What evidence is there that Fed policy ever did any good? Why do we worship the Fed chairman?

[funinspace]

If we repealed the Federal Reserve Act then Congress would have control over monetary policy. Can you appreciate how fucked up that would be?

Now that would be scary

Sometimes the 'cure' is worse than the disease...

 

[dismal]

And this is evidence of what?

Stability of the economy because of the Fed. From 1837–1862 there was not a central bank:

Period	% Change in Money Supply	% Change in Price Level
1832–37	+ 61	+ 28
1837–43	−58	−35
1843–48	+102	+9
1848–49	−11	0
1849–54	+109	+32
1854–55	−12	+2
1855–57	+18	+ 1
1857–58	−23	−16
1858–61	+35	−4

  

How is this evidence of that?

 

[arkirk]

I agree that our current congress could not do well managing our national money supply, but the Fed is still not the answer. Currently it is a system that supports private banking and we know where that got us. A lot of the problems we are facing is the result of a poorly informed public because of media consolidation in private hands and no fairness policy on the air. American mainstream media shapes many minds in America for its and its sponsors' profits and makes democracy almost impossible. The reason our congress could not run a bank is the control of large corporate interests over the news the people get. It is the news and advertising that determines who gets elected and now we have gridlock between two corporatist parties.

The only difference between the Fed and whatever national bank congress could create is that the Fed operates completely out of sight and without any real civil control on what it does.

 

[dismal]

If we repealed the Federal Reserve Act then Congress would have control over monetary policy. Can you appreciate how fucked up that would be?

Now that would be scary

Sometimes the 'cure' is worse than the disease...

OK, suppose instead of the congress it's a giant robot programmed to grow the money supply at 2%. How is the Fed better than that?

 

[funinspace]

Now that would be scary

Sometimes the 'cure' is worse than the disease...

OK, suppose instead of the congress it's a giant robot programmed to grow the money supply at 2%. How is the Fed better than that?

It’s complicated. The opening thread and additional comments by Lumpenproletaria set forth a cornucopian fruit salad of topics. Such as WTF does a minimum wage have to do with the FR?

Addressing the reaction of the FR to the recent financial crisis, is really a different topic than whether or not we should have a FR. And if we are not to have a FR, what just what is to replace it, bit coins or maybe bricks of coke?

Anywho, I could comment on lots of areas that I think would have helped after the crisis hit, more so than the feeble response by Congress and the near solo efforts of the FR. But the opening post reminds me more of a 6 year old going: Why? Why? Why? Why? Why? Why? Why? Why?....

 

[Loren Pechtel]

Stability of the economy because of the Fed. From 1837–1862 there was not a central bank:

Period	% Change in Money Supply	% Change in Price Level
1832–37	+ 61	+ 28
1837–43	−58	−35
1843–48	+102	+9
1848–49	−11	0
1849–54	+109	+32
1854–55	−12	+2
1855–57	+18	+ 1
1857–58	−23	−16
1858–61	+35	−4

  

How is this evidence of that?

Contrast that roller coaster with the current trend.

It's also apparent if you eyeball a graph of the inflation rate.

- - - Updated - - -

Now that would be scary

Sometimes the 'cure' is worse than the disease...

OK, suppose instead of the congress it's a giant robot programmed to grow the money supply at 2%. How is the Fed better than that?

You're assuming the economy grows at 2%.

 

[dismal]

How is this evidence of that?

Contrast that roller coaster with the current trend.

It's also apparent if you eyeball a graph of the inflation rate.

Where is the evidence of the impact this has on the economy? Somehow the US managed to ascend to become the largest economy on the earth before the Fed ever existed.

Where is the evidence the economy would have been better if the Fed had existed?

OK, suppose instead of the congress it's a giant robot programmed to grow the money supply at 2%. How is the Fed better than that?

You're assuming the economy grows at 2%.

No, I'm accepting the premise argued by others that the end of all ends is stable money supply growth.

If this is not the premise, please tell me what it is and show evidence for why I should believe it.

 

[Loren Pechtel]

Contrast that roller coaster with the current trend.

It's also apparent if you eyeball a graph of the inflation rate.

Where is the evidence of the impact this has on the economy? Somehow the US managed to ascend to become the largest economy on the earth before the Fed ever existed.

Where is the evidence the economy would have been better if the Fed had existed?

