While Peter G Klein is right in general, he is wrong in that he misses the whole point of the money system run by the Federal Reserve. They don't want a free market in money because the whole point of the system is profits of control. When they produce more money out of thin air, they own it and they lend it and collect the interest and they spend it on themselves. They own the biggest money tree in the history of the planet and it has been profitable to the tune of $trillions, diluting $ holders by 98% or so, with the same again to come.
<The Fed simply does not know the “optimal” supply of money or the “optimal” intervention in the banking system; no one does. Add the standard problems of bureaucracy—waste, corruption, slack, and other forms of inefficiency well known to students of public administration—and it becomes increasingly difficult to justify control of the monetary system by a single bureaucracy.
This is especially true when the good in question is money, the only good that exchanges against all other goods, meaning the good in which all prices are quoted. Mismanagement of the money supply not only affects the general price level, but distorts the relative prices of different goods and industries, making it more difficult for entrepreneurs to weigh the benefits and costs of various forms of action, leading to malinvestment, waste, and stagnation. Price inflation rewards debtors while punishing savers, just as artificially low interest rates reward homeowners while punishing renters
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Instead, market forces should determine levels of borrowing and saving, owning and renting, and entrepreneurial activity. Put differently, the monetary system is so important that it cannot be entrusted to a government agency—even a scientifically distinguished, nominally independent, prestigious organization like the Federal Reserve System.. >
Peter should think of inflation not as a failure, or whether it's optimal or artificial or anything. He should think of inflation as a royalty charged by the Federal Reserve for providing the monopoly money system enabled by the monopoly issuing power of the USA Federal government. Inflation is dilution of the existing issued money and it's deliberate and deliberately held at tolerable levels to avoid everyone giving up using the stuff altogether.
Americans should be thrilled by the Federal Reserve system because the dilution of foreigners is cash straight into the pockets of swarms of people in the USA. It's so important for the USA to keep the game going that they even ship some freshly quantitatively eased pixelated proceeds to Europe to help stabilize the mess over there.
While Ron Paul is excellent, he's barking up the wrong tree with the idea of a return to a gold standard. Warren Buffett* and I agree that gold is for Aztecs. Ron is right in that what is required is to stop spending mountains of opm. Greece is showing what unrestrained spending leads to. Spain too. Too many bludgers and not enough producers is the end of all socialist hippie communes, whether they are a few dreamy eyed wishful thinkers smoking dope, or a country of hundreds of millions.
Hooray for Big Ben and the Federal Reserve. Thank you Alan Greenspan KBE.
Mqurice
* Warren didn't actually phone me to check his opinion. |
