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I'm so happy this is being discussed - a bit suprised that so many are so quick to jump to the defense of the status quo of a private for-profit central bank -

by lowkey 17y ago

I'm so happy this is being discussed - a bit suprised that so many are so quick to jump to the defense of the status quo of a private for-profit central bank - but still happy the subject is gaining some awareness. I have always thought that a better model would be to call it 'dilution' instead of inflation since this is the primary mechanism in operation. 'Dilution' would draw a natural comparison with shareholder's equity being diluted by a new share issuance. Inflation makes it sound like something that is either inevitable or is a good anti-dote to the notorious 'Deflation' In the words of the great George Carlin, "The game is rigged! It's a big club and you ain't in it."

stanleydrew 17y ago
Most people here are jumping to the defense of money as a medium of exchange, not "the status quo of a private for-profit central bank." I think discussing the status of the Fed would derail this thread.
stanleydrew 17y ago
But inflation is a good antidote to deflation. That's why we are willing to put up with it. There's a great post in this thread that goes into more detail.
cynicalkane 17y ago
I'm not happy to see this discussed. The Federal Reserve is not privately "owned" in any capitalist sense of ownership, since the "owners" have no say over Fed policy and only a tiny slice of the profits. Almost all profit made by the Fed is returned to the Treasury, yet the system was deliberately designed to keep the Treasury from having power over the Fed. The only conspiracy theory mentioned in the original post that survives this analysis is the idea that the Fed, somehow, is taxing people by inflating. Yet steady inflation is an essential ingredient of monetary policy, since it must be possible to have interest rates below the inflation rate. Almost all important economists, including those of the ardently anti-government Chicago school, agree on this point. It's only fitting that you quoted George Carlin at the end of the post. He's another person who likes to talk about things while displaying no interest in actually understanding them.
- alex_c 17y ago
  it must be possible to have interest rates below the inflation rate (economics neophyte question) Why is that?
  - cynicalkane 17y ago
    Because the primary function of the central bank is to control the money supply. If inflation is 0, or more generally if short-term interest rates are always higher than inflation, then the central bank's tools are rather one sided. All they can do is decrease the real money supply by making interest rates higher. That would be bad news in a situation such as, for example, right now, where a massive credit collapse is greatly increasing the demand for money. To keep the economy stable the Fed must print money. They're doing it by buying long-term debt, which is the best they can do but is disruptive to the debt economy.
- mynameishere 17y ago
  The problem with central banks isn't the 2 percent inflation they typically target. The problem is that when government needs to spend inordinately on anything, such as a war, it has three revenue sources: 1. Taxation. 2. Going into debt. 3. Printing money. (And plunder, actually, which is more of an ancient practice.) The USA finances itself mainly with #1 and #2, with our creditors being sovereign funds, banks, and individuals. Foreign countries are dropping out lately, and individuals and banks are sure to follow. Would you loan the government money for a sweet 0.4 percent yield? It can't be maintained. The yield will rise, and the government either pays more for credit, cuts back expenses, or raises taxes. All painful. But if there's a central bank, well, that third option comes up. All the big wars of the 20th century were paid for in part this way. Inflation is not like a normal tax, but is a wealth levy, and while nobody would approve of the government taking 50 percent of their total possessions, almost everyone is fooled by the printing press... Some other people suggest that "not holding dollars" is the solution. Doesn't work. In mass inflation, your income typically doesn't index correctly, and you have to sell assets to survive. People were selling pianos for bags of potatoes in the Weimer republic.

by lowkey 17y ago

stanleydrew 17y ago

Most people here are jumping to the defense of money as a medium of exchange, not "the status quo of a private for-profit central bank." I think discussing the status of the Fed would derail this thread.

stanleydrew 17y ago

But inflation is a good antidote to deflation. That's why we are willing to put up with it. There's a great post in this thread that goes into more detail.

cynicalkane 17y ago

I'm not happy to see this discussed. The Federal Reserve is not privately "owned" in any capitalist sense of ownership, since the "owners" have no say over Fed policy and only a tiny slice of the profits. Almost all profit made by the Fed is returned to the Treasury, yet the system was deliberately designed to keep the Treasury from having power over the Fed. The only conspiracy theory mentioned in the original post that survives this analysis is the idea that the Fed, somehow, is taxing people by inflating. Yet steady inflation is an essential ingredient of monetary policy, since it must be possible to have interest rates below the inflation rate. Almost all important economists, including those of the ardently anti-government Chicago school, agree on this point. It's only fitting that you quoted George Carlin at the end of the post. He's another person who likes to talk about things while displaying no interest in actually understanding them.

alex_c 17y ago
it must be possible to have interest rates below the inflation rate (economics neophyte question) Why is that?
- cynicalkane 17y ago
  Because the primary function of the central bank is to control the money supply. If inflation is 0, or more generally if short-term interest rates are always higher than inflation, then the central bank's tools are rather one sided. All they can do is decrease the real money supply by making interest rates higher. That would be bad news in a situation such as, for example, right now, where a massive credit collapse is greatly increasing the demand for money. To keep the economy stable the Fed must print money. They're doing it by buying long-term debt, which is the best they can do but is disruptive to the debt economy.
mynameishere 17y ago
The problem with central banks isn't the 2 percent inflation they typically target. The problem is that when government needs to spend inordinately on anything, such as a war, it has three revenue sources: 1. Taxation. 2. Going into debt. 3. Printing money. (And plunder, actually, which is more of an ancient practice.) The USA finances itself mainly with #1 and #2, with our creditors being sovereign funds, banks, and individuals. Foreign countries are dropping out lately, and individuals and banks are sure to follow. Would you loan the government money for a sweet 0.4 percent yield? It can't be maintained. The yield will rise, and the government either pays more for credit, cuts back expenses, or raises taxes. All painful. But if there's a central bank, well, that third option comes up. All the big wars of the 20th century were paid for in part this way. Inflation is not like a normal tax, but is a wealth levy, and while nobody would approve of the government taking 50 percent of their total possessions, almost everyone is fooled by the printing press... Some other people suggest that "not holding dollars" is the solution. Doesn't work. In mass inflation, your income typically doesn't index correctly, and you have to sell assets to survive. People were selling pianos for bags of potatoes in the Weimer republic.