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RAHN: Abolish central banks
Washington Times ^ | 10/25/2011 | Richard Rahn

Posted on 10/25/2011 6:23:33 AM PDT by SeekAndFind

Should the Federal Reserve be abolished as Rep. Ron Paul and others have demanded? The Republican presidential candidates have agreed that they would like to replace Ben S. Bernanke as chairman of the Fed, and many have been equally critical of former Fed Chairman Alan Greenspan. The view that both Mr. Bernanke and Mr. Greenspan have done poor jobs is also shared by many economists and financial writers. But, if not Mr. Bernanke, who? And if not the Fed, what?

One of the criticisms of the Fed and other central banks is that they were engaged in inflation targeting - such as a 2 percent inflation rate measured by the consumer price index - and thus, they ignored the price bubbles in the real estate and stock markets that were being fueled by too much money growth, which turned out to be a major source of the continuing financial crisis.

It is also clear to many of us that current Fed policy of ultralow interest rates of less than 1 percent for banks and money-market funds, combined with high inflation rates of 3.9 percent for the past year, is a formula for a new disaster. If a saver can only obtain 1 percent or so on cash savings but inflation is running at almost 4 percent, then the saver is losing 3 percent of his money each year in an inflation tax. Interest rates below the rate of inflation undermine financial institutions, distort business capital-allocation decisions and will reduce future economic growth rates and job creation.

In sum, the Fed and the other major central banks are making those least able to protect themselves from inflation and job loss poorer, and sending all of the wrong price signals to business people, which, in turn, is negatively affecting the world economy.

(Excerpt) Read more at ...

TOPICS: Business/Economy; Constitution/Conservatism; Government; News/Current Events
KEYWORDS: centralbank; federalreserve; feds; monetarypolicy

1 posted on 10/25/2011 6:23:43 AM PDT by SeekAndFind
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To: SeekAndFind
The CPI is not the rate of inflation. The rate of inflation is not the CPI.

Nothing wrong with low interest rates.

At the same time VAST sectors of the world economy are suffering intense levels of deflation.

2 posted on 10/25/2011 6:27:51 AM PDT by muawiyah
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To: SeekAndFind

My guess is that with the Fed directly controlled by politicians we would have been where we are today twenty years ago.

3 posted on 10/25/2011 6:40:18 AM PDT by bkepley
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To: muawiyah

Nothing wrong with low interest rates.

Except the artificial low ones set by the Fed.

It seems to me that there has to be a better idea than the central bank system or a central bank controlled by an honest Congress.

Both of the above, difficult to achieve due to mans frailties.

4 posted on 10/25/2011 6:50:50 AM PDT by wita
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To: wita
When the market rate for money is 2%, if the Fed sets a 3% discount rate that's little different than a forced transfer of wealth from one class to another.

However, if the market rate is 25%, and the fed sets a 3% discount rate, it really doesn't make a difference.

What's going on now is that improved productivity in every sector ~ and I don't care what sector you name ~ on a worldwide scale is making manipulation of money MEANINGLESS.

More mechanization, automation, computerization, methods and robotics ~ that is THE MACHINES ~ are lowering costs, and prices, and eliminating most traditional forms of employment for human beings.

5 posted on 10/25/2011 7:54:43 AM PDT by muawiyah
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To: muawiyah

What’s going on now is that improved productivity in every sector ~ and I don’t care what sector you name ~ on a worldwide scale is making manipulation of money MEANINGLESS.

Somehow this doesn’t ring true when the 08 crash is considered, or when one considers the printing of money without much backing it up in “real” value, or the stock market in general, which isn’t doing much but going up and down which might seem normal until one considers that it is mostly down.

Then there is the world economy with so many countries on the brink of financial ruin with out bailouts. You may not see it as manipulation, but I think I do. When a country spends like the drunken sailor when they are in reality broke, I call that manipulation. I’m certainly open for a discussion. I do believe economic/financial principles are right or wrong, although I couldn’t prove it in a conversation.

6 posted on 10/25/2011 8:24:50 AM PDT by wita
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To: wita
Todays stock market is about where it was in 2008 ~ and some indices have actually gone higher!

The crash in home prices worldwide reflects some pretty incredibly high levels of productivity in housing construction.

I hope you didn't think that was just speculation and loose lending ~ look up SIP construction ~ you can take relatively inexperienced and cheap workmen to put together SIPs, and reserve your higher paid carpenters for a few term projects ~ at huge savings.

SIP construction has been a worldwide phenomenon. Then there are those giant building cranes ~ invented in Germany they've gone everywhere. THEY CUT COSTS IN HALF, at a minimum.

Automobile prices have done down subtantially.

Office workers have learned the danger of computerization, as have their now long gone middle managers!

7 posted on 10/25/2011 8:38:42 AM PDT by muawiyah
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