Monetary and Fiscal policy

[Fansee]

Why do governments need to use both monetary and fiscal policy to manage the economy?

[softwareNerd]

Why do governments need to use both monetary and fiscal policy to manage the economy?

They do not need to. (Though that's probably an "F" in school.)

[Hairnet]

Why do governments need to use both monetary and fiscal policy to manage the economy?

The people who run those governments are beholden to interest groups and voting blocks which want them to manipulate the economy in a certain way. The almagamation of these decisions is what creates are political-economy.

In The US, our central bank sets our monetary policy, and is not ran in any directly democratic way. They claim to be keeping the economy stable, however I suspect they are manipulating the economy in the favor of the kind of people who helped found our central bank.

[Kate87]

As far as the Fed is concerned I don't see any rights violations worth mentioning. All they need to do is make it legal for people to use other paper currencies as legal tender and their rights violations become zero. Even if that happened everyone would continue to use Federal Reserve dollars anyway, so the point is moot.

[Nicky]

As far as the Fed is concerned I don't see any rights violations worth mentioning. All they need to do is make it legal for people to use other paper currencies as legal tender and their rights violations become zero. Even if that happened everyone would continue to use Federal Reserve dollars anyway, so the point is moot.

The Federal Reserve System is the ruling government body put in place to take over the private financial industry of the United States in 1913. As such, everything the Federal Reserve System owns is the stolen property of private businessmen.

Furthermore, by enforcing an illegitimate monopoly on banking in the United States (by federal law, all national banks must be "members" of the Federal Reserve System - and by members they mean subject to the government appointed Fed leadership's clearly rights violating regulations and arbitrary directives, NOT VOTING MEMBERS OR SHAREHOLDERS IN A PRIVATE ASSOCIATION OR CORPORATION) the Federal Reserve System is a tool which the government is using to violate all Americans rights, not just those who happen to own or wish to start national banks.

Oh yeah, and then there is the fact that they also have a forcibly obtained monopoly on currency. But the "legal tender" clause is nowhere near the main tool used to enforce that monopoly. The original destruction of the private financial industry, and the currently enforced monopoly on national banking, do that much better than just requiring businesses to accept US dollars and pay their taxes in them.

Edited November 30, 2012 by Nicky

[Nicky]

Why do governments need to use both monetary and fiscal policy to manage the economy?

They do not need to. (Though that's probably an "F" in school.)

Well they don't need to manage the economy. The economy would be fine, and better off, without it being managed by the government.

But if they want to manage it, the main tools they need are monetary policy (like the Fed), and fiscal policy (taxation and spending).

Without it, their next best option would be full blown central planning. But the only direction that manages the economy is into the ground.

[Kate87]

The Federal Reserve System is the ruling government body put in place to take over the private financial industry of the United States in 1913. As such, everything the Federal Reserve System owns is the stolen property of private businessmen.

Furthermore, by enforcing an illegitimate monopoly on banking in the United States (by federal law, all national banks must be "members" of the Federal Reserve System - and by members they mean subject to the government appointed Fed leadership's clearly rights violating regulations and arbitrary directives, NOT VOTING MEMBERS OR SHAREHOLDERS IN A PRIVATE ASSOCIATION OR CORPORATION) the Federal Reserve System is a tool which the government is using to violate all Americans rights, not just those who happen to own or wish to start national banks.

Oh yeah, and then there is the fact that they also have a forcibly obtained monopoly on currency. But the "legal tender" clause is nowhere near the main tool used to enforce that monopoly. The original destruction of the private financial industry, and the currently enforced monopoly on national banking, do that much better than just requiring businesses to accept US dollars and pay their taxes in them.

All paper currencies have to be issued by someone. And that someone then gets to control how the currency works by controlling which banks can access the reserve system of that currency. In other words the exact same system would form under a free market, so the point is moot.

You say there is an enforced monopoly on joining the Federal Reserve System, but which bank would choose not to join it? Only those who wanted to setup their own currency. Which they are disallowed from doing. So the main rights violation stems from the legal tender law.

[Nicky]

All paper currencies have to be issued by someone. And that someone then gets to control how the currency works by controlling which banks can access the reserve system of that currency. In other words the exact same system would form under a free market, so the point is moot.

You say there is an enforced monopoly on joining the Federal Reserve System, but which bank would choose not to join it? Only those who wanted to setup their own currency. Which they are disallowed from doing. So the main rights violation stems from the legal tender law.

Not only are you committing the fallacy of arguing to the future, but all your claims about the future are ridiculous.

