Central Banks

[Vlerchan]

I've seen two posts in the last few days where Independent Central Banks are disparaged.

Can someone actually explain the reasoning behind this?

[Uniquemind]

Conspiracy theories is why you get perspectives like that.

[dxcxdzv]

There's not a lot of good things in the independence of an institution that can decide of the money rate.

[Vlerchan]

There's not a lot of good things in the independence of an institution that can decide of the money rate.
It's insulated from political pressures which tends towards there being lower inflation on average. In general it can make decisions without reference to short-term political concerns.

[Microcosm]

It's insulated from political pressures which tends towards there being lower inflation on average. In general it can make decisions without reference to short-term political concerns.

I think the reason you'll see most people against the idea of central banks is because they probably live in the U.S. and they probably are aware of the FED and the way they've grown inflation.

Also, the FED is SO sketchy here in the U.S. Everything about them from their history to the fact that they won't show their records to the public is extremely sketchy. Putting a small group of people in charge of the U.S. economic flow(and thus, pretty much the economic flow of the entire world) generally doesn't seem like a very good idea.

Central banks aren't inherently a bad idea, though. However, they do need to be somewhat monitored.

[Vlerchan]

I'm going to probe for as much expansion as possible before responding-proper.

[...] and they probably are aware of the FED and the way they've grown inflation.
Do keep going.

How does the FED 'grow' inflation?

Is all inflation bad?

Also, the FED is SO sketchy here in the U.S. Everything about them from their history to the fact that they won't show their records to the public is extremely sketchy. Putting a small group of people in charge of the U.S. economic flow(and thus, pretty much the economic flow of the entire world) generally doesn't seem like a very good idea.
Who would you rather ran it?

What would you believe these people would bring?

Central banks aren't inherently a bad idea, though. However, they do need to be somewhat monitored.
The FED is regulated though.

It has a mandate to maintain inflation at ~2% and maintain unemployment at the natural rate.