Topic: Monetary Policy
Fed Reserve Fallacy Monetarism and it's Real Purposeby Christopher Espinal
(Conservative)
Wednesday, February 13, 2008
I constantly hear fallacies regarding the federal reserve system. The one I will focus on is the largest one, which is the current Fed is a secret system aimed at implementing big government.
This results from individuals who don't understand monetarism and it's role in today's central bank.
Monetarism is based on a consumption function quite different from that of big government or Keynesian spenders.
Keynesians believe that individuals base their consumption relative to current income, whereas Monetarists believe that individuals base their consumption on future or permanent income.
The rational expectations of basing current consumption against future income, thus leads monetarists to believe that policies aimed at artificially shifting aggregate demand in the short run has no net change in the shift.
That is because everyday people understand that economic injections are financed by debt and will be repaid in the future by taxation of some sort, thus stifling aggregate demand in that time of reference.
All in all, monetarists don't believe in government spending to achieve short run macroeconomic objectives. In other words, our current Fed, run by monetarist Ben Bernanke, aims at targeting inflation rather than printing excessively to "finance the Iraq war and other demonic activities."
A growth in the money supply only targets inflation at 2% annualy. Our current Federal Reserve has no responsibility to the federal government, although it may succumb to pressure to accomodate fiscal policy. However, the current ideas controlling the FED's policy are not about big government spending.
Interesting Rebuttals:
Although I'm convinced the author who wrote this rebuttal knows not a thing of formal macroeconomics and monetary policy, I enjoy reading the conspiracy theories. He doesn't "refute" my ideas. He asks me to read a wikipedia article to learn economics. No, not speak to real economists who criticize the FED but to read junk that potentially misinformed individuals who get a thrill out of conspiracies write on this erroneous website.
He misses the point of my article, which is that monetarism doesn't support big government or big spending. It doesn't print excessively, rather it targets inflation. For more information read my comment at the bottom of his article.
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2008 Christopher Espinal, all rights reserved.
Published: Wednesday, February 13, 2008
Last modified: Wednesday, February 13, 2008
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Posted By: Christopher Espinal
Date: 2008-02-13 15:38:48
Garrett,
I actually work at my college for a professor who is a FED Governor. His name is Randall Kroszner. Look him up - He is at UChicago. The FED site has the names of all members. Look on the site!
Thx.
Mike, Walt doesn't understand the FED and its workings. He only read one side of the argument including conspiracy junk all connected through speculation.
The only reason why the meetings were "secret" was because they all knew that it was unconstitutional. There is a tradeoff though: economic stabilization, which since Greenspan has been properly achieved.
Economic stabilization? You mean like the dot-com bust? Or the housing bubble? Or the great depression (only partially the fault of the FED)? Or any of a number of other bubbles? Central control creates massive problems. Simple as that. Yes, many of the FED's administrators are known, but what about the actual ownership of this private bank?
To paraphrase the sentiments of the argument from Andrew Jackson when vetoing the continuation of the 2nd American Bank (another private institution, its charter ended in 1836):
"Why do the owners of the Federal Reserve reap all the profits from doing business with the FEDGOV? Why must they excercise that power while all other Americans are purposefully prevented from benefiting from that relationship? In perpituity?"
Central banking can have some benefits, but it should be done 100% in the light of day where anyone can analyze and predict the consequences of such benefits. Furthermore if it is to be a privately held bank (which I disagree with) then it should be a public corporation where any American can participate in profit, loss, and legal oversight.
Posted By: Christopher Espinal
Date: 2008-02-14 19:05:46
Actually, by economic stabilization I mean long run economic stabilization. Sorry that I wasn't absolutely clear. The goal of monetarist economics is to stabilize the value of the dollar, or slowly increase the money supply over time. However, this job becomes difficult because of fiscal policy.
If you read Milton Friedman's work, the godfather of monetarism, you will see that he has the same concerns over the value of the dollar. Essentially, we don't print as much as we used to because the ideas of running the FED have changed. Keynesians, who WERE in control of monetary policy, basically used this mechanism to achieve low rates of unemployment. The Phillip's curve is what Keynesians follow as the model for monetary policy.
Monetarists let the free market work simultaneously slowly increasing the money supply. It controls inflation, which is goal number one, and helps the economy achieve NET expansion over time.
Bubbles would exist no matter what. The only difference is that these bubbles can be seen as artificial. This is where people begin developing conspiracy theories about the Great Depression, spewing nonsense it was intentionally created.
Another explanation, far more reasonable, was that the Fed policy makers in control, just weren't knowledgeable enough about Fed policy. Look at the date when the General Theory of Interest, Employment, and Money was published. Of course Fed governors didn't know much about monetary or central banking policy. It was such a premature concept to master.
I can go on. Chad if you have any questions keep writing and criticizing! thanks for your comment.
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2008 Christopher Espinal, all rights reserved.