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The libertarian view is that interest rates should be decided by the free market and not a central bank. Mainly due to what we're seeing now (the executive tryi

The libertarian view is that interest rates should be decided by the free market and not a central bank. Mainly due to what we're seeing now (the executive trying to take it over) and that a small board of people can make bad decisions that have reaching effects.

don_neufeld 9mo ago
I wonder if any libertarians have considered reading about the history of banking? The Federal Reserve was not created “just because”. The US banking system was wildly unstable when run… largely as the libertarian view would have it.
zozbot234 9mo ago
This is actually quite correct. The Fed Funds policy interest rate is a clumsy instrument because it involves chasing the ever-shifting balancing point of an inherently unstable system. You "cut" rates to increase money creation, which actually pushes your long-term rates higher due to expected inflation and leads to even more money creation for a constant policy rate, and vice versa. This can all be fixed very simply by changing the instrument to a crawling exchange rate peg, which has an inherently stabilizing effect, as seen from the effectiveness of currency board systems - that system doesn't shift against you if you stick to a bad peg, whereas it very much does if you stick to a bad policy rate. The long term policy goal (stability in the path of nominal incomes (prices + real activity) in the very short run, and prices in the medium-to-long run) would be unaffected, but the whole operational aspect would be simplified quite a bit.
- throw0101c 9mo ago
  > The Fed Funds policy interest rate is a clumsy instrument because it involves chasing the ever-shifting balancing point of an inherently unstable system. I don't know about "inherently unstable system", given that as central bank independence has grown so has, generally speaking, monetary stability: * https://en.wikipedia.org/wiki/Great_Moderation https://en.wikipedia.org/wiki/Great_Moderation
  - zozbot234 9mo ago
    Great Moderation basically involved the adoption of price stability as a long-term policy target, as opposed to trying to keep long-term fixed exchange rates. There's no reason to change the policy target, the issue is wrt. the policy mechanism/instrument.
breakyerself 9mo ago
Markets don't always seek equilibrium. Some aspects of the economy tend to be governed by vicious and virtuous feedback cycles. Always leaving everything to markets feels like more of a religion than a reasonable policy position.

don_neufeld 9mo ago

I wonder if any libertarians have considered reading about the history of banking? The Federal Reserve was not created “just because”. The US banking system was wildly unstable when run… largely as the libertarian view would have it.

zozbot234 9mo ago

This is actually quite correct. The Fed Funds policy interest rate is a clumsy instrument because it involves chasing the ever-shifting balancing point of an inherently unstable system. You "cut" rates to increase money creation, which actually pushes your long-term rates higher due to expected inflation and leads to even more money creation for a constant policy rate, and vice versa. This can all be fixed very simply by changing the instrument to a crawling exchange rate peg, which has an inherently stabilizing effect, as seen from the effectiveness of currency board systems - that system doesn't shift against you if you stick to a bad peg, whereas it very much does if you stick to a bad policy rate. The long term policy goal (stability in the path of nominal incomes (prices + real activity) in the very short run, and prices in the medium-to-long run) would be unaffected, but the whole operational aspect would be simplified quite a bit.

throw0101c 9mo ago
> The Fed Funds policy interest rate is a clumsy instrument because it involves chasing the ever-shifting balancing point of an inherently unstable system. I don't know about "inherently unstable system", given that as central bank independence has grown so has, generally speaking, monetary stability: * https://en.wikipedia.org/wiki/Great_Moderation https://en.wikipedia.org/wiki/Great_Moderation
- zozbot234 9mo ago
  Great Moderation basically involved the adoption of price stability as a long-term policy target, as opposed to trying to keep long-term fixed exchange rates. There's no reason to change the policy target, the issue is wrt. the policy mechanism/instrument.

breakyerself 9mo ago

Markets don't always seek equilibrium. Some aspects of the economy tend to be governed by vicious and virtuous feedback cycles. Always leaving everything to markets feels like more of a religion than a reasonable policy position.