The path to a fixed currency supply is not out of the realm of possibility

the Fed chair is appointed by the president. if a conservative president got elected (let's face it, extremely conservative), then she could appoint a Fed chair that simply stopped open market practices, set the fractional reserve to 100%, and ended issuance of federal notes.

Alan Greenspan once said, the US never has a danger of paying its bills. we can always just print more money. but he openly stated, he would have no idea of what purchasing power would look like.

this move would be completely constitutional and could basically be instituted immediately. if you couple this action with a radical departure from big government, we could see awesome things happen in this economy and true distribution of power across all classes of people.

to make this a bit more politically expedient, we could pay down our debt with a massive amount of printed bills prior to fixing the system. that would shrink the debt service tremendously and make the adjustment to fixed monetary supply a bit smoother of a transition.

this. can. happen.

 

dear,

1) it would be very very stupid since a fixed money supply would cause deflation and depression which all agree is not good.
2) it would require Congress to change the law that created the Fed with a dual mandate to affect stable prices and high employment. 1+1=2. Sorry to rock your world.

 

Set the fractional reserve to 100%??? You mean stop instantly all lending. The economy would crash so fast it would knock you into tomorrow yesterday. Capitalism is all about borrowing and lending. That's why we have a huge national debt. It is one thing that makes capitalism unsustainable.

 

Wouldn't stop lending. It would stop fractional lending on demand deposit accounts. Although, that issue is not nearly as important as fixing the physical supply of money and ending the culture of allowing one entity to control it. End fed. Allow a natural interest rate to rise. Stand back and watch progress take its course.

 

Then the only source of "lendable" money would be new money "printed" by the Fed.

Then all lending at interest would indeed be stopped cold.

The only way any lending would occur, then, is if banks were to lend out a portion of customers' savings accounts at zero interest. Paying interest on loans occurring at the rate our economy presently requires to remain viable is not possible without new money being printed. Debt is one of the largest creators of money. And you said you want to see no new money added to the money supply.

What you are suggesting is unrealistic in this type of economy. It can't be done. Other cultures and nations have legislated that loans may not require interest charges but money can only be lent at zero interest. So it can be done, but not in our economy as it is structured. A total reform ("revolution") of our economy would be required to move to zero interest loans. And otherwise new money is required.

 

1. Only source of new money? There should never ever be 'new' money input into an economy. Perhaps you are saying the only source of credit? This would be untrue. Capitalists use many many sources of credit outside of demand deposit loans including:
a. corporate bonds
b. investment fundraising (see open & close ended funds)
c. manufacturing credit or payment plans

2. All lending at the prevailing artificial interest would change of course. The natural interest rate would arise and people with cash holdings would be free to lend to investors at their leisure. Currently, this process is sabotaged by the Fed which prevents the natural interest rate from arising. Which leads to cyclical business failure due to malinvestment.

3. you should research different types of credit before making a statement as untrue as your last one. As cited in #1, there are multiple forms of credit that do not depend on demand deposit accounts.

 

Welcome to capitalism.

They are all loans as they all seek interest returns. Credit creates debt. Debt is the means by which money is created. https://duckduckgo.com/?q=money+as+debt&t=h_&search_plus_one=form&ia=videos

You don't seem to understand how debt creates money in our system.

Well, you're the only person saying this. I see no economist of any radical persuasion or otherwise and no economic theorist talking about such a possibility. If you allow borrowing in an economy, you require a growth in the money supply because interest indicates expansion of money. Increase. Growth. So it appears you are the one making untrue statements .... -unless you can post other credible sources advocating such a thing.

 

how would you prevent deflation and depression??

 

1. in capitalism, currency is inert. You dont judge an economy simply the amount of currency in its system for it tells you nothing of the system's success. For example, if the US economy's currency supply was multiplied by 1,000 - quotes for our goods and services would resemble quotes for things in Yen. A coke would be $1,000 at your local drug store.

Would you think that the economy would be more productive for this increase? Of course not...you would be making the mistake of confusing the nominal economy for the real economy.

Keyne's developed the myth of redistributing wealth through government spending - and flooding the economy with money...it is a myth that central banks and politicans enjoy as they are the ones that have the coercive power over taxation, spending, and the money supply. Your belief in this system is the elixir that supports your inability to see the system for what it is.

Capitalism is for entrepreneurs. Taxation, increases of money supply and redistributing wealth are the jobs of government thieves.

