No, I don't—I care about central bank independence.
I’ll answer this in the context of the gold standard—the ultimate hard currency/sound money. That history is very different than the one its proponents portray. Governments routinely had more currency in the circulation than they cover with their reserves, the money supply was effectively ceded to technological developments in mining, and we saw a period of social unrest in the back half of the 1800s as farmers got screwed by deflation. (See William Jennings Bryant’s ‘You shall not crucify mankind upon a cross of gold.’)
The money supply matters. Historically, the gold standard exacerbated swings in the business cycle. Economies would grow by exporting good and gold would flow in, people had more money so they spent more growing the economy more. But, if the economy was bad and there wasn’t gold down in the basement, the government and central banks were unable to issue the currency necessary to stimulate business activity to help end the problem. Milton Friedman made his name by looking at the money supply as the root cause for why the Great Depression was so bad.
Could the Federal Reserve do better? Absolutely. But if you compare the last 10-15 years to any other period in the last 150, things are as good as they’ve even been on the monetary front.
yeah, ask people during the great depression how much they liked the fact that the lack of a central bank left them unable to mitigate the damage. there's a reason central banks exist and it's not just a globalist conspiracy.
well in my opinion, central banking is vital in my trust of a currency as well. But others may disagree. Otherwise, you're just dealing with gold, which is a regression.
So when the next economic crisis comes you would rather have central banks not interfere with the crisis at all. Just let the crisis solve itself. Is that what you're saying? Also, you seem to think that taking monetary policy away from central banks will lead somehow to governments making good fiscal policy decisions, whatever that is. Where do you get that from? The gold standard never stopped governments from going bankrupt. Monetary policy in the hands of incompetent authorities can be disastrous, but this is no reason to get rid of it. Otherwise we should also get rid of many things, including laws and government.
It’s a cynical take, but I always thought the real reason for central bank independence is so the finance sector can exercise more political leverage and be safer during busts, for politicians it was mostly a technocratic headache they happily remissed. People always talk about independence as some high minded ideal but I don’t see the benefit in practice.
Central bank independence is negatively correlated to inflation as well as variance of inflation. As such, a situation such as the United States has (with a fairly independent central bank) tends to be quite good both at reducing inflation, and at keeping the rate of inflation predictable
Further, central bank independence is also negatively correlated to average deficit as a proportion of GDP. Thus indicating that historically, the more power politicians have to overspend, the more likely they are to do it.
While I don't think the Federal Reserve system is perfect, I do think it's a vastly better system than one that essentially cedes control of the currency to whatever group happens to be governing at the moment.
Central Banks allow us to pay each other and regulate banks to operate in the best interest of the economy by making 'good' loans. You are describing a gold standard or fixed monetary system. These systems have lead to deflationary collapses time and again. Without getting off of the gold standard as it was defined we would have never funded WW2 which was the larges money printing event in US history equating to 22% of GDP in government deficits.
1) central bank loss of independence is one of the hallmark of failed central banks. I hardly think it's reasonable to think that all central banks are dysfunctional in such a way: while these institutions can and do break down, they are not designed to break down in this way. You're free to argue whether a given central bank is or is not sufficiently independent, but that's a more specific problem than the over-generalization made here.
2) it's not an exception to the rule at all. The rule for inflation doesn't mention how much money exists, it only mentions how much money circulates. More money existing does not necessarily mean more money circulating (eg.: money tends to concentrate in certain places for various reasons, rather than diffusing freely).
3) Sure, but two things that have similar features are not always similar in essence or nature. Swords and needles are both sharp, but you wouldn't argue that they're essentially the same. In fact in your own example, taxation for certain purposes could be either inflationary or deflationary (eg.: austerity measures, including those that involve taxation, are deflationary by design).
So why is it that essentially every developed country in the world today has a central bank? How can they all be wrong? If a 100% "free market" solution was more effective than central banking, I would expect at least one of them to have given it a shot and succeeded in doing so.
Also, "A Monetary History of the United States" argues that the Federal Reserve should have done more to combat the Great Depression, not less. How can you think that the book advocates against central economic policy?
