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What more do you want then? Nearly every country in the world has adopted the US's system of central banking: an unelected, privately owned central bank that cr

What more do you want then? Nearly every country in the world has adopted the US's system of central banking: an unelected, privately owned central bank that creates money through bond purchases or some other mechanism. In the US this entity is so revered that their policies are rarely even a point of discussion in our extremely partisan politics. Hell, just suggesting that they permit an audit is considered controversial. As far as I can tell, politicians exert basically zero influence over actual monetary policy. As long as they have a constant supply of new fiat to fund entitlements and other niceties for their constituents they don't rock the boat.

nhaehnle 10y ago
In most countries, the central bank is not privately owned at all. Even the Fed is only partially privately owned, and that's mostly a historical artefact. Regulatory capture by private banks still tends to be a problem, though.
smallnamespace 10y ago
> What more do you want then? I'd like the Federal Reserve to control overall fiscal policy as well. The Fed tells Congress exactly how much it can spend each year, and Congress divvies it up however it likes.
- Ressuder 10y ago
  Why are you so keen on handing over the decision of austerity measures or not while in a recession, for example, to unelected politicians?
  - smallnamespace 10y ago
    Because I think our unelected politicians would do a better job than our elected ones. For one thing, it avoids partisan gridlock. Need I mention how many times Republicans threatened to not raise the debt ceiling and cause default? And there's a technical reason as well: if the Fed credibly commits to using fiscal policy in a predictable, countercyclical way, then the mere presence of this policy ought to dampen recessions. On the other hand, whether Congress actually passes stimulus spending or not is highly unpredictable and so the markets cannot rely on it.
    - cloakandswagger 10y ago
      You have a lot of trust in those unelected politicians. I imagine their first fiscal decision would be granting themselves the authority to buy corporate debt. Nothing beats acquiring productive, physical assets with infinite fiat currency! What's the term for an economy where the state owns the means of production again?
      - smallnamespace 10y ago
        Buying corporate debt is not a fiscal decision. If the Fed wanted to do that today, there is no law on the books stopping them. Fiscal policy concerns how much the government spends, and on what. Furthermore, you only own a company when you own its equity, not its debt. No offense, but for someone who seems so worked up about what the Fed might do to us, you seem rather uninformed on the basic facts of what it actually does and how.
      - cloakandswagger 10y ago
        We've reached the comment limit here, but it is absolutely not agreed that the Fed has legal authority to buy equities. "Former Fed official Joseph Gagnon has lamented that the Fed’s asset purchase authority “is limited by law to the Treasury, agency, and agency MBS markets plus foreign exchange” (emphasis added), and others agree." http://blog.supplysideliberal.com/post/114021461013/greg-shill-does-the-fed-have-the-legal-authority http://blog.supplysideliberal.com/post/114021461013/greg-shi... They could attempt to do so with some really creative legal interpretations, but it would probably take an act of Congress to resolve all of the resultant lawsuits.
        smallnamespace 10y ago
        Yes, but the post generally agrees with my assessment, which is the Fed could go and buy equities or corporate debt if it really wanted to (and other central banks, just as the ECB or JCB, have already done just that, without nationalizing their economies in the process): "Substantively, the Fed probably enjoys greater discretion in unconventional monetary policy—possibly extending to the purchase of equities—than is commonly assumed." FYI, you were probably restricted from replying immediately to my post, not because of the comment depth.
- RobertoG 10y ago
  And what criteria would use the Fed? Whatever is better for the country? following what theory?
  - smallnamespace 10y ago
    That same objection can be raised against technocratic control of monetary policy as well, and in fact, people argued against creating the Fed for exactly this reason. So what makes fiscal policy so special that we need to keep it out of the Fed's hands? Monetary and fiscal policy are the two main levers that the government has over the economy, but only giving one of them to the Fed means that the Fed has its hands tied in many circumstances (like today, when rates are persistently low), and requires the Fed to constantly guess what Congress will do and react to it. Anyway, to answer your question, the Fed would exercise fiscal policy with the same aims and goals by which it uses monetary policy.
    - cloakandswagger 10y ago
      > Anyway, to answer your question, the Fed would exercise fiscal policy with the same aims and goals by which it uses monetary policy. Then we are so screwed.
    - deleted 10y ago