2. Corporate bonds, investment funds, and manufacturing credit have nothing to do with demand depository loans. This is a fact. They do not affect the money supply the way depository loans do because the dollars are not double counted. These forms of lending are the only form of lending that can morally exist unless of course the depositor is aware of and accepts the risk of demand depository lending.

3. What you should know about malinvestment: https://wiki.mises.org/wiki/Malinvestment

4. It's not that radical. Printing money is radical. It had been radical throughout human history until John Keynes. Printing money was frowned up in American history and sowed the seeds of distrust of the government for many decades. Inflation is a tax on the people. It's simply an unscrupulous practice.

Lastly, your consent to this theft was predestined due to what Chomsky described as Manufactured Consent. Mainstream media does not question the fed as it has no incentive to do so. In fact it is incentivized not to do so because its promotion of the Fed supports the businesses that buy advertising dollars from the mainstream media.

You will find detractors of inflationary economics throughout academia mainly in Austrian circles. My two favorites are the aforementioned Noam Chomsky and the terse and cutting Murray Rothbard - Rothbard's indictment of the state is the stuff of legend. Check out 'Anatomy of the State' - it should remind you of the first time you realized Santa Claus really didn't exist...

 

It worked pretty well after the Great Depression. It's also very, very logical.

You know, I've often thought about that and wondered if there might be a way to stop inflation. I see it as theft of money from working Americans. But I don't know its repercussions. I just believe after investigation that the capitalist way creates many problems in the end.

 

Except, the FED has actually limited ability to control long term interest rates:

https://www.brookings.edu/blog/ben-bernanke/2015/03/30/why-are-interest-rates-so-low/

to quote:

"If you asked the person in the street, “Why are interest rates so low?”, he or she would likely answer that the Fed is keeping them low. That’s true only in a very narrow sense. The Fed does, of course, set the benchmark nominal short-term interest rate. The Fed’s policies are also the primary determinant of inflation and inflation expectations over the longer term, and inflation trends affect interest rates, as the figure above shows. But what matters most for the economy is the real, or inflation-adjusted, interest rate (the market, or nominal, interest rate minus the inflation rate). The real interest rate is most relevant for capital investment decisions, for example. The Fed’s ability to affect real rates of return, especially longer-term real rates, is transitory and limited. Except in the short run, real interest rates are determined by a wide range of economic factors, including prospects for economic growth—not by the Fed."

The reason why current interest rates are low is not because the FED wants them to be to spite fiscal hawks, it is because there is too much capital around seeking return on investment. Large supply of capital with little demand (most would-be borrowers don't qualify for loans) dictates that price of borrowing will be low (i.e. interest rates are low). That's why the FED can't just say "Let's set the interest rate to 5%". While savers may rejoice for a moment, it would mean that all lending would come to a stop, since the newly-set rate is so far away from the equilibrium rate the market demands. Why? because banks couldn't possibly give you 5% on your deposited money when they themselves won't find anyone to lend the money to. Think about it, if there are too few qualified borrowers at 0.5% interest rate, there will be even fewer at 5%, who can carry the increased debt service payments. Thus, all lending will crash.

P.S.: I like that you actually try to discuss interesting subjects, instead of the usual "..but Clinton..", "..but Trump.." back and forth prevalent on PF these days.

 

Thanks for pointing that out. Most people don't seem to understand this concept. That's why we constantly have these discussions about how great deflation would be. Because most people can't see past their own pocket book, thinking how great it would be to continuously get more for your money. They don't have the ability to think about the macroeconomic implications.

 

Keynes strategy is a ponzi scheme. Ponzi schemes have a habit of collapsing. In our modern central bank, inflation driven economy, we call these collapses recessions. His scheme is torn apart logically in most macro econ classes. Because of a couple phenomenon:
1. Sticky wages - this phenomenon cites the fact that prices in the economy can not change instantly. Therefore, the increase in economic activity seen shortly after a monetary injection is actually nothing more than some people getting a piece of the monetary injection ahead of others and spending money accordingly. The fact that reveals this policy as completely unscrupulous is that everyone prone to sticky wages, suffer at the hands of people that are party to the inflation.

2. Ever notice that the tradtional argument that supports inflation, usually stops after one step? They will say something like the right amount of inflation is necessary because deflation is bad? The arguments never continue to completion because if you did continue the argument to completion you would see that the market would eventually resolve itself.

