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There are so many inaccuracies here that it can only be described as "fiction." 1. You often mix The Fed with the Board of Governors of the Fed. These are dist

There are so many inaccuracies here that it can only be described as "fiction." 1. You often mix The Fed with the Board of Governors of the Fed. These are distinct. And the Board of Governers is definitely part of the government. It's an independent agency. Other indy agencies? NASA. The CIA. EPA. FEC. FCC. Dozens of them. 2. The Fed Chairman is part of the Board of Governors. All of them are appointed by the President and confirmed by the Senate. Definitely not appointed by the "CEOs of the regional Fed banks." There is a term limit. And one of those Governors is appointed (again, by the Prez, and confirmed by the Senate) to be Chairman. 3. New paper notes are created when the Fed purchases T-bills from the Tres. Dept. Yes, the Gov't pays interest on these notes. And yes, that is in general the mechanism of inflation. But it is _nowhere near_ the 5% you cited. And yes, that makes a very big deal. At no time is the value of money controlled by anybody enough that they could just will it to be reduced. And it's very easy to rail on Inflation when you don't concede that deflation would cause even more fiduciary problems. Inflation is worst for lenders. Deflation is worst for debtors. There are for more debtors in my family than there are lenders. How about yours? 4. The federal reserve is not the source of concentrated wealth in this country. Wealth was far more concentrated during the "free banking era" in the 19th century when there was no federal central bank. It's easy to riff on this stuff. Easy to bash big biz and big gov't. And they have serious flaws. But if our Government is going to borrow money to fund it's operation, I'd rather it borrows 90% of that debt from our own banks (eg The Fed) than from foreign banks. People act like China funds our debt. No. The Fed does. Our biggest lender is ourselves. I'll take that over the opposite. It could be reformed, though. And the House banking reform bill passed a few days ago is a good start. Not nearly good enough, but a good start.

DougWebb 17y ago
I'm no expert, and you may be right about my inaccuracies. From what I've read, part of the problem is that the system set up in 1913 was designed to be complicated and confusing to conceal exactly where the control lies. It's probably also overly complicated because it's designed by committee with many competing interests, just like all of our laws are. One thing you said which I'm not so sure about is the dangers of inflation vs deflation. Inflation is bad for lenders because they money they get back isn't as valuable as the money they lent, but the interest they charge is supposed to cover that. Lenders are only really hurt when the inflation rate exceeds interest rates. For debtors, inflation helps them pay their debts with less valuable money, but only if their income keeps up with inflation. For most people that hasn't happened; I believe inflation-adjusted incomes peaked in the early 70s, and has held steady or dropped since then while debt has climbed dramatically. So, inflation has not been good for debtors. Deflation is good for lenders because they get paid back with more valuable money then they lent, if they get paid back. Deflation could be bad for debtors because their debts are harder to pay, but the cost of other living expenses ought to drop in a deflationary environment which would leave more money available to pay debts off. It would probably be more difficult for employers to reduce salaries in a deflationary environment than it is for them to avoid raising salaries in an inflationary environment, so debtors are more likely to keep or increase their spending power during deflation. If we had a long-term deflationary environment, interest rates could drop to zero or even go negative without hurting lenders, so long as the rates are higher than the deflation rate, and this will help the debtors as well. So overall, I think deflation is better for everybody, so long as it's gradual. Deflation means that the value of our money is increasing over time instead of decreasing, and that can benefit everyone. There is a potential problem with interest rates on existing debt, but if the deflation is low and consistent, lenders could be encouraged, or forced, to reduce rates accordingly. This wouldn't even have to be government-mandated; competition among the banks would bring back 0% loans that people would use to refinance their debt at lower rates.

DougWebb 17y ago

I'm no expert, and you may be right about my inaccuracies. From what I've read, part of the problem is that the system set up in 1913 was designed to be complicated and confusing to conceal exactly where the control lies. It's probably also overly complicated because it's designed by committee with many competing interests, just like all of our laws are. One thing you said which I'm not so sure about is the dangers of inflation vs deflation. Inflation is bad for lenders because they money they get back isn't as valuable as the money they lent, but the interest they charge is supposed to cover that. Lenders are only really hurt when the inflation rate exceeds interest rates. For debtors, inflation helps them pay their debts with less valuable money, but only if their income keeps up with inflation. For most people that hasn't happened; I believe inflation-adjusted incomes peaked in the early 70s, and has held steady or dropped since then while debt has climbed dramatically. So, inflation has not been good for debtors. Deflation is good for lenders because they get paid back with more valuable money then they lent, if they get paid back. Deflation could be bad for debtors because their debts are harder to pay, but the cost of other living expenses ought to drop in a deflationary environment which would leave more money available to pay debts off. It would probably be more difficult for employers to reduce salaries in a deflationary environment than it is for them to avoid raising salaries in an inflationary environment, so debtors are more likely to keep or increase their spending power during deflation. If we had a long-term deflationary environment, interest rates could drop to zero or even go negative without hurting lenders, so long as the rates are higher than the deflation rate, and this will help the debtors as well. So overall, I think deflation is better for everybody, so long as it's gradual. Deflation means that the value of our money is increasing over time instead of decreasing, and that can benefit everyone. There is a potential problem with interest rates on existing debt, but if the deflation is low and consistent, lenders could be encouraged, or forced, to reduce rates accordingly. This wouldn't even have to be government-mandated; competition among the banks would bring back 0% loans that people would use to refinance their debt at lower rates.