In various places I have commented that I support retention of the Federal Reserve as matter of practicality. My thoughts on it are such that if the Fed could have a neutral policy, it would remove itself from being one of the largest problems in the economy to being the least, making it much easier to focus on desperately needed supply side reforms. I still believe that, but only in theory as the reality of it becomes less and less possible with each passing day. There is simply too great of a temptation to manufacture desired economic conditions to meet goals that obviously have nothing to do with its legal obligations, or what is good for the general welfare of the country, but rather to suit particular interests instead of foster free markets and individual economic freedom that I believe are desired and valued more highly by the public at large.
I cannot identify the true goals of the Bernanke Fed and I am not certain that Bernanke can either. It appears that the more “transparent” the Fed is supposedly becoming, the more opaque it is in reality, with economists from various schools of thought engaging in guessing games, waiting to see what the next move might be given the current set of circumstances. I have noticed a common belief within the discussion among economists that Bernanke is trying to serve the best interest of the economy, a belief that I no longer share given that multiple opportunities to do the right things have been squandered by doing more of the wrong things with an apparent focus on international cooperation in centralized planning rather than domestic plight. Regardless of what Bernanke may or may not be doing or whatever his motivations may be, this is no way to run the government monopoly on money if we wish recover from the previous devastating economic blows and have a stable economy and stable markets going forward. It is time for the madness and the very real suffering going on throughout the economy to end.
Free banking would at least allow domestic flexibility in monetary affairs and cushion the blow from the failure of the national government’s monetary policy. It is far from optimal, but likely the only rational course to take given that the rationale behind the Fed is really only a theory, and not a tenable or durable reality. It is nonsensical to be embroiled in national arguments about inflation and deflation, having to suffer the ills of too much of one or too much of the other from one time period to the next, being trapped in the monolith of the tyranny of the majority and subjugated to its irrational whims. I would rather have to deal with the pain in the rear of non-standardized currency and be able to choose among freely competing ones that reflect the various points of view than be faced with the real possibly of another Great Depression or replication of the Japanese experience here in the US for which there is simply no excuse given all we know about the causes and cures.
With that said, I support a partial repeal of the Federal Reserve Act with respect to the monopoly on money in addition to partial repeal of the FDIC with respect to state chartered banks. There should be a partition between Federal banks and state banks with respect regulation so that states may regulate banks which could emit notes and compete with the Federal system of banking and money. This would allow Bernanke and his successors to do whatever they care to do with the Federal system without making us all victims by removing the single point of failure in the monetary system while allowing more flexibility and choice among individual actors based on their own preferences.
Becky Hargrove said:
On the one hand, I look at the Fed and want to know, why can’t it tend to ‘first things first’? Why can’t it just clear away the mistakes of inflation targeting and start anew?” But then I remember how powerful the idea of inflation targeting was, when it seemed that credit was the most important driver of the economy to so many people. Pride is certainly a factor for Bernanke in avoiding change, but then it is hard for any of us to admit we were not just wrong, but completely wrong.
Bill Woolsey has done a valuable service for some time in letting us know that the Fed is not the only option. He has tirelessly visited blogs and set people straight whenever they were still pinning their hopes on Bernanke! I remember that you pretty much gave up on Bernanke before I did, and one could almost see Bill Woolsey stamping his foot in frustration, some of the times people refused to give up hope. As you said, Free Banking won’t be able to fulfill monetary functions quite the same way, but at least it starts from a more realistic perspective. So I will spend much more time in the near future becoming familiar with Free Banking.
dajeeps said:
Hi Becky. The system that I am thinking about is similar to one that we had in the early part of the 19th century that evolved after Jackson killed the Second Bank of the United States. The Whigs believed that banking was a necessary part of economic development, and when their desire to keep the Federal bank was thwarted by Jackson, they were able to get political majorities in many of the northern states where they could establish banking at the state level instead. I think what they managed to build was a much better system than the Federal one they had envisioned because the element of competition made it quite robust. My opinion is that it was the insistence of the government on the gold standard that killed it from a political point of view. It didn’t fail because because it was functionally deficient. I suppose I don’t have any particular judgements over people trying to make economic life easier and more certain, but there’s a time to admit when it just simply isn’t worth the pain and I think now is good a time to declare the 100 year experiment with the Fed a failure and take back all of the economic power that was handed to it.
William Bruce said:
Here are a few typographical errors that I noticed:
“…this is no way to run the government monopoly on money if we wish [to] recover from the previous devastating economic blows…”
“…that reflect the various points of view than be faced with the real possibly [possibility] of another Great Depression or replication of the Japanese experience…”
“There should be a partition between Federal banks and state banks with respect [to] regulation so that states may regulate banks…”
I also caught a few others in some recent, disparate posts. Should I comment on those as well?
[Again, feel welcome to delete this comment after reading it.]