      [deleted]
- jomamaxx 10y ago
  "I'd like the Federal Reserve to control overall fiscal policy as well" This is beyond irresponsible. The Fed is a bank (and privately owned) - not an apparatus designed to manage the state. They have absolutely no businesses determining fiscal policy. We elect people to manage our finances, maybe what we need is 'better democracy'.
  - smallnamespace 10y ago
    > The Fed is a bank (and privately owned) - not an apparatus designed to manage the state. Not true: https://www.federalreserve.gov/faqs/about_14986.htm https://www.federalreserve.gov/faqs/about_14986.htm "The Federal Reserve System is not "owned" by anyone. Although parts of the Federal Reserve System share some characteristics with private-sector entities, the Federal Reserve was established to serve the public interest." and also "The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. In fact, the Reserve Banks are required by law to transfer net earnings to the U.S. Treasury, after providing for all necessary expenses of the Reserve Banks, legally required dividend payments, and maintaining a limited balance in a surplus fund."
    - jomamaxx 10y ago
      The FED is definitely privately owned. It's a private company with a share structure. Most banks in America have a share in it - or rather the regional bank. " Although parts of the Federal Reserve System share some characteristics with private-sector entities, the Federal Reserve was established to serve the public interest." Don't be so naive. A private company tells you 'they are to server the public interest' and you believe them? Listen - I'm not a conspiracy theorist. Generally speaking, the Fed is much like other central banks. But make no mistake - it is not a public entity. Try this: the US government does not have access to the financial records of the Fed. Congress wanted to do an audit of the Fed - and they were blocked from going back past 2004. Think about that. The US currency system is controlled by an entity that will not let the public see what's in their records. That's insane. My bet is that from 1913 to past the Nixon era there is crazy, crazy stuff on the books, and confidence in the US currency would go crazy if that information got out. Also - just because it does not generate a profit does not mean that it's not used for the benefit of the banks. They set interest rates that suit their interest, not necessarily the interest of the general public. The Fed should definitely be nationalized.
tim333 10y ago
There seem some unnecessary austerity policies out there. I think that stuff could be done by professionals instructed to maximise national well being than the politicians.
sevenless 10y ago
Most money is created by commercial banks through fractional-reserve lending though.
- digi_owl 10y ago
  Fractional-reserve has crap all to do with it, but their lending do indeed introduce new money into circulation.
  - irln 10y ago
    > Fractional-reserve has crap all to do with it, but their lending do indeed introduce new money into circulation. Do you mean that money creation has little to do with the reserve requirement?
    - milcron 10y ago
      Anyone creates "money" every time they lend. Banks do a lot of lending, so they're definitely involved. But even opening a bar tab creates "money" (more accurately, "credit"). Here's a great video by famous investor Ray Dalio about this concept: https://www.youtube.com/watch?v=PHe0bXAIuk0 https://www.youtube.com/watch?v=PHe0bXAIuk0
      - irln 10y ago
        > Anyone creates "money" every time they lend. Banks do a lot of lending, so they're definitely involved. But even opening a bar tab creates "money" (more accurately, "credit"). I believe that's only partially true. If your definition of money is a piece of paper (e.g. a bar tab), than yes anyone can create money. However, if your definition of money is the U.S. dollar (e.g. paper or electronic versions) than there are only two entities that can create it: the federal reserve via open market operations and banks via lending. My question to digi_owl was whether he was making a distinction of what limits credit creation from banks. The reserve requirement has very little to do with it.[1][2] [1] http://www.cnbc.com/id/100880857 http://www.cnbc.com/id/100880857 [2] http://www.cnbc.com/id/100497710 http://www.cnbc.com/id/100497710 I appreciate the link to the video, I'll check it out.
jomamaxx 10y ago
"Nearly every country in the world has adopted the US's system of central banking: an unelected, privately owned central bank that creates money through bond purchases or some other mechanism." This is false. A) 'Central Banks' existed long before the US Fed. B) The FED is totally unique in the world in that it is 'privately owned/managed' - most Central Banks of the world are nationalized, and managed indirectly by the governing apparatus. The more advanced the state, the more it is independent. Nobody is copying the US system - that said - the US system is 'de facto' pretty close to Bank of England, Canada, the ECB etc. in the sense that though the Fed is technically a private entity - the way it is managed is pretty close to how most good central banks are managed. Hyperinflation always has the same causes: + Governments printing money to pay off debts + Governments grabbing private property causing a capital flight. That's it, there's no magic to it.