Central banks aren’t needed to keep the economy running, you really just need some areas of law (contract, commercial, etc) and an effective court system for that. The economy ran on its own prior to the Federal Reserve being created in 1913.
Central banks may be useful in preventing banking crises every ~20yrs as happened back in the 1700s and 1800s. But even that’s not a certainty since the two most severe banking crises in history - the Great Depression and Global/Great Financial Crisis - happened under the watch of central banks. Some even argue the latter occurred because of the central bank keeping interest rates too low too long.
One benefit of central banks is to depoliticize monetary policy by moving it away from the Executive Branch, and giving it a consistent, Congressional mandate that it must prioritize in its policy and operations - low inflation and high employment. That’s probably one of the few indisputable advantages they have.
As for whether inflationary or deflationary money is better, I don’t know. Both have their pros and cons. The more I go down rabbit hole on each of these, the less decisive I am about it. But this website makes a comprehensive case for deflationary money, fwiw: https://wtfhappenedin1971.com/
For historic reasons states have built systems that prevent normal governments from inventing money at scale: Independent Central Banks. It's of course an important ongoing debate in economics whether this is still appropriate, but it's unrealistic to expect governments to so dramatically alter the fundamental structure of monetary policy. That said, of course it's even more unrealistic to expect them to do so absent a massive external shock.
I disagree, I think that the federal reserve's artificially low interest rates and essentially unlimited supply of money for the banks to loan out at these interest rates were at the heart of the most recent financial crisis in the US. A decentralized currency would certainly mitigate that.
Have you not ever read financial history and what things were like without central banks?
No one that knows what they are talking about can possibly think we were better off without central banks. It is a childish and clueless view.
House Of Morgan, History of Interest Rates from Wiley. Try reading some books instead of looking up things on wiki to back up your already nonsense beliefs. You can not read those books and come away thinking getting rid of central banks is a good idea.
You are just making the old clueless gold bug argument repacked in digital form.
History shows pretty clearly that actively managed currencies with a central bank are far more stable than for example gold or bitcoin. I don't see how you can argue otherwise.
You might want to investigate the economic collapses caused by government run monetary systems. Like the Weimar Republic you mentioned - that collapse led to Nazism. Not a ringing endorsement for central banking, amirite?
BTW, are you enjoying the 9% haircut we all got in the last year courtesy of central banking?
I agree. Thank you for sharing this point of view. I see central banking as one of the greatest enemies to our country. I see two futures ahead of us. The continuation of central banking and fiat currency until it fails in catastrophe and poverty of the nation, or removing the Fed and returning to precious metal currency. Either path is painful. Continuing on the current path has ended in destruction of every country in history that has followed the same path. Gold and silver served civilizations well for millennia.
Central banks don't 'control' the currency supply... Money creation by private bank lending is where most money in modern economies comes from, and adjusting interest rates is such a blunt instrument that they are really powerless to meaningfully control it. Central banks are important for a currency that is stable and usable long-term (if managed properly), but really should be working with the Government to control the money supply through the Government's fiscal measures (taxing and spending) and by prudential (lending) regulation, instead of the current ineffective Monetarist fantasy...
I’ll answer this in the context of the gold standard—the ultimate hard currency/sound money. That history is very different than the one its proponents portray. Governments routinely had more currency in the circulation than they cover with their reserves, the money supply was effectively ceded to technological developments in mining, and we saw a period of social unrest in the back half of the 1800s as farmers got screwed by deflation. (See William Jennings Bryant’s ‘You shall not crucify mankind upon a cross of gold.’)
The money supply matters. Historically, the gold standard exacerbated swings in the business cycle. Economies would grow by exporting good and gold would flow in, people had more money so they spent more growing the economy more. But, if the economy was bad and there wasn’t gold down in the basement, the government and central banks were unable to issue the currency necessary to stimulate business activity to help end the problem. Milton Friedman made his name by looking at the money supply as the root cause for why the Great Depression was so bad.
Could the Federal Reserve do better? Absolutely. But if you compare the last 10-15 years to any other period in the last 150, things are as good as they’ve even been on the monetary front.
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