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cdninkorea
Joined: 27 Jan 2006
Location: Seoul
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 Posted: Thu Aug 11, 2011 1:03 am Post subject: Insight sought: central banking |
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I'm in the middle of a debate about the Federal Reserve in the US. As an Objectivist (the philosophy of Ayn Rand), I had thought that the Federal Reserve should be abolished and that there are ought not to be any central banking.
One reason for this, is that as I understood it, the Federal Reserve is independent and no accountable to anyone in government, allowing them to have their meetings in secret. However, according to Wikipedia, they do report to Congress, and because of this plus the fact that the chair of the Federal Reserve is appointed by the president, doesn't that mean the Federal Reserve is accountable? Are their meetings, and what comes out of them, secret? Or am I missing something?
Other areas:
- was the "stagflation" of the 1970s a result of direct control of monetary policy by the legislative and executive branches of government? I had always been told it was because of Keynesian economic policy.
- I had understood that the Federal Reserve tracks inflation, and that they manipulate how inflation is calculated in order to suit what they want the result to be. But the person I'm having this debate with claims that they don't track inflation at all: instead it's the Bureau of Labor Statistics, IMF, World Bank, and other academic sources calculate it. True? |
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visitorq
Joined: 11 Jan 2008
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| Posted: Thu Aug 11, 2011 3:02 am Post subject: |
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| cdninkorea wrote: |
I'm in the middle of a debate about the Federal Reserve in the US. As an Objectivist (the philosophy of Ayn Rand), I had thought that the Federal Reserve should be abolished and that there are ought not to be any central banking.
One reason for this, is that as I understood it, the Federal Reserve is independent and no accountable to anyone in government, allowing them to have their meetings in secret. However, according to Wikipedia, they do report to Congress, and because of this plus the fact that the chair of the Federal Reserve is appointed by the president, doesn't that mean the Federal Reserve is accountable? Are their meetings, and what comes out of them, secret? Or am I missing something? |
The Fed is quasi-governmental. On the one hand, the Fed is privately owned by other banks, who appoint their people to the board of directors. On the other hand, the chairman is appointed by the US president (and once appointed, cannot be removed until his term is up).
To say it's "accountable" though is misleading. Basically the Fed is free to do what it wants (esp. in its manipulation of macroeconomics, ie. the money supply and setting interest rates), but in reality will always lend the US government as much money as it needs. The Fed and the government have shared interests and work together (mainly for the sake of special interests who control them both, not for the good of the public).
| Quote: |
Other areas:
- was the "stagflation" of the 1970s a result of direct control of monetary policy by the legislative and executive branches of government? I had always been told it was because of Keynesian economic policy. |
Stagflation had several causes, namely the massive expense of the Vietnam war causing large trade deficits, and the resulting run on the US dollar (backed by gold) which led to Nixon taking the dollar off the gold standard (the Nixon Shock, which ended the post-war Bretton Woods arrangement). Nixon's price and wage controls during this time also caused shortages (driving up real prices), which were greatly exacerbated by the Oil Shock of '73. Basically all the printing of money and government interference in markets led to a simultaneous rise in inflation and unemployment, while the economy stagnated (hence 'stagflation'). The Keynesians had always theorized that inflation would lower unemployment, and vice versa. They were proven wrong.
So yes, it was basically caused by Keynesian policy, but there is no contradiction in saying it was caused by the US government's monetary policy (since they were all Keynesians, esp. in the '60s when it was in its heyday and his theories weren't even questioned by 'serious' economists). The Austrians were ignored (as usual), and the Friedmanite Monetarists were still fairly new on the scene and outside the mainstream.
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| - I had understood that the Federal Reserve tracks inflation, and that they manipulate how inflation is calculated in order to suit what they want the result to be. But the person I'm having this debate with claims that they don't track inflation at all: instead it's the Bureau of Labor Statistics, IMF, World Bank, and other academic sources calculate it. True? |
The Fed may not directly "track" inflation itself (since inflation can be defined in many ways depending on the measurements used, and there are many different sources available), but most certainly takes it all into account in all its decisions (and the person you're debating is being disingenuous if he's claiming otherwise). The government tends to manipulate figures (both for unemployment and inflation) for reasons of propagandizing the general public (ex. 'no depression, just a double-dip recession (based on cooked numbers)'), but it would be utterly naive to believe the Fed doesn't know and understand the real figures perfectly well. Former Fed Chairman Paul Volcker's policies (of jacking interest rates through the roof and causing a sever recession) were directly aimed at curbing inflation, for example. |
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