- cloakandswagger 10y ago
  I'm not sure when hyperinflation entered the discussion, but it'd be more accurate to say that hyperinflation has historically been caused by those two factors. We're in completely uncharted economic waters with QE/ZIRP, and I can think of several scenarios where increasingly more insane central bank intervention decimates the value of currency: -The decision is made to monetize the debt -Another 2008-scenario prompts helicopter money -A large enough minority of people simply lose faith in the monetary system and rapidly spend their dollars All that being said, I don't think we're anywhere close to a hyperinflationary environment, and you can definitely have a problem with the Fed and our system of money sans hyperinflation worries.
  - pjc50 10y ago
    I can't see how we can go from near-deflation to hyperinflation without passing through some period of normal inflation during which policy will be adjusted. Especially in the dollar, reserve currency of the world. The wealth has to flee to somewhere. There's another classic reason for hyperinflation, which is a collapse of export industries causing a trade balance collapse. You can't print foreign currency.
rz2k 10y ago
We're in a political era where people get excited about dismantling any institution. You can have the chair of a science committee bring a snowball in for show and tell, and it's considered a hilarious rebuke to scientists who are trying to explain climate models. There is way to much partisan political medalling with the Fed. [1] If you're an economist at the Fed you can hardly ever be on the record about anything, or even donate time to nonprofits. Why? There is too much danger that someone will willfully misinterpret a complex statement, and use it to undermine everything the Fed does to keep the economy stable. It would be great if most of the electorate had taken classes through intermediate macroeconomics. Then they might understand that an economics book they picked up in the nonfiction section of their bookstore almost always has an agenda outside of the mainstream, which doesn't mean that it is wrong necessarily, but that if it gets anything right it is likely a refinement of the past couple hundred years of scholarship or discussing a model that operates in an economy with different preconditions. Calls to audit the Fed are about sincere an effort to improve its function, as Congress's use of its subpoena powers are about fing the truth rather than an opportunity to grandstand. [1] As well as the Treasury too, but that's a whole different issue.
milcron 10y ago
What kind of audit do you want? The Fed is already thoroughly audited in the usual sense, by an independent inspector general and by an outside accounting firm (currently, Deloitte and Touche), and the resulting financial reports are made public online. Every security owned by the Fed, up to the detail of the identifying CUSIP number, is also available online. Moreover, the Government Accountability Office (GAO), which does in-depth reviews and analyses (“audits” of a different type) of government activities at the request of Congress, has wide latitude to review Fed operations, including supervision and regulation as well as other functions. For example, as required by the Dodd-Frank Act of 2010, the GAO conducted reviews of the Fed’s emergency lending programs during the crisis and of the Fed’s governance structure. Since the financial crisis, the GAO has done some 70 reviews of aspects of Fed operations. You're right that they are unconstrained by politics, and are free to act how they think is best. But they do explain their thinking and operate very transparently.
- redblacktree 10y ago
  Federal Reserve "audits" omit everything interesting. I want an audit with teeth, that audits the things that Americans should be interested in: the activities of their central bank and their motivations. I want an audit that doesn't require the explicit permission of the subject of the audit. In 2010, Ron Paul introduced a bill with simple text. In part: Subsection (b) of section 714 of title 31, United States Code, is amended by striking all after “shall audit an agency” and inserting a period. The area of law that would be modified by his bill: (b) Under regulations of the Comptroller General, the Comptroller General shall audit an agency, but may carry out an onsite examination of an open insured bank or bank holding company only if the appropriate agency has consented in writing. Audits of the Board and Federal reserve banks may not include- (1) transactions for or with a foreign central bank, government of a foreign country, or nonprivate international financing organization; (2) deliberations, decisions, or actions on monetary policy matters, including discount window operations, reserves of member banks, securities credit, interest on deposits, and open market operations; (3) transactions made under the direction of the Federal Open Market Committee; or (4) a part of a discussion or communication among or between members of the Board and officers and employees of the Federal Reserve System related to clauses (1)–(3) of this subsection. edit: formatting.

