Why Thoughtful People Will Support The FedSubmitted by Molusk on Sat, 10/05/2013 - 18:53
Get your downvotes out, Bill3 is back with some unwelcome observations.
The budget drama and shutdown hysteria continue to illustrate why, despite everything, serious people will have grave reservations about removing the Fed's status as a separate and independent agency of the government, with an apolitical mandate, an extended term structure and time horizon, and a close relationship with the top echelons of the private sector (finance, banking) and academia.
When people see all this hysterical behavior, theatrics and political irrationality being played out in a public spectacle by the political parties, the Fed actually look like the good guys and the adults. They are above it, not worried by it, and remain committed to business as usual, and people are not worried about either their bank accounts or the money supply being impacted by this show.
Nor is anyone really worried about default, the full faith and credit of the treasury market, or its liquidity or the liquidity of the banking system. Certainly not people active in the markets or finance or the top tiers of business.
Despite their corruption, despite their cozy relationship with powerful banks, despite business cycles and bailouts, people do not and will not want their bank accounts and their money to be controlled by these two ridiculous political parties.
Nor do they trust that market to provide an equal level of monetary stability, in the absence of the Fed umbrella of bailouts, FDIC, regulation, and unlimited liquidity. They may be wrong, but convincing people to give up imperfect stability for the possibility of better imperfect stability, and the risk of major instability, is a hard sell.
Nor would they want to turn over monetary policy to ideological true believers committed to a particular theory.
They want practical, business minded people, even a little bit corrupt and greasy, running the monetary ship with a government safety net. That means the bankers and academics that make up the present monetary authority.
As bad as that is. At least over these other alternatives. Because the Fed, despite everything, will in fact keep the trains running on time, figuratively speaking, regardless of the rest of Washington's antics and political bipolar disorder.
It will be hard to convince people who have something to lose, and who actually desire stability, to prefer those other alternatives to the present business as usual. The Devil you know...
The problem with the whole self regulating market for money and banking is that you are selling academic theory against perceived empirical data. The idea of a perfect stable market that never existed except on paper, against the perception of a historical reality where markets did not in fact provide that kind of stability. Even if the theory is correct, even if the data is misleading, the problem is the theory can't be tested.
When empirical data is marshaled against it the advocate of the theory is forced to retreat into the claim that "it's never been tried." Again, very tough sell for practical people.
There are good ideas out there for improving monetary policy, including free market and free banking ideas. But they won't come out of this political system of disorder. They likely won't come at all, but if they do it will be internally adopted policies of central bankers and Fed academics through discourse with academic critics.
It will not come from political demagogues, and it will not come from crank ideologies that don't participate in the actual academic discourse.
Okay, we can go back to waiting for the imminent collapse now.