Bank of the West federally owned?

tpain said:

I must disagree that this is a good idea. You see, "Congress purposely established the fed as an independent agency of government. The objective was to protect the Fed from political pressures so that it could effectively control the money supply and maintain price stability. Political pressures on Congress and the executive branch may at times result in inflationary fiscal policies, including tax cuts and special-interest spending. if Congress and the executive branch also controlled the nation's monetary policy, citizens and lobbying groups undoubtedly would pressure elected officials to keep interest rates low even though at times high interest rates are necessary to reduce aggregate demand and thus control inflation. An independent monetary authority(the Fed) can take actions to increase interests rates when higher rates are needed to stem inflation. Studies show that countries that have independent control banks like the Fed have lower rates of inflation, on average, than countries that have little or no central bank independence." Can you imagine how bad off we would be economically if Congress had control of monetary policy. Those men and women can barely wipe their own butts, let alone try to even understand monetary policy and how it works.

Source: My economics textbook

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I have no doubt that your economics text book pushes this idea that an "independent" central bank is necessary to maintain "full employment" and "price stability". Sadly, Keynesianism and central monetary planning are all they teach in schools these days. I'd recommend that you read up about the history of banking leading up to the creation of the Fed. Read about how it was sold to the American people. Read about who the actual designers of the system were during those meetings at Jekyll Island.

Central banking is the worst possible example of central planning. Just like the Soviet commissars would sit around a table and decide how many cars or houses or loaves of bread the state industries would produce that year, the Federal Reserve Board and the FOMC try to decide what the price of money should be for the entire country. How can less than 20 people possibly have the same knowledge and expertise about the state of affairs as the collective knowledge of the entire populace, ie the market? They can't. And far from being an institution insulated from political influence, congress and the executive branch have enormous incentive to pressure the Fed to act in a given way because the Fed's actions are carried out in secret. At least if congress were doing it, we'd know what they were doing.

However, the suggestion that congress take over the printing of money is almost as ridiculous as the Fed doing it. No one should print money. Wealth cannot be printed. Instead the price of money, ie interest rates, should be determined by the market, and the actual currency that we use should be fully backed by metals. To ensure that the money supply vs. metal supply is not manipulated by the treasury, congress should repeal legal tender laws that force us to use any specific currency.

While I appreciate your insight I do have to tell you that a "metals" or "commodity" based currency is just as easily manipulated. Remember when the United States called in all the Gold in the entire country? Literally. All of the Gold was called in. Literally.

Remember in the middle of the century when the United States stopped putting real Silver in their Silver coins? Now it's a blend of cheaper metals.

Understand that the currency doesn't have to be "backed" by anything except the full faith and credit of our great country and it's people. Our government simply needs to print their own currency (LIKE GREEN BACKS OR CONTINENTAL DOLLARS) of which it will spend throughout the country with it's projects and plans. This injects the new- DEBTLESS- money into our economy. The government will accept their NEW currency as payment on income taxes and all other debts. Problem solved... SO long as the government will take their new money for payment on taxes and debts- the people of the nation will so collect and spend the money.

When somebody else prints your dollars (Central Bank- Fed Res); well the dollars are quite literally RENTED to the nation to use. The banks dollars may be called in or expanded in any fashion they decide- which causes a boom/bust economy coupled with the raising and lowering of interest rates (set by the very bank).

centsi said:

I have no doubt that your economics text book pushes this idea that an "independent" central bank is necessary to maintain "full employment" and "price stability". Sadly, Keynesianism and central monetary planning are all they teach in schools these days. I'd recommend that you read up about the history of banking leading up to the creation of the Fed. Read about how it was sold to the American people. Read about who the actual designers of the system were during those meetings at Jekyll Island.

Central banking is the worst possible example of central planning. Just like the Soviet commissars would sit around a table and decide how many cars or houses or loaves of bread the state industries would produce that year, the Federal Reserve Board and the FOMC try to decide what the price of money should be for the entire country. How can less than 20 people possibly have the same knowledge and expertise about the state of affairs as the collective knowledge of the entire populace, ie the market? They can't. And far from being an institution insulated from political influence, congress and the executive branch have enormous incentive to pressure the Fed to act in a given way because the Fed's actions are carried out in secret. At least if congress were doing it, we'd know what they were doing.

However, the suggestion that congress take over the printing of money is almost as ridiculous as the Fed doing it. No one should print money. Wealth cannot be printed. Instead the price of money, ie interest rates, should be determined by the market, and the actual currency that we use should be fully backed by metals. To ensure that the money supply vs. metal supply is not manipulated by the treasury, congress should repeal legal tender laws that force us to use any specific currency.