Really, no one would want to start a national bank that isn't a member of the Fed? The exact same system would form under a free market? Are you really unaware of the fact that the US had a relatively free financial system for most of its existence, and that such a system in fact DID NOT FORM in it? That banks didn't band together to form a monopoly, but were in fact competing against each other?

Only those who wanted to setup their own currency. Which they are disallowed from doing. So the main rights violation stems from the legal tender law.

The legal tender act (in combination with local laws and the threat of government intervention) effectively forces businesses to accept US dollars, but it doesn't ban other currency.

In fact, some Americans do use other currency. The most popular example is BerkShares. Google it.

Edited December 1, 2012 by Nicky

[Kate87]

Really, no one would want to start a national bank that isn't a member of the Fed? The exact same system would form under a free market? Are you really unaware of the fact that the US had a relatively free financial system for most of its existence, and that such a system in fact DID NOT FORM in it? That banks didn't band together to form a monopoly, but were in fact competing against each other?

Central banks form naturally. The old US system had one, it was called the Suffolk System. http://mises.org/daily/4902

There are some historians who claim Suffolk cannot be labeled a central bank, due to its "lack of quantitative control" over the money supply, but this is not correct.[4] The system most certainly did have control over the money supply; else it would have been entirely ineffective. Unlike the modern central banks, though, the Suffolk system was specifically designed to restrict excess circulation of paper bank notes.[5] The directors would frequently threaten any member bank with redemption of their paper notes for the promised gold if they believed that bank to be inflating beyond the bounds of safety.

[softwareNerd]

Central banks form naturally. The old US system had one, it was called the Suffolk System.

Clearing houses played a role in seeing that member banks kept a certain discipline. There were also times when they issued notes of their own: people who were not willing to accept the notes of any one bank would be a little more willing to accept clearing-house notes, because it was backed by multiple banks.

Also, stronger banks played some role. It's passe to say that J.P.Morgan was like the U.S. Central bank in his hey day. Not far from the truth though.

In a superficial sense these institutions were similar to the Fed: i.e. in the sense that they exerted certain control over certain banks, and put their own credit and reputation behind those banks during times of crises. However, the similarity ends there. A rational parent may lay down parameters for his child and come to the child's aid at times; Fagin might do the same with his theiving street urchins. So, is it fair to say that Fagin was just playing the role of a parent?

When we compare the actions of the Fed to the actions of Central banks of old, we see that the fed often acts the opposite of those older and private institutions.

Edited December 1, 2012 by softwareNerd

[tadmjones]

I always took the real danger in a central banking system , aside from legal tender laws as rights violations along with others, to be that if the government were the institution to run the banking system it would give them near unlimited ability to create credit, not only the disastruous effects of currency manipulation.

[moralist]

All paper currencies have to be issued by someone. And that someone then gets to control how the currency works...

... and that "someone" chose to separate paper currency from representing the reality of gold and silver. And as if that wasn't a grand enough fantasy, credit came to be regarded as currency, when in reality it is only a lack of currency.

Because I have absolutely no responsibility for, or control over, this system... my own personal approach is to regard Federal Reserve Notes as rapidly blackening bananas which are only fit for immediate consumption (transient financial transactions) but which are unsuitable as a store of wealth. Everyone has already experienced the just and deserved consequences of believing the fantasy that credit is currency. Economic security can only be found in the bedrock reality of outright ownership of possessions.

Edited December 19, 2012 by moralist

[Dante]

All paper currencies have to be issued by someone. And that someone then gets to control how the currency works by controlling which banks can access the reserve system of that currency. In other words the exact same system would form under a free market, so the point is moot.

...

Central banks form naturally. The old US system had one, it was called the Suffolk System.

Discussions about whether or not the Suffolk system was a central bank hinge on the definition of a central bank, but here's one thing that nobody claims: that the Suffolk System was the U.S.'s central bank. The Suffolk system was a localized institution that did not exert any significant influence on the banknotes that were issued outside of its area. Consider this quote from your link, in the very next paragraph:

Contemporaries pointed to the greatest contribution the system made to the people of New England: because it forced all members to maintain a "high ratio of specie to net demand liabilities" the New England banks avoided the carnage experienced elsewhere in the banking industry during the Panic of 1837.

Clearly, the Suffolk system was a regional institution, and many parts of the country were not a part of it. We can argue about what kind of private clearinghouses might arise in the absence of the Federal Reserve, but it is simply wrong to say that, when we didn't have a national central bank, the Suffolk system arose as such an institution.