OK, suppose instead of the congress it's a giant robot programmed to grow the money supply at 2%. How is the Fed better than that?

You're assuming the economy grows at 2%.

No, I'm accepting the premise argued by others that the end of all ends is stable money supply growth.

If this is not the premise, please tell me what it is and show evidence for why I should believe it.

But that's not what we want.

The desired objective is that the money supply grows at the same rate the economy does.

 

[Lumpenproletariat]

#9

laughing dog

How do you know that either quantitative easing or artificially-suppressed interest rates has benefitted the economy?

In both cases this was done to artificially boost employment numbers. Let's assume the unemployment rate went down a small increment as a result. Was this good for the economy?

Yes.

How do you know? You take it on faith, because the Fed chariman said so? Because he's infallible? He's your Pope?

How do you know it didn't do more harm than good? You recognize there's harm to the economy from suppressing interest rates and pumping artificial money into circulation? How do you know the damage from this is not greater than the supposed benefit?

Well if so, why didn't they suppress interest rates down even further, or pump even more dollars into the economy than they did?

Because it is a balancing act that can only be done with lots of uncertainty.

That doesn't answer why they didn't go farther than they did. You have no answer as to why they went to this point and no higher. They could have suppressed interest rates still further and pumped more dollars into the economy, which would have produced more of the desired result ("Jobs! Jobs! Jobs!" etc.), but you cannot give any reason why they should not have done so, given the dogma that it is good to take these measures in order to produce the desired result.

They could have driven down unemployment even further. Instead of pumping only a trillion dollars per year into the economy, they could have pumped in 2 or 3 or even 10 trillion dollars. Surely that would have given us even more of the desired result. Isn't it worth it to do more of the same in order to get more of the desired result?

So why didn't they do that?

The simple answer is that the Fed did not want to raise expectations of inflation too much.

But they already raised those expectations by pumping that trillion dollars into the economy. Why was it OK to raise expectations by that amount? If it was OK to increase expectations of inflation a little, in order to create half a million jobs, why wasn't it also OK to increase such expectations a little more and create a million jobs or 2 million? Isn't it appropriate to pay a higher "price" in order to get a greater desired result?

Isn't an increase in inflation expectations a small price to pay for another million jobs? Putting food on the table for a million families is not worth paying such a small price for?

Let's get an answer why you believe the Fed should have pumped that amount of extra dollars into the economy and not twice as much? How do you know that particular amount of extra dollars led to a better outcome than if they had pumped NO extra dollars in? or than if they had pumped in twice as many? or 3 times?

 

[Lumpenproletariat]

#16


SimpleDon

The thread concedes that the Fed has stabilized the economy. That, ultimately is all that the Fed is trying to do.

The rest of their questions are just hyperbole, all of them can be answered "because the Fed can't do that with the tools that it has" or "doing that would destabilize the economy."

Why can't the Fed pump 2 trillion dollars into the economy with the same tools they used to pump in one trillion? "the Fed can't do that with the tools that it has" is false -- it has the tools.

The Fed needs to stop blabbering about its "toolbox" and start giving us some real facts about how it knows the exact dose of so much extra dollars pumped in and exactly how low the interest rates need to be suppressed.

"doing that would destabilize the economy"? That's what they've already done. Every such action they take destabilizes the economy an increment more.

Why is the destabilization of the economy they've already inflicted OK in order to produce a million new jobs, but a little further destabilization would NOT be OK in order to produce an additional million or 2 million jobs?

Why would that additional destabilization be any less tolerable than the destabilization they've already caused? and not a reasonable price to pay for all those additional precious "jobs! jobs! jobs!" that would surely result?

 

[ksen]

Now that would be scary

Sometimes the 'cure' is worse than the disease...

OK, suppose instead of the congress it's a giant robot programmed to grow the money supply at 2%. How is the Fed better than that?

Imagine there was a lake full of magical fish wearing pantyhose that controlled the money supply. How is the robot better than that?

 

[dismal]

Where is the evidence of the impact this has on the economy? Somehow the US managed to ascend to become the largest economy on the earth before the Fed ever existed.

Where is the evidence the economy would have been better if the Fed had existed?

OK, suppose instead of the congress it's a giant robot programmed to grow the money supply at 2%. How is the Fed better than that?

You're assuming the economy grows at 2%.