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The problem with repealing the legal tender laws is that we will end up with a thousand different types of money, and nobody will be able to figure out what is real, and what is fake. So I think, and I'd hate to say this, that congress could create a new agency (which should pass constitutional muster) that would print the money of the U.S., and destroy money that is no longer usable. Congress would have to set it's value (does 1oz of gold = $20, or $200, or $2,000?), and that value should not change. Also, a bi-metal standard (such as using silver and gold) leads to problems, because the values of such metals change independently of each other. Even though you may disagree with me, I think we are in agreement that the Fed, who's job it was to protect the value of the dollar, has failed miserably since their inception by losing 95% of it's value.

cscitney87 said:

While I appreciate your insight I do have to tell you that a "metals" or "commodity" based currency is just as easily manipulated. Remember when the United States called in all the Gold in the entire country? Literally. All of the Gold was called in. Literally.

Remember in the middle of the century when the United States stopped putting real Silver in their Silver coins? Now it's a blend of cheaper metals.

Understand that the currency doesn't have to be "backed" by anything except the full faith and credit of our great country and it's people. Our government simply needs to print their own currency (LIKE GREEN BACKS OR CONTINENTAL DOLLARS) of which it will spend throughout the country with it's projects and plans. This injects the new- DEBTLESS- money into our economy. The government will accept their NEW currency as payment on income taxes and all other debts. Problem solved... SO long as the government will take their new money for payment on taxes and debts- the people of the nation will so collect and spend the money.

When somebody else prints your dollars (Central Bank- Fed Res); well the dollars are quite literally RENTED to the nation to use. The banks dollars may be called in or expanded in any fashion they decide- which causes a boom/bust economy coupled with the raising and lowering of interest rates (set by the very bank).

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You can not just print money. It SHOULD be backed by something. If the money is backed by something such as gold or silver, and it's value is not manipulated, you can't have hyper inflation. If your money isn't backed by anything, and the government keeps printing away, hyper inflation becomes a question of "when", not "if". If we could just print money, why doesn't the government just print all the money, so we don't have to work, or pay taxes? Why do we have a $13,000,000,000,000 debt? Why not just print the money and pay it off?

cscitney87 said:

While I appreciate your insight I do have to tell you that a "metals" or "commodity" based currency is just as easily manipulated. Remember when the United States called in all the Gold in the entire country? Literally. All of the Gold was called in. Literally.

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Yes, the government illegally and unconstitutionally seized gold reserves. That's a lot more than simple manipulation. That being said, I agree with you that, as long as central banking exists, it does not matter if we have a gold standard (though it would certainly help) because it could be debased by the government (as it was in Early Modern England). What we need is a gold standard (or silver, but not both) and no central bank issuing fiat paper money.

Congress controlling monetary policy

I just think that if we put the money system under control of Congress, monetary policy will be based on politics instead of sound economic reasoning. Right now, the Board of Governors aren't affected by politics because they are chosen every 14 years. They are pretty much safe from lobbyists and political pressure because what do they have to gain or lose if they don't do what Congress wants them to. They aren't there to make Congress happy, they are there to control monetary policy.

"Give me control of a nations money supply and I care not who makes it laws."

The wealthy families of the world truly do have a stranglehold on the financial industry. This includes the gold markets and the Federal Reserve.

What matters not is what backs the money. What matter is WHO controls the SUPPLY (how much or how little). Our government Should print it's own dollars and Should control how much or how little. If we suffer deflation and inflation- at least We did it. There's nobody to blame. You ask- How do we stop inflation and deflation? Well first off- we are ALREADY in a boom/bust economy- having Congress control the supply won't exactly worsen the situation.

The deal is- how this all works out- is that there will be competing currency when legal tender laws are repealed. If North Dakota prints Bluebacks and Colorado prints Greenbacks and Oregon prints Yellowbacks- the Free Market will decide (by spending/saving or not) which currency is working out the best for our economy.

As a whole- our society has NEVER experienced true freedom in this regard- so we literally have no idea what it looks like, feels like, smells like, and sounds like- and we certainly are naturally afraid of the unknown.

cscitney87 said:

As a whole- our society has NEVER experienced true freedom in this regard- so we literally have no idea what it looks like, feels like, smells like, and sounds like- ...

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Yeah, Thanks to Alexander Hamilton. I agree with you for the most part, I think we might be in a very different situation today if we had let each state decide on currency. The problem is in modern international commerce. If we decentralized this late in the game we would run into the same exchange problems that Europe was experiencing after the formation of the EU but before the Euro had completely taken over. Interstate commerce would become more difficult as well. I really wish we had never centralized in the first place. Unfortunately, I don't think it's practical to go back now.

International trade

We must also remember that Americans aren't the only ones who have U.S. dollars in their banks. Other countries have a supply of U.S. dollars in their central bank because of its stability. don't believe me? look it up. So if we went to where every state had their own currency(greenbacks, bluebacks, and yellow banks), how would that affect the global economy? All of a sudden all the other countries would exchange their dollars for whatever their local currency is because the dollar wouldn't be worth the paper it's printed on and they want their money. A flood of U.S. dollars would come back and we would have hyperinflation like Germany in the early 1920's.

I didn't realize this thread would create so much interest. I should have replied sooner.

