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Watched "The Fed Today" a pro-fed video in class today. Discussion is tomorrow. need your help

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Philip posted on Wed, Apr 18 2012 3:29 PM

would appreaciate articles refuting the arugments. Also i need info on the whole pre-federal reserve america was bad part. 

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It gets tiring to listen to what I 'learned' in high school.  Like 'aggregate demand' where an economy fails if not enough people are buying, and argues for complete circulation of money. Eh, increasing the money supply makes currency worth less (due to inflation) so I don't see how paper money printed at a touch of a button could be called 'sound'. 

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Listen carefully to the words. On the supply of money, "if the supply of money is too large, prices go up. If the supply of money is too small, depression may result." Does this make sense. NO. " If the supply of money is too small," prices go down. And that's not bad!

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Neodoxy replied on Thu, Apr 19 2012 10:44 PM

This is the fundamental problem with the federal reserve and all central banks:

The market economy is, very basically, an institution where people provide for each other based upon the existence and spending of money. Money is the life blood of the market economy, money dictates what goes where and how all individuals and firms within the market economy act. This means that so long as the amount of money demanded by people changes, or the money supply changes, there will be fluctuations which change the entire structure of the economy. Normal "market" changes in the value of money occur in small amounts and therefore happen quickly, whereas a central bank can lead to long term shifts in the supply and therefore value of money. A small body of water isn't a bad analogy. 

Let's imagine we have a pond. Now if some water is removed (deflation, either of the actual money supply or price deflation) then in a free market there will be fluctuations within the pond, so long as the amount is small there will be ripples, but it will even out quickly. What a central bank can do is build up a lot of water in one section of a pool for a period of time, let's say sectioning it of with a small wooden wall. This is because prices don't adjust automatically, inflation takes time, and when it is consistently invested in certain area it takes time for the wall to be removed. When the wall is finally removed, however, a significant amount of water flows from inside the wall to the rest of the pool. The ripple effects are much larger than slight increases or decreases.

Central banks consistently bring in a larger amount of money into the money supply, but only in certain parts of the economy, leading to inherent miscalculations in the market economy. So long as prices are not "neutral", so long as prices do not instantly adjust as soon as a new dollar enters the economy, then this miscalculation will result wherever central banks intervene.

I do hope this helped.

At last those coming came and they never looked back With blinding stars in their eyes but all they saw was black...
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