No, I'm accepting the premise argued by others that the end of all ends is stable money supply growth.

If this is not the premise, please tell me what it is and show evidence for why I should believe it.

But that's not what we want.

The desired objective is that the money supply grows at the same rate the economy does.

What evidence do you have to support that that is the desired objective?

And, if it is, would a giant robot programmed to grow the money supply at the same rate as the economy be better than the fed?

- - - Updated - - -

OK, suppose instead of the congress it's a giant robot programmed to grow the money supply at 2%. How is the Fed better than that?

Imagine there was a lake full of magical fish wearing pantyhose that controlled the money supply. How is the robot better than that?

The robot is more impressive to the rubes who need to feel someone is in control.

 

[Loren Pechtel]

#16


SimpleDon

The thread concedes that the Fed has stabilized the economy. That, ultimately is all that the Fed is trying to do.

The rest of their questions are just hyperbole, all of them can be answered "because the Fed can't do that with the tools that it has" or "doing that would destabilize the economy."

Why can't the Fed pump 2 trillion dollars into the economy with the same tools they used to pump in one trillion? "the Fed can't do that with the tools that it has" is false -- it has the tools.

The usual means of control is via interest rates. You can't set interest below zero, there's a limit to how much you can inject this way.

The Fed needs to stop blabbering about its "toolbox" and start giving us some real facts about how it knows the exact dose of so much extra dollars pumped in and exactly how low the interest rates need to be suppressed.

Actually, I think it's better not to give their formula--doing so would increase the attempts to predict what the Fed will do. I don't think that's good for the system.

- - - Updated - - -

The desired objective is that the money supply grows at the same rate the economy does.

What evidence do you have to support that that is the desired objective?

And, if it is, would a giant robot programmed to grow the money supply at the same rate as the economy be better than the fed?

Yes, if the robot did a better job I would favor it.

At present we can't come close to making that robot, though.

 

[dismal]

Yes, if the robot did a better job I would favor it.

At present we can't come close to making that robot, though.

How do we measure whether a good job is being done?

And I think it's pretty easy to make a robot that can create a specified amount of money. It's basically a little program trading code that I imagine would be far less sophisticated than is widely used today on wall street and a giant honking robot for show.

 

[Loren Pechtel]

Yes, if the robot did a better job I would favor it.

At present we can't come close to making that robot, though.

How do we measure whether a good job is being done?

By how well the money supply tracks the objective.

Obviously you don't want to deploy such a robot until you know it works. Thus you build your robot and feed it the data. Note the predictions of the Fed vs the predictions of the robot. While you can't know for sure the results of the robot's moves you can see where the robot disagrees with the humans and how the human aim fared down the road.

When the humans miss and the robot usually went in the direction towards the target then you can consider putting the robot at the helm.

And I think it's pretty easy to make a robot that can create a specified amount of money. It's basically a little program trading code that I imagine would be far less sophisticated than is widely used today on wall street and a giant honking robot for show.

Thus showing you have no idea what's involved.

Under normal circumstances the Fed doesn't make money. Rather, it alters the interest rate.

 

[dismal]

How do we measure whether a good job is being done?

By how well the money supply tracks the objective.

Obviously you don't want to deploy such a robot until you know it works. Thus you build your robot and feed it the data. Note the predictions of the Fed vs the predictions of the robot. While you can't know for sure the results of the robot's moves you can see where the robot disagrees with the humans and how the human aim fared down the road.

When the humans miss and the robot usually went in the direction towards the target then you can consider putting the robot at the helm.

And I think it's pretty easy to make a robot that can create a specified amount of money. It's basically a little program trading code that I imagine would be far less sophisticated than is widely used today on wall street and a giant honking robot for show.

Thus showing you have no idea what's involved.

Under normal circumstances the Fed doesn't make money. Rather, it alters the interest rate.

I'm mystified.

What do you imagine the fed does to change the money supply.

Why do you think a robot couldn't do it?

 

[Lumpenproletariat]

#33

Loren Pechtel

Simple Don: The thread concedes that the Fed has stabilized the economy. That, ultimately is all that the Fed is trying to do.

The rest of their questions are just hyperbole, all of them can be answered "because the Fed can't do that with the tools that it has" or "doing that would destabilize the economy."