nhaehnle 10y ago

In most countries, the central bank is not privately owned at all. Even the Fed is only partially privately owned, and that's mostly a historical artefact. Regulatory capture by private banks still tends to be a problem, though.

smallnamespace 10y ago

> What more do you want then? I'd like the Federal Reserve to control overall fiscal policy as well. The Fed tells Congress exactly how much it can spend each year, and Congress divvies it up however it likes.

Ressuder 10y ago
Why are you so keen on handing over the decision of austerity measures or not while in a recession, for example, to unelected politicians?
- smallnamespace 10y ago
  Because I think our unelected politicians would do a better job than our elected ones. For one thing, it avoids partisan gridlock. Need I mention how many times Republicans threatened to not raise the debt ceiling and cause default? And there's a technical reason as well: if the Fed credibly commits to using fiscal policy in a predictable, countercyclical way, then the mere presence of this policy ought to dampen recessions. On the other hand, whether Congress actually passes stimulus spending or not is highly unpredictable and so the markets cannot rely on it.
  - cloakandswagger 10y ago
    You have a lot of trust in those unelected politicians. I imagine their first fiscal decision would be granting themselves the authority to buy corporate debt. Nothing beats acquiring productive, physical assets with infinite fiat currency! What's the term for an economy where the state owns the means of production again?
    - smallnamespace 10y ago
      Buying corporate debt is not a fiscal decision. If the Fed wanted to do that today, there is no law on the books stopping them. Fiscal policy concerns how much the government spends, and on what. Furthermore, you only own a company when you own its equity, not its debt. No offense, but for someone who seems so worked up about what the Fed might do to us, you seem rather uninformed on the basic facts of what it actually does and how.
    - cloakandswagger 10y ago
      We've reached the comment limit here, but it is absolutely not agreed that the Fed has legal authority to buy equities. "Former Fed official Joseph Gagnon has lamented that the Fed’s asset purchase authority “is limited by law to the Treasury, agency, and agency MBS markets plus foreign exchange” (emphasis added), and others agree." http://blog.supplysideliberal.com/post/114021461013/greg-shill-does-the-fed-have-the-legal-authority http://blog.supplysideliberal.com/post/114021461013/greg-shi... They could attempt to do so with some really creative legal interpretations, but it would probably take an act of Congress to resolve all of the resultant lawsuits.
      - smallnamespace 10y ago
        Yes, but the post generally agrees with my assessment, which is the Fed could go and buy equities or corporate debt if it really wanted to (and other central banks, just as the ECB or JCB, have already done just that, without nationalizing their economies in the process): "Substantively, the Fed probably enjoys greater discretion in unconventional monetary policy—possibly extending to the purchase of equities—than is commonly assumed." FYI, you were probably restricted from replying immediately to my post, not because of the comment depth.
RobertoG 10y ago
And what criteria would use the Fed? Whatever is better for the country? following what theory?
- smallnamespace 10y ago
  That same objection can be raised against technocratic control of monetary policy as well, and in fact, people argued against creating the Fed for exactly this reason. So what makes fiscal policy so special that we need to keep it out of the Fed's hands? Monetary and fiscal policy are the two main levers that the government has over the economy, but only giving one of them to the Fed means that the Fed has its hands tied in many circumstances (like today, when rates are persistently low), and requires the Fed to constantly guess what Congress will do and react to it. Anyway, to answer your question, the Fed would exercise fiscal policy with the same aims and goals by which it uses monetary policy.
  - cloakandswagger 10y ago
    > Anyway, to answer your question, the Fed would exercise fiscal policy with the same aims and goals by which it uses monetary policy. Then we are so screwed.
  - deleted 10y ago
    [deleted]
jomamaxx 10y ago
"I'd like the Federal Reserve to control overall fiscal policy as well" This is beyond irresponsible. The Fed is a bank (and privately owned) - not an apparatus designed to manage the state. They have absolutely no businesses determining fiscal policy. We elect people to manage our finances, maybe what we need is 'better democracy'.
- smallnamespace 10y ago
  > The Fed is a bank (and privately owned) - not an apparatus designed to manage the state. Not true: https://www.federalreserve.gov/faqs/about_14986.htm https://www.federalreserve.gov/faqs/about_14986.htm "The Federal Reserve System is not "owned" by anyone. Although parts of the Federal Reserve System share some characteristics with private-sector entities, the Federal Reserve was established to serve the public interest." and also "The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. In fact, the Reserve Banks are required by law to transfer net earnings to the U.S. Treasury, after providing for all necessary expenses of the Reserve Banks, legally required dividend payments, and maintaining a limited balance in a surplus fund."
  - jomamaxx 10y ago
    The FED is definitely privately owned. It's a private company with a share structure. Most banks in America have a share in it - or rather the regional bank. " Although parts of the Federal Reserve System share some characteristics with private-sector entities, the Federal Reserve was established to serve the public interest." Don't be so naive. A private company tells you 'they are to server the public interest' and you believe them? Listen - I'm not a conspiracy theorist. Generally speaking, the Fed is much like other central banks. But make no mistake - it is not a public entity. Try this: the US government does not have access to the financial records of the Fed. Congress wanted to do an audit of the Fed - and they were blocked from going back past 2004. Think about that. The US currency system is controlled by an entity that will not let the public see what's in their records. That's insane. My bet is that from 1913 to past the Nixon era there is crazy, crazy stuff on the books, and confidence in the US currency would go crazy if that information got out. Also - just because it does not generate a profit does not mean that it's not used for the benefit of the banks. They set interest rates that suit their interest, not necessarily the interest of the general public. The Fed should definitely be nationalized.

