed (if anything) be able to achieve it?

 

[Dr.3D]

I am sorry. I do not mean to say that people are not hurt by inflation. I have not had an increase in my own income for over six years and I am still working. I was looking at an agregate situation. At any point in time some are doing better than inflation and some are doing worse.

I would like to ask what people think will happen to inflation if the Fed disappears. Higher rates of inflation than have been seen since the Fed was created. Will inflation disappear too? There was inflation before the Fed came into being. If the arguement for getting rid of the Fed is to eleminate inflation what basis is there to think that inflation will disappear? The Fed has not gotten rid of inflation. Would whatever replaces the Fed (if anything) be able to achieve it?

Look at this chart. Do you notice how there has been very little if any deflation since the implementation of the FED the implementation of fiat currency? It used to cycle pretty much and even out, but ever since the FED came along and we went to fiat currency, it has mostly been inflation.

 

[Zippyjuan]

I am looking at the graph. Thank you for posting it. Deflations occur during recessions and depressions. Rising unemployment. Prices fall because people do not have money to spend. And note how high the inflation spikes go before the Fed compared to now. Rapid price rises followed by rapid price drops. Not the sign of a healthy economy. Double digit rises in one year, double digit declines the next. Looks like the "best times" were from about 1880 to 1910. If inflation is relatively stable then it is much easier for businesses and individuals to make plans concerning the future.

 

[acptulsa]

If inflation is relatively stable then it is much easier for businesses and individuals to make plans concerning the future.

Beautifully observed. And if laws and regulations are simple, straightforward and provide a level playing field, this also helps produce the happy result you envision.

But now I'm hijacking the thread. The last part has nothing to do with the Fed, and everything to do with that other fed.

 

[Zippyjuan]

Don't get me wrong- I am not saying the Fed is the Wizard of Oz (or maybe he is- a poor man with only imagined powers which work as long as everybody thinks he has power) who makes everything wonderful and everybody happy. I think that the Fed has made some serious mistakes in trying to get too involved in what the economy is presently going through. Those who were greedy and got burned should be forced to deal with the possiblity of going out of businesss and homeowners who paid too much for a house perhaps should lose them. You cannot support the current price level of housing- people do not have the money to buy them at current prices and the need to be allowed to fall. Things need to sort themselves out and find their level- otherwise you maintain market distortions which prolong things. They made serious blunders during the Great Depression as well. Like all things the Fed is run by humans and humans will make mistakes from time to time.

But I am also cautious about just getting rid of the Fed and "letting the maket take care of things". It is the market which brought us to where we are now. Major leveraging which collapsed their house of cards. The world of high finance was revealed as the Emperor's New Clothes. All they had was paper and window dressing and the window dressing was worth more in reality.

One of the criticisms of the Fed is that it is not truely controlled by the government but instead run by the member banks. Well who do you think will be in charge if you get rid of the Fed? The banks themselves will be. The other alternative is to have Congress handle the money supply- and we have seen how well they are able to balance a checkbook. Or not. Imagine giving them the power of the printing press. Scary.

 

[danberkeley]

Don't get me wrong- I am not saying the Fed is the Wizard of Oz (or maybe he is- a poor man with only imagined powers which work as long as everybody thinks he has power) who makes everything wonderful and everybody happy. I think that the Fed has made some serious mistakes in trying to get too involved in what the economy is presently going through. Those who were greedy and got burned should be forced to deal with the possiblity of going out of businesss and homeowners who paid too much for a house perhaps should lose them. You cannot support the current price level of housing- people do not have the money to buy them at current prices and the need to be allowed to fall. Things need to sort themselves out and find their level- otherwise you maintain market distortions which prolong things. They made serious blunders during the Great Depression as well. Like all things the Fed is run by humans and humans will make mistakes from time to time.

But I am also cautious about just getting rid of the Fed and "letting the maket take care of things". It is the market which brought us to where we are now. Major leveraging which collapsed their house of cards. The world of high finance was revealed as the Emperor's New Clothes. All they had was paper and window dressing and the window dressing was worth more in reality.

One of the criticisms of the Fed is that it is not truely controlled by the government but instead run by the member banks. Well who do you think will be in charge if you get rid of the Fed? The banks themselves will be. The other alternative is to have Congress handle the money supply- and we have seen how well they are able to balance a checkbook. Or not. Imagine giving them the power of the printing press. Scary.

Yes. It was the market that forced banks to lend to subprime borrowers. Not the CRA. It was was the market that lowered interest rates. Not the Fed. It was the market that gave tax cuts to homeowners and taxed savers. Not the government. It was the market that created the liquidity and easy money. Not the Fed. It was the market that created inflation which lead to higher prices. Not the Fed.

 

[Truth Warrior]

Playing "graphy" games with the academically brainwashed Keynesians is merely a fool's errand and a complete waste of time.<IMHO>

 

[HOLLYWOOD]

90% of all Statistics and be made to say ANYTHING 100% of the time!

 

[acptulsa]

But I am also cautious about just getting rid of the Fed and "letting the maket take care of things". It is the market which brought us to where we are now.

Hollywood's right. We haven't seen a truly free market in our lifetimes. Now, I'm not saying that a purely free market is the end all and be all. If you go back a hundred and twenty years, you encounter such figures as Jim Fisk and Jay Gould and they led me to believe that every game should have rules. But our rules took over our game a century ago, and what the mainstream media is now blaming on the free market had nothing whatsoever to do with an actual free market.

Our friend Hollywood has set you straight on the real culprits above. Look it over, check his facts and think about it.

 

[Bradley in DC]

There are sound arguments for the Fed: ability to finance unpopular wars and have governments centrally plan the economy (that's why it's called a central bank and we opponents are free bankers).

I/we happen not to share those subjective goals.

I prefer respecting the market's natural rate of interest to avoid artificial credit boom and bust cycles and the corrupting political allocation of resources that goes with it.

The Mises Institute had a panel on how to transition to sound money earlier this year. I explained how to do it:

http://www.ustream.tv/recorded/285572

 

[Dr.3D]

Playing "graphy" games with the academically brainwashed Keynesians is merely a fool's errand and a complete waste of time.<IMHO>

You are absolutely correct! All they can do is spout what they have paid someone to tell them. Of course, if they paid for the information, it must be true.

There is little they will open their eyes to as the brainwashing is so complete they will fail to understand anything contrary to what they have paid to learn.

 

[Chester Copperpot]

Really? You've been a member here for a year and you don't understand the basic arguments against the fed? Look through the economics subforum. It's been covered a million times. Or better yet, go to mises.org and read some articles.

Yeah.. im scratching my head on this one as well...