Why can't the Fed pump 2 trillion dollars into the economy with the same tools they used to pump in one trillion? "the Fed can't do that with the tools that it has" is false -- it has the tools.

The usual means of control is via interest rates. You can't set interest below zero, there's a limit to how much you can inject this way.

But the trillion dollars in question was not from reducing interest rates, but from quantitative easing, which is a different "tool" the central bank uses:

What is quantitative easing?

Usually, central banks try to raise the amount of lending and activity in the economy indirectly, by cutting interest rates.

Lower interest rates encourage people to spend, not save. But when interest rates can go no lower, a central bank's only option is to pump money into the economy directly. That is quantitative easing (QE).

The way the central bank does this is by buying assets - usually government bonds - using money it has simply created out of thin air.

The institutions selling those bonds (either commercial banks or other financial businesses such as insurance companies) will then have "new" money in their accounts, which then boosts the money supply.

http://www.bbc.com/news/business-15198789

At the peak level the Fed was pumping about a trillion per year into circulation. If this was a net benefit to the economy, why not increase it to 2 or 3 trillion to produce even more benefit?

How do they know what the cutoff point is beyond which it is not a net benefit to pump in the money?

If there is a negative effect which is too much at some point (e.g. 2 trillion), how do they know that same negative effect was not too much at the 1 trillion level?

Less pump-in = less "stimulus" benefit + less negative effect

more pump-in = more "stimulus" benefit + more negative effect

With unemployment at 6 or 7%, why stop at only the 1 trillion? Wouldn't we get twice as many of those "jobs! jobs! jobs!" if we pumped in twice as much dollars?

 

[NobleSavage]

Lumpenproletariat, I'm going to steep out of my league and try and explain this (anyone more versed on economics please correct me). Economics is very math based and they have very complicated models. Macro economics is not a precise science; its a social science. There is more agreement in micro econ. In macro there are a lot of competing models. Google "The Optimum Quantity of Money". It's a paper written by Milton Freedman. Your Google results should turn up a big debate. The debate being, as the title would suggest, the optimal quantity of money.

The debate starts from a simple idea that all economists agree on i.e. MV = Py where M is equal to the supply of money, V the velocity of money (or the average number of times each dollar bill is spent), P the average price of goods and services, and y the total quantity of all goods and services sold during the time period in question. That is all fine and dandy, but the first problem is defining each component of that equation.

M: How do you measure the the total amount of money? Do other factors other than the Fed's activities effect the money supply?

V: Is it constant or not?

P: Are firms and workers free to change what they charge for their goods and services?

y: does the economy tend towards full employment?

From there the math get really complicated and fuck if I understand it. However, even though there are differing opinions does not mean that we need to throw the baby out with the bathwater. There is still a lot of consensus, we are still learning, and a cursory glance at history would suggest we are better off with centralized banking that without. No bot or computer program could make these decisions (with current technology), yet I'm sure the analysts at the Fed use complicated computer programs to help them make decisions. One problem is that important inputs can appear out of the blue: such as a war or an oil embargo. Maybe some day with enough computing power, enough data collection, and with progress in machine learning, a bot could do a better job than a human -- we are not there yet. And if someone comes up with a Fed bot, I hope a Congress bot is not far behind.

 

[dismal]

Actually macroeconomic models are often absurdly simple.

Take some variable, slap a multiplier on it, ignore (because in the long run we are all dead...) the reactions as the economy rebalances that can not be ignored in economics generally, and boom you've got a macroeconomic model.

 

[Loren Pechtel]

At the peak level the Fed was pumping about a trillion per year into circulation. If this was a net benefit to the economy, why not increase it to 2 or 3 trillion to produce even more benefit?

How do they know what the cutoff point is beyond which it is not a net benefit to pump in the money?

If there is a negative effect which is too much at some point (e.g. 2 trillion), how do they know that same negative effect was not too much at the 1 trillion level?

Less pump-in = less "stimulus" benefit + less negative effect

more pump-in = more "stimulus" benefit + more negative effect

With unemployment at 6 or 7%, why stop at only the 1 trillion? Wouldn't we get twice as many of those "jobs! jobs! jobs!" if we pumped in twice as much dollars?

In the real world there's always a balance between the pluses and minuses of a course of action. Of course there's a downside to QE, otherwise they would do it all the time.

Your failure to understand all the details doesn't say they don't understand what they are doing.