For instance, if we fixed the money supply, and suddenly the US went into recession, we would see housing, assets, and daily goods fall in price. People would starting saving more anticipating further increases in money. Eventually, people are going to start buying again as they depend on eggs, milk, and such to live. The demand would arise and that would stabilize prices to the prevailing money supply. There are no economic axioms to my knowledge that suggest an economic recession would last indefinitely. If we fixed the money supply the following recession would be the last one we would ever deal with.

 

Why would you want such an economically devastating thing to happen?

I'd say your claim the prospect is possible is lunacy, but if Donald wins the election, I agree it is possible.

 

Would be US's last step to nearly pure free entreprise - remove the theft of inflation, avoid business cycles, and end redistribution of wealth...it would mark a period of indefinite sustained growth.

Definitely possible as the charters of the country dont have to be changed. Nothing has to be changed, just need the right leaders in office and we are there.

 

I'll ignore and discount that since it is BS.

Our capitalist recessions are due to over-doing it with credit and debt leading to overproduction and high inventories, subsequent lay-offs making needed consumption of the excess inventories decline until policies cause consumption to gradually catch up and production to resume. Recessions have nothing to do with social programs. They actually have the role of getting us out of recessions.

IOW, the public suffers at the hands of capitalists. I agree with this.

Theoretically. Theory also says capitalism's great virtue is competition, yet every capitalist first and continually tries to eliminate competition. So when have we ever seen "the market" resolve a recession without creating a worse condition for the people than we had before the recession?

More theory. Yet it's theories that are proving to be bogus in reality. Given a "free market" the forces that hinder exploitation, concentration of wealth, and impoverishment of the people would be absent. Mergers and buy-outs would have none of the existing fetters, and there would still be surges in production leading to overproduction since there would still be no deterrent.

 

For whom? For the multinational conglomerates. -if at all. To think freeing up big business to do their will would mean they would improve life for the rest, is the worst of immature, ignorant, childish fantasies.

 

Don't know where this comes from, but certainly not from data. We actually had a time with an almost "fixed" money supply, i.e. the gold standard. But let's see about the business cycle back then:



It seems to me that swings of the business cycle were much more severe when on the gold standard compared to after we got off.

 

fantasies??? freeing up business means freeing them up to raise our standard of living at the fastest possible rate with the best possible jobs and products in the entire world. If you doubt try going into business with average jobs and products and let us know how long you survive. 1+1=2

 

this is a subject way over your head but a true gold standard prevents business cycles. Great Depression for example was caused by a drop in money supply of 35% which would have been impossible with a true gold standard. Do you understand? Of course not.

 

On this graph, what exactly does the Y axis correspond to?

 

1. Well you can't discount the fact that injecting money into the economy violates equality. For the simple reason that not everyone in the economy can take party to 'equal' portion that the money supply increases. Consider:

Let's say the Fed increases the money supply by $2B. There are 350M Americans. In order for this injection to be 'equitable'...it would have to instantly hit the bank accounts of all 350M Americans. We can reject that this is even possible by a mere glance. There for, we logically must conclude that the supply of money trades hands exponentially starting with a small group of people. This group of people perpetually benefits from inflation. And that is not fair first and foremost. Secondly, this inborn competitive advantage disrupts how the market would flow naturally.

On business cycles (your last paragraph)
People are free to fail in free markets. If a business over invests due to an honest oversight, this is an isolated failure. Inflationary economics does leads to systematic failure...failure in which throngs of entrepreneurs are all making errors in judgement...this is becuase they are getting false signals as caused by a controlled interest rate. The market is not controlling the interest rate which would send 'honest signals' to entrepreneurs...the Fed is controlling interest rate. And when they correct, or inflation gets out of hand, entrepreneurs fail en masse.

If the Fed was abolished, only entreprenuerial skill would spell success or doom...which is as it should be.

 

How do you figure?

Conglomerates, mom and pops, any entrepreneur would benefit...Large corporations are not exactly the most dominant forces known to man. They are prone to getting their market share eaten by start ups. Do you know the average period of time a company stays in the Dow Jones Industrial Average? It's like 6-7 years.

Corporations are competitive entities like any other. They respond to market forces like any other. They will pay market rates for labor as well as supplies. Lastly, competition leads to zero economic in the long term. This means over time, the consumer wins more and more utility in each industry.

 

say what?

 

China just switched to capitalism and eliminated 40% of the entire planets poverty!! That's sociopathic to a liberal? Ever heard of East/West Germany, Cuba/FLA and 132 other examples?? 1+1=2