Money does have to be backed by something because money is supposed to be something. Money comes about not just as a means of exchange, but also a store of value. People have one product or service of value and want to exchange it for another product or service of value. Of course if you have a house to sell and need eggs, you cannot divide up your house for the small number of eggs that you need, nor do you want millions of eggs. So that's where the barter economy reaches its limits and is naturally replaced by a medium of exchange that everyone within that economy agrees has value. Money needs to have a few qualities in order to survive and gain the widest acceptance. These qualities are scarcity (dirt wouldn't make good money), divisibility (cut it up into smaller chunks without destroying it's properties), portability (high value to weight ratio), durability (will last many years without rotting, shrinking or otherwise losing it's valuable properties) and lastly it should have intrinsic value of it's own (metals are both precious for their beauty and useful in industry whereas paper is far less so) . It pretty quickly becomes apparent why precious metals became money naturally over thousands of years. Many other types were tried and used in some areas (coffee beans, sea shells, wheat, corn), but gold and silver emerged supreme.

Having commodity money standard doesn't mean that we each have to walk around with silver or gold in our pockets. For most people it would be more convenient to carry representative money, ie a certificate redeemable back into the commodity by a bank who stored your metals for a fee. This is how paper money came to be. It was much easier to carry a representation of your gold/silver around than the metals themselves. In time the certificates became accepted in the business community without prejudice as though they were actually the metal themselves. But then banks decided that instead of just using the money made from keeping your metal safe to lend out, they could lend out your metal as well because not all depositors took out their money at the same time. This is technically fraud, but today it is called fractional reserve banking.

Fractional reserve banking led to banks making lots of loans and lots of money, but during a downturn they'd also get in trouble and run on the bank by it's depositors could ensue. This is where the government gets involved and people's understanding of the gold standard get's skewed. Instead of letting the banks fail because they lent the people's money out and now can't pay them back, many state governments allowed certain banks to suspend the redemption of certificates in specie, ie back into gold or silver. When people say the gold standard failed, they ignore the fact that the gold standard was suspended at various times and places by governments. The "gold standard" throughout the latter half of the 19th century wasn't allowed to work.

Fast forward to 1933. Yes FDR illegally and unconstitutionally demanded nearly every gold coin and paid $20.67 an ounce, or $0.67 premium. Then the government changed the value of an ounce of gold to $35, depreciating the value of the gold that everyone turned in by 40%. Again, the government was in charge of shafting everyone, not some mythical economic force.

As for the boom bust cycle, I recommend that anyone interested in this read Mises, Hayek, Rothbard or really any noted author in the Austrian School. Large scale booms come from an extension in bank credit made possible only by a central bank's low interest rates. The bust is simply inevitable and is actually the cure to the false boom.

cscitney87 said:

The deal is- how this all works out- is that there will be competing currency when legal tender laws are repealed. If North Dakota prints Bluebacks and Colorado prints Greenbacks and Oregon prints Yellowbacks- the Free Market will decide (by spending/saving or not) which currency is working out the best for our economy.

As a whole- our society has NEVER experienced true freedom in this regard- so we literally have no idea what it looks like, feels like, smells like, and sounds like- and we certainly are naturally afraid of the unknown.

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I agree with you there. Competing currencies have existed all throughout history and throughout much of American History as well. They are a check on governments who attempt to debase the money. The repeal of legal tender laws would not create chaos in the markets unless the perception that it is worthless has already reached a critical mass, and by then the laws won't mean anything anyway (see Weimar Republic 1923). The repeal of legal tender laws would provide an additional check on the Fed's monetization of debt and reckless spending by congress.

cscitney87 said:

What matters not is what backs the money. What matter is WHO controls the SUPPLY (how much or how little). Our government Should print it's own dollars and Should control how much or how little. If we suffer deflation and inflation- at least We did it. There's nobody to blame. You ask- How do we stop inflation and deflation? Well first off- we are ALREADY in a boom/bust economy- having Congress control the supply won't exactly worsen the situation.

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That's where I disagree with you. The supply of money (the same as the price of money, ie interest rates) should also be determined by the market and not by central bankers or the US Treasury. How much is enough or too little? Is Treasury wiser than the market? Can they predict bubbles and deflate them before they bring down the economy? Will they?

Interest rates are derived from the is the supply of money. There are few more important factors for an entrepreneur to consider than interest rates. The interest rate tells a business man something about the current state of consumption vs. savings in an economy. More savings = more loanable funds = lower interest rates. More savings now indicates a higher rate of consumption in the future (after all, future consumption is the point of saving). So if a business man sees lower interest rates, he thinks this is a good time to invest in longer term projects, ie capital investments. He borrows money now, at a low rate, assuming that people will want to spend in the future and that they'll have money to do so because of their savings. But when that low interest rate isn't real, but is actually manipulated and set by a central bank, then perhaps people are not actually saving for future consumption. Perhaps people are not saving at all, and the investments the business man has made come to ruin because he cannot sell his goods, or even finish expanding his factory.

And to your point about inflation and deflation, as a technical matter inflation IS simply an increase in the money supply. We have come to define it as a rise in consumer prices, but it's actually just more money in supply.

I doubt anyone has actually read this far, but if so you may be wondering "could this thread get any more off topic". I assure you it could, which is why I'll stop here.