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We've tried that in the late 19th century and it led to bank runs and financial panics every ten years, much worse than what we have now. I do agree, however, t

We've tried that in the late 19th century and it led to bank runs and financial panics every ten years, much worse than what we have now. I do agree, however, that we should benefit from having a more transparent and direct financial intermediation infrastructure that does not require systemically important nodes to rely on the central bank so much. Central banks would eventually generate too much moral hazard; we're not quite there yet but we're getting close.

pdonis 8y ago
> We've tried that in the late 19th century and it led to bank runs and financial panics every ten years, much worse than what we have now. Tried what? Not monkeying with the money supply? Surely you jest. There was no Fed then, but the US Treasury started printing greenbacks (United States Notes) in 1862 and never stopped. As for since the Fed existed, the worst depression in history happened on its watch. And the reason for the lack of financial panics from the end of WW II into the 1970s was the US being the only economy that wasn't impoverished by the war, so it could basically dictate monetary policy to everyone (the Bretton Woods system). Once the rest of the world rebuilt, that policy fell apart and the financial panics started up again. The one big difference since the 1930s is deposit insurance: that is what prevented financial panics since then from turning into bank runs. That can seem like an improvement, but it just exchanges one failure mode for another: instead of bank runs forcing everybody to admit when a bubble has collapsed, now it can keep on until it's big enough to tank the world's entire economy when it collapses. Which is what happened in 2008. > Central banks would eventually generate too much moral hazard; we're not quite there yet but we're getting close. I don't share your optimism. I think we're there already and have been for quite a while.

pdonis 8y ago

> We've tried that in the late 19th century and it led to bank runs and financial panics every ten years, much worse than what we have now. Tried what? Not monkeying with the money supply? Surely you jest. There was no Fed then, but the US Treasury started printing greenbacks (United States Notes) in 1862 and never stopped. As for since the Fed existed, the worst depression in history happened on its watch. And the reason for the lack of financial panics from the end of WW II into the 1970s was the US being the only economy that wasn't impoverished by the war, so it could basically dictate monetary policy to everyone (the Bretton Woods system). Once the rest of the world rebuilt, that policy fell apart and the financial panics started up again. The one big difference since the 1930s is deposit insurance: that is what prevented financial panics since then from turning into bank runs. That can seem like an improvement, but it just exchanges one failure mode for another: instead of bank runs forcing everybody to admit when a bubble has collapsed, now it can keep on until it's big enough to tank the world's entire economy when it collapses. Which is what happened in 2008. > Central banks would eventually generate too much moral hazard; we're not quite there yet but we're getting close. I don't share your optimism. I think we're there already and have been for quite a while.