[Dante]

As far as the Fed is concerned I don't see any rights violations worth mentioning. All they need to do is make it legal for people to use other paper currencies as legal tender and their rights violations become zero. Even if that happened everyone would continue to use Federal Reserve dollars anyway, so the point is moot.

I'm inclined to agree with this analysis, except for the last point.

Obviously, people would not switch en masse away from using the dollar if the legal tender laws were lifted, but it would open the door for the use of other currencies in certain situations, such as large transactions between corporations. Furthermore, the more dollars that the Federal Reserve created, the more appealing such infant alternative currencies would become. Ultimately, cash is hardly used at all anymore, and I wouldn't care much at all if my bank account was denominated in something other than dollars. I think the repeal of the legal tender laws would provide a tangible check on the actions of the Fed, one which is sorely needed.

[Nicky]

I'm inclined to agree with this analysis, except for the last point.

Obviously, people would not switch en masse away from using the dollar if the legal tender laws were lifted, but it would open the door for the use of other currencies in certain situations, such as large transactions between corporations. Furthermore, the more dollars that the Federal Reserve created, the more appealing such infant alternative currencies would become. Ultimately, cash is hardly used at all anymore, and I wouldn't care much at all if my bank account was denominated in something other than dollars. I think the repeal of the legal tender laws would provide a tangible check on the actions of the Fed, one which is sorely needed.

The legal tender laws are not what give the Fed a de facto monopoly on money. The law that forbids national banking outside the Fed does.

[Dante]

The legal tender laws are not what give the Fed a de facto monopoly on money. The law that forbids national banking outside the Fed does.

Interesting. Which laws specifically are you referring to?

[Hairnet]

Interesting. Which laws specifically are you referring to?

Aren't all banks part of the federal reserve system? I was under the impression that you had to operate as part of this sytem in order to be a bank at all.

[CrowEpistemologist]

I wouldn't say that the Fed has a "monopoly" on money, I would say they currently have a highly dominant market share of money in the USA.

I also wouldn't say that in the current context they have a very safe market share either: at the first hint of US dollar inflation, investors can and will trade out of them. This has happened in countries all over the globe in the last 20 years. Globalization is making US inflation moot for any halfway savvy investor. Nobody keeps stacks of paper bills in their mattress as a savings account anymore, and any real savings these days is a portfolio that can be comprised of US dollars or gold or stock or whatever makes sense at that point in time.

So yes, right now lots of people keep cash, and it's pretty stable, and as such it's used as the primary means of trade in the US. That could change over night if the core benefit of US dollars--it's relative stability--went away.

[Nicky]

Interesting. Which laws specifically are you referring to?

The Federal Reserve Act (Sect. 2 and 19, if you prefer to read the legislation). I''ll just quote wikipedia, because it's clearer:

In the Federal Reserve Act' date=' Congress provided that all nationally chartered banks were required to become members of the Federal Reserve System. The Act required these banks to purchase specified non-transferable stock in their regional Federal reserve banks, and to set aside a stipulated amount of non-interest bearing reserves with their respective reserve banks. (Since 1980, all depository institutions have been required to set aside reserves with the Federal Reserve. Such institutions are entitled to certain Federal Reserve services.[/quote']

Not all banks are part of the Fed. All national banks are required to be, but regional banks(state level down) are free to join or not. Most don't.

[Nicky]

I wouldn't say that the Fed has a "monopoly" on money, I would say they currently have a highly dominant market share of money in the USA.

I also wouldn't say that in the current context they have a very safe market share either: at the first hint of US dollar inflation, investors can and will trade out of them.

So your definition of a monopoly would be to not have anyone issue other currency except for the dollar, anywhere on the planet? If I was given the privilege to be the only carrot salesman in the US, I wouldn't have a monopoly because you can still order carrots from France?

You really don't think the privilege to be the only national organization allowed to engage in banking counts as a monopoly?

[CrowEpistemologist]

So your definition of a monopoly would be to not have anyone issue other currency except for the dollar, anywhere on the planet? If I was given the privilege to be the only carrot salesman in the US, I wouldn't have a monopoly because you can still order carrots from France?

You really don't think the privilege to be the only national organization allowed to engage in banking counts as a monopoly?

In today's world with technology the way it is, currency is pretty fluid. Insofar as it's not is just a function of practicality not coercion. Dollars work fine right now, so nobody is exerting any effort to work around them. If they changed, then people would.

As for banking, it seems like there are a lot of those all over the place in the USA, not just one...