Do you approve of the Federal Reserve?

[joe six-pack]

Do you agree or disagree with the modern practices of the Federal Reserve? Yes or No?

The Federal Reserve bank, our central bank, was created in 1913 and ever since then has been causing inflation (almost every year!) by printing fiat currency. The biggest hit to the dollar happened in 1970 when we cut the gold link completely. Minimum wage eventually caught up to inflation rates, but not at a fast enough rate since the dollar lost value faster than Congress could increase wages.

A major failing of the policy of printing fiat currency and devaluing the dollar is that the US economy runs on crude oil, which is largely a foreign import. As the dollar decreased in value the price of gas, and therefore almost all goods, increase. This impact is felt most by small business, since cost goes up due to gas prices, eventually minimum wage also increases, but business doesn't increase and taxes don't necessarily decrease to compensate.

I've heard explanations as to why inflation is "good" during economic down turns, but those arguments tend to ignore a thorough cost-benefit analysis taking in the entire economic picture. Yes, interest rates tend go down due to inflation, but the cost of everything increases. The benefactor of this system is the Federal Reserve bank, which entirely controls our currency.

What can we do to move forward with where we are now?

 

[joe six-pack]

Any thoughts, suggestions or concerns?

 

[digsbe]

I do agree that the Federal Reserve is printing too much flat rate money. It's devaluing the dollar and making our currency less valuable internationally. I think a combination of money printing and the national debt is hurting the dollar. Removing the dollar's peg to gold didn't help much either. The UK still has the Pound pegged to silver and I believe it's been a steady currency for them.

 

[rathi]

While the implementation isn't always optimal, the concept behind floating currency is sound. Slow steady inflation is vital for the consumer credit economy that dominates the modern state. The gold standard is too volatile and deflationary to be acceptable. The FED has made some mistakes in the past few years that have been problematic, but they can be influenced to do the right thing. Commodity markets have no controls at all.

 

[washunut]

Do you agree or disagree with the modern practices of the Federal Reserve? Yes or No?

The Federal Reserve bank, our central bank, was created in 1913 and ever since then has been causing inflation (almost every year!) by printing fiat currency. The biggest hit to the dollar happened in 1970 when we cut the gold link completely. Minimum wage eventually caught up to inflation rates, but not at a fast enough rate since the dollar lost value faster than Congress could increase wages.

A major failing of the policy of printing fiat currency and devaluing the dollar is that the US economy runs on crude oil, which is largely a foreign import. As the dollar decreased in value the price of gas, and therefore almost all goods, increase. This impact is felt most by small business, since cost goes up due to gas prices, eventually minimum wage also increases, but business doesn't increase and taxes don't necessarily decrease to compensate.

I've heard explanations as to why inflation is "good" during economic down turns, but those arguments tend to ignore a thorough cost-benefit analysis taking in the entire economic picture. Yes, interest rates tend go down due to inflation, but the cost of everything increases. The benefactor of this system is the Federal Reserve bank, which entirely controls our currency.

What can we do to move forward with where we are now?

It is probably time to disband this unelected, private bank which totally controls monetary policy for the largest economy on earth. Better to put the responsibility within the Treasury so at least we have a place to look which pulls together fiscal and monetary policy.

 

[joe six-pack]

I do agree that the Federal Reserve is printing too much flat rate money. It's devaluing the dollar and making our currency less valuable internationally. I think a combination of money printing and the national debt is hurting the dollar. Removing the dollar's peg to gold didn't help much either. The UK still has the Pound pegged to silver and I believe it's been a steady currency for them.

I completely agree with this. But as far as I know (please correct me if I am wrong) but the UK floats their money also. What I have a big problem with is the ever decreasing value of the USD. The US has a trade deficit, meaning we import more than we export, we increase debt spending on top of what we ow, we print money which devalues our currency and we are declining while China, our next biggest competitor, is on the rise.

Plus, American businesses suffer as a result of higher wages and higher costs. How are we supposed to grow?

 

[joe six-pack]

While the implementation isn't always optimal, the concept behind floating currency is sound. Slow steady inflation is vital for the consumer credit economy that dominates the modern state. The gold standard is too volatile and deflationary to be acceptable. The FED has made some mistakes in the past few years that have been problematic, but they can be influenced to do the right thing. Commodity markets have no controls at all.

But I'm not sure I want a select few of individuals I have never elected controlling all of the currency. Plus, while I can see how inflation is tied to interest rates, our current system isn't sustainable. This isn't a partisan issue, both parties have contributed to get us here, I'm asking what we can do to move forward. Obviously a major reform of this system needs to take place. But what can we do?

 

[joe six-pack]

Greece has a debt crisis right now and is trying to decide between defaulting on it's debts or causing world-wide inflation. Tough choice, eh?

I know finance is a boring subject for most people, but I'm concerned with the level of apathy the average person feels towards currency.

 

[washunut]

Greece has a debt crisis right now and is trying to decide between defaulting on it's debts or causing world-wide inflation. Tough choice, eh?

I know finance is a boring subject for most people, but I'm concerned with the level of apathy the average person feels towards currency.

Should not be a tough choice for Greece, they will eventually default. The only question is how they will do it. You will see this in other countries in Southern Europe and Ireland as well.

Let's also remember that what the U.S. is doing may be called a "soft default". That is we will pay back our debt, but in dollars that are worth less. No choice, if the country as a corporation we would go into chapter and look for a workout.

It will be interesting to see how the markets react if the Fed actually stops buying treasuries once QE2 ends. Can we have a tougher monetary policy as we also are squeezed on the fiscal side?

My sense is that the American economy is a house of cards. Built on debt for the last 30 years. We maintained a standard of living not on earnings but on our borrowing power. It is like the family that has no debt and spends a few percent more than they earn. The first few years. they pay the interest on the credit cards, no problem. They really run into a problem when the credit card company refuses to increase their credit limit. The U.S. is very close to that point.

 

[xpiher]

FED is bad because its too much power in too few hand; however, the gold standard isn't any better.

 

[rathi]

But I'm not sure I want a select few of individuals I have never elected controlling all of the currency.

While I would prefer more oversight, it is an exaggeration to claim that the FED is an independent organization. The federal government exerts enormous influence on their choices.

Plus, while I can see how inflation is tied to interest rates, our current system isn't sustainable.

Getting rid of FED and/or floating currency won't solve our current problems could very easily make them worse.

This isn't a partisan issue, both parties have contributed to get us here, I'm asking what we can do to move forward. Obviously a major reform of this system needs to take place. But what can we do?

Monetary policy is not really responsible for our current situation. The crisis might have been mitigated by putting on the brakes during the housing bubble, but it wasn't the cause. Fiscal policy and poor regulations are the real culprits.