Hi mindmeld; Re: "You are trying to prove a counter-factual.";
Uh, no. I'm not trying to prove anything. I'm supporting what is being done and has been done for many decades in many different countries. You're the one who wants a new world, a change to the existing situation, something that's never been tested before. So you're the one who has to prove that your ideas will work. We already know that the current system works because it's been in operation for around 100 years. Your complaint is not that the system doesn't work, but that it doesn't work as well as the system you prefer. To make this very large change, you need to prove that the new system would work better.
And I'm not one of the people you need to convince. You need to convince the central bankers. And since they're the ones who thought up the system we have, I doubt you'll make much progress with them.
My recollection of the Carter years is that Wall Street basically forced Carter to accept a Fed chairman who was in favor of tight money. I wouldn't doubt that this would happen again. I remember that the victory for hard money was rather brief. The rise in interest rates stopped home construction and people began mailing 2x4s to Carter.
The reason you can't have a permanent hard money policy in a modern democracy is that the public won't stand for it. They did it back in the 19th century but they were different people then. It might be useful to review what happened in the biggest depression *before* the Great Depression, the one that started in 1893. That recession was also blamed as the result of a bubble caused by an inflation of the money supply. In this case the inflation was created by the "Sherman Silver Purchase Act" of 1890 which meant that the government increased the money supply by buying silver. People who wanted tight money blamed the recession on silver purchases and they were halted. The result was that the economy did not improve, LOL.
What I'm saying here is that we've been down this road before. Depressions just have to be waited out. Having an easy money policy makes them a little milder. You might enjoy how our great-great grand parents argued this issue out in the late 19th century. From the wikipedia article on Bryan's "Cross of Gold" speech:
Implementation of the Bland-Allison Act did not end calls for free silver. The 1880s saw a steep decline in the prices of grain and other agricultural commodities. Silver advocates argued that this dropoff, which caused the price of grain to drop below its cost of production, was caused by the failure of the government to adequately increase the money supply, which had remained steady on a per capita basis. Advocates of the gold standard attributed the decline to advances in production and transportation. The late 19th century saw divergent views in economics as the laissez faire orthodoxy was questioned by younger economists, and both sides found ample support for their views from theorists. [11]
In 1890, the Sherman Silver Purchase Act greatly increased government purchases of silver. The government pledged to stand behind the silver dollars and treasury notes issued under the act by redeeming them in gold. Pursuant to this promise, government gold reserves dwindled over the following three years. [12] Although the economic Panic of 1893 had a number of causes, President Grover Cleveland believed the inflation caused by Sherman's act to be a major factor, and called a special session of Congress to repeal it. Congress did so, but the debates showed bitter divides in both major parties between silver and gold factions. Cleveland tried to replenish the Treasury through issuance of bonds which could only be purchased with gold, with little effect but to increase the public debt, as the gold continued to be withdrawn in redemption for paper and silver currency. Many in the public saw the bonds as benefiting bankers, not the nation. The bankers' feeling was that they did not want loans repaid in an inflated currency, and may have preferred to receive repayment in deflated currency. [13] The effects of the recession which began in 1893, and which continued through 1896, ruined many Americans. Contemporary estimates were an unemployment rate as high as 25%. The task of relieving the jobless fell to churches and other charities, as well as to labor unions. [14] Farmers went bankrupt; their farms were sold to pay their debts. Some of the impoverished died of disease or starvation; others killed themselves. [15]
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Despite the repeal of the act, economic conditions failed to improve.
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en.wikipedia.org
-- Carl
P.S. Obamacare was similar. It was up to the Democrats to prove that they were improving healthcare. It was not necessary for the Republicans to prove that Obamacare was a bad idea. How could they, when the detail of how Obamacare would be implemented were not known even to the Democrats. In the actual event, the law is being torqued illegally.
If hard money folks were elected, the same things apply. We would have no idea what policies they would change. Oh we might be able to say what they were going to do for the first few years but as any military man knows, among the first casualty of war is the plan.
Suppose that tight money really would help the economy. How do you face the problem of forcing future generations to continue to follow the policy? All the lessons learned in the Great Depression about keeping banks away from the stock market were completely forgotten in the decades following it. And in the decades following now, all the lessons learned from the 2008 crash will also be forgotten. This is the nature of human life. Our children will make roughly the same mistakes we made and there is absolutely nothing you can do to stop this from happening. It's human nature to want too much easy money during good times (when, I agree, it is a bad idea). But now is not good times. These are hard times and now is when easy money is appropriate. And in fact, interest rates drop because few people want to borrow money. They would do this in the complete absence of any Fed action. |