tim333 10y ago

There seem some unnecessary austerity policies out there. I think that stuff could be done by professionals instructed to maximise national well being than the politicians.

sevenless 10y ago

Most money is created by commercial banks through fractional-reserve lending though.

digi_owl 10y ago
Fractional-reserve has crap all to do with it, but their lending do indeed introduce new money into circulation.
- irln 10y ago
  > Fractional-reserve has crap all to do with it, but their lending do indeed introduce new money into circulation. Do you mean that money creation has little to do with the reserve requirement?
  - milcron 10y ago
    Anyone creates "money" every time they lend. Banks do a lot of lending, so they're definitely involved. But even opening a bar tab creates "money" (more accurately, "credit"). Here's a great video by famous investor Ray Dalio about this concept: https://www.youtube.com/watch?v=PHe0bXAIuk0 https://www.youtube.com/watch?v=PHe0bXAIuk0
    - irln 10y ago
      > Anyone creates "money" every time they lend. Banks do a lot of lending, so they're definitely involved. But even opening a bar tab creates "money" (more accurately, "credit"). I believe that's only partially true. If your definition of money is a piece of paper (e.g. a bar tab), than yes anyone can create money. However, if your definition of money is the U.S. dollar (e.g. paper or electronic versions) than there are only two entities that can create it: the federal reserve via open market operations and banks via lending. My question to digi_owl was whether he was making a distinction of what limits credit creation from banks. The reserve requirement has very little to do with it.[1][2] [1] http://www.cnbc.com/id/100880857 http://www.cnbc.com/id/100880857 [2] http://www.cnbc.com/id/100497710 http://www.cnbc.com/id/100497710 I appreciate the link to the video, I'll check it out.

jomamaxx 10y ago

"Nearly every country in the world has adopted the US's system of central banking: an unelected, privately owned central bank that creates money through bond purchases or some other mechanism." This is false. A) 'Central Banks' existed long before the US Fed. B) The FED is totally unique in the world in that it is 'privately owned/managed' - most Central Banks of the world are nationalized, and managed indirectly by the governing apparatus. The more advanced the state, the more it is independent. Nobody is copying the US system - that said - the US system is 'de facto' pretty close to Bank of England, Canada, the ECB etc. in the sense that though the Fed is technically a private entity - the way it is managed is pretty close to how most good central banks are managed. Hyperinflation always has the same causes: + Governments printing money to pay off debts + Governments grabbing private property causing a capital flight. That's it, there's no magic to it.

