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Not really a fair comparison - the U.S. economy was smaller pre-fed its totally valid. the economy has only shrunk temporarily on a small number of occasions.

Not really a fair comparison - the U.S. economy was smaller pre-fed its totally valid. the economy has only shrunk temporarily on a small number of occasions. the economy is more or less always growing, so it is always smaller in the past. indeed the US suffered a bad depression in the 1870s but pulled through without the Fed Trivia: Who performed the role of the Fed before there was a Fed? there wasn't one source. remember bank and state notes? in any case, prior to the fed, a dollar held its value for decades. post fed, the dollar lost 99% of its value

nostrademons 18y ago
> its totally valid That wasn't my point. It's easier for small economy to grow at a higher rate. If a $50B economy grows by $50B, that's a 100% growth rate. If a $10T economy grows by $50B, that's a 0.5% growth rate. For the $10T economy to grow by 100%, it would need $10T of additional goods and services, which is a significantly harder accomplishment than growing by $50B. The answer to my trivia question, BTW, is J.P. Morgan. The Fed was created as a reaction to the panic of 1907, when Morgan went over the books of each failing bank and said "Nope, let it fail" or "Okay, the trouble stops here. Let's give them cash" depending on whether they were solvent. Much like Bernanke & Paulson have had to do with Bear Stearns and Lehman Brothers. Congress felt that this was too much power to concentrate in the hands of a private individual, and so they created the Fed as a quasi-government organization responsible to Congress. Inflation is not unique to the Fed system, either. Remember "not worth a Continental", or the erstwhile Confederate dollar? The 1870-1910 era featured deflation because it coincided with the industrial revolution and a huge flood of cheap new goods onto the market, not because of the absence of the Fed. The 1929-1932 era also featured deflation, yet had an activist Fed that interfered far more than the current one.
- quasimojo 18y ago
  That wasn't my point. It's easier for small economy to grow at a higher rate. i know and i basically agree...my point is that the Fed has not demonstrably proven to grow the economy, manage the currency, or control inflation better than other forces. while we have not lost our currency like the old bank notes, the dollar has lost 99% of its value. relative to pre-1913, the dollar is indeed worthless The answer to my trivia question, BTW, is J.P. Morgan he bankrolled the government for, what,. thirteen days, he did not print currency. indeed that event goes back to your "small numbers" arg. he could bankroll the govt because it was small. bill gates could not fund our govt for thirteen days today.
- bokonist 18y ago
  J.P. Morgan. The Fed was created as a reaction to the panic of 1907, when Morgan went over the books of each failing bank and said "Nope, let it fail" or "Okay, the trouble stops here. Let's give them cash" depending on whether they were solvent. Much like Bernanke & Paulson have had to do with Bear Stearns and Lehman Brothers. Congress felt that this was too much power to concentrate in the hands of a private individual, and so they created the Fed as a quasi-government organization responsible to Congress. Isn't it much better to have the bankers be responsible for bailing out their own mess, rather than have the taxpayers do it? How is the creation of the Fed a positive development in this case? And yes, the Fed isn't the only way inflation happens. Good old fashioned printing money to cover the cost of war works too, and it's just as awful.
  - nostrademons 18y ago
    I'm speaking mostly of what is, not what should be. I agree that it would be better if bankers cleaned up after themselves and owned up to their own mistakes. However, when you're dealing with something as fundamental to the economy as banking, it's almost always to someone's advantage to bail them out (or worse, to use someone else's money to bail them out). If the Fed didn't exist, one of the other banks would do it, and probably reap huge profits in the process, right up until it miscalculates and loses all its depositors' money too. Basically, I don't think it's the Fed that's the problem. It's humans.
    - bokonist 18y ago
      As long as banks that miscalculate go out of business, over time, the survivors will have much more sound financial practices. Also, without the Fed, there is no single point of failure. This makes it much easier to diversify away risks. Further, note that a lot of the bad banking practices of the late 1800's were not the result of a free market, but of federal and state banking laws. The Fed and other government intervention is almost certainly a proximate cause of the problem. Perhaps, though, the ultimate problem of bad government is an inevitable part of the human condition.

nostrademons 18y ago

> its totally valid That wasn't my point. It's easier for small economy to grow at a higher rate. If a $50B economy grows by $50B, that's a 100% growth rate. If a $10T economy grows by $50B, that's a 0.5% growth rate. For the $10T economy to grow by 100%, it would need $10T of additional goods and services, which is a significantly harder accomplishment than growing by $50B. The answer to my trivia question, BTW, is J.P. Morgan. The Fed was created as a reaction to the panic of 1907, when Morgan went over the books of each failing bank and said "Nope, let it fail" or "Okay, the trouble stops here. Let's give them cash" depending on whether they were solvent. Much like Bernanke & Paulson have had to do with Bear Stearns and Lehman Brothers. Congress felt that this was too much power to concentrate in the hands of a private individual, and so they created the Fed as a quasi-government organization responsible to Congress. Inflation is not unique to the Fed system, either. Remember "not worth a Continental", or the erstwhile Confederate dollar? The 1870-1910 era featured deflation because it coincided with the industrial revolution and a huge flood of cheap new goods onto the market, not because of the absence of the Fed. The 1929-1932 era also featured deflation, yet had an activist Fed that interfered far more than the current one.

quasimojo 18y ago
That wasn't my point. It's easier for small economy to grow at a higher rate. i know and i basically agree...my point is that the Fed has not demonstrably proven to grow the economy, manage the currency, or control inflation better than other forces. while we have not lost our currency like the old bank notes, the dollar has lost 99% of its value. relative to pre-1913, the dollar is indeed worthless The answer to my trivia question, BTW, is J.P. Morgan he bankrolled the government for, what,. thirteen days, he did not print currency. indeed that event goes back to your "small numbers" arg. he could bankroll the govt because it was small. bill gates could not fund our govt for thirteen days today.
bokonist 18y ago
J.P. Morgan. The Fed was created as a reaction to the panic of 1907, when Morgan went over the books of each failing bank and said "Nope, let it fail" or "Okay, the trouble stops here. Let's give them cash" depending on whether they were solvent. Much like Bernanke & Paulson have had to do with Bear Stearns and Lehman Brothers. Congress felt that this was too much power to concentrate in the hands of a private individual, and so they created the Fed as a quasi-government organization responsible to Congress. Isn't it much better to have the bankers be responsible for bailing out their own mess, rather than have the taxpayers do it? How is the creation of the Fed a positive development in this case? And yes, the Fed isn't the only way inflation happens. Good old fashioned printing money to cover the cost of war works too, and it's just as awful.
- nostrademons 18y ago
  I'm speaking mostly of what is, not what should be. I agree that it would be better if bankers cleaned up after themselves and owned up to their own mistakes. However, when you're dealing with something as fundamental to the economy as banking, it's almost always to someone's advantage to bail them out (or worse, to use someone else's money to bail them out). If the Fed didn't exist, one of the other banks would do it, and probably reap huge profits in the process, right up until it miscalculates and loses all its depositors' money too. Basically, I don't think it's the Fed that's the problem. It's humans.
  - bokonist 18y ago
    As long as banks that miscalculate go out of business, over time, the survivors will have much more sound financial practices. Also, without the Fed, there is no single point of failure. This makes it much easier to diversify away risks. Further, note that a lot of the bad banking practices of the late 1800's were not the result of a free market, but of federal and state banking laws. The Fed and other government intervention is almost certainly a proximate cause of the problem. Perhaps, though, the ultimate problem of bad government is an inevitable part of the human condition.