cloakandswagger 10y ago
I'm not sure when hyperinflation entered the discussion, but it'd be more accurate to say that hyperinflation has historically been caused by those two factors. We're in completely uncharted economic waters with QE/ZIRP, and I can think of several scenarios where increasingly more insane central bank intervention decimates the value of currency: -The decision is made to monetize the debt -Another 2008-scenario prompts helicopter money -A large enough minority of people simply lose faith in the monetary system and rapidly spend their dollars All that being said, I don't think we're anywhere close to a hyperinflationary environment, and you can definitely have a problem with the Fed and our system of money sans hyperinflation worries.
- pjc50 10y ago
  I can't see how we can go from near-deflation to hyperinflation without passing through some period of normal inflation during which policy will be adjusted. Especially in the dollar, reserve currency of the world. The wealth has to flee to somewhere. There's another classic reason for hyperinflation, which is a collapse of export industries causing a trade balance collapse. You can't print foreign currency.

rz2k 10y ago

We're in a political era where people get excited about dismantling any institution. You can have the chair of a science committee bring a snowball in for show and tell, and it's considered a hilarious rebuke to scientists who are trying to explain climate models. There is way to much partisan political medalling with the Fed. [1] If you're an economist at the Fed you can hardly ever be on the record about anything, or even donate time to nonprofits. Why? There is too much danger that someone will willfully misinterpret a complex statement, and use it to undermine everything the Fed does to keep the economy stable. It would be great if most of the electorate had taken classes through intermediate macroeconomics. Then they might understand that an economics book they picked up in the nonfiction section of their bookstore almost always has an agenda outside of the mainstream, which doesn't mean that it is wrong necessarily, but that if it gets anything right it is likely a refinement of the past couple hundred years of scholarship or discussing a model that operates in an economy with different preconditions. Calls to audit the Fed are about sincere an effort to improve its function, as Congress's use of its subpoena powers are about fing the truth rather than an opportunity to grandstand. [1] As well as the Treasury too, but that's a whole different issue.

milcron 10y ago

What kind of audit do you want? The Fed is already thoroughly audited in the usual sense, by an independent inspector general and by an outside accounting firm (currently, Deloitte and Touche), and the resulting financial reports are made public online. Every security owned by the Fed, up to the detail of the identifying CUSIP number, is also available online. Moreover, the Government Accountability Office (GAO), which does in-depth reviews and analyses (“audits” of a different type) of government activities at the request of Congress, has wide latitude to review Fed operations, including supervision and regulation as well as other functions. For example, as required by the Dodd-Frank Act of 2010, the GAO conducted reviews of the Fed’s emergency lending programs during the crisis and of the Fed’s governance structure. Since the financial crisis, the GAO has done some 70 reviews of aspects of Fed operations. You're right that they are unconstrained by politics, and are free to act how they think is best. But they do explain their thinking and operate very transparently.

redblacktree 10y ago
Federal Reserve "audits" omit everything interesting. I want an audit with teeth, that audits the things that Americans should be interested in: the activities of their central bank and their motivations. I want an audit that doesn't require the explicit permission of the subject of the audit. In 2010, Ron Paul introduced a bill with simple text. In part: Subsection (b) of section 714 of title 31, United States Code, is amended by striking all after “shall audit an agency” and inserting a period. The area of law that would be modified by his bill: (b) Under regulations of the Comptroller General, the Comptroller General shall audit an agency, but may carry out an onsite examination of an open insured bank or bank holding company only if the appropriate agency has consented in writing. Audits of the Board and Federal reserve banks may not include- (1) transactions for or with a foreign central bank, government of a foreign country, or nonprivate international financing organization; (2) deliberations, decisions, or actions on monetary policy matters, including discount window operations, reserves of member banks, securities credit, interest on deposits, and open market operations; (3) transactions made under the direction of the Federal Open Market Committee; or (4) a part of a discussion or communication among or between members of the Board and officers and employees of the Federal Reserve System related to clauses (1)–(3) of this subsection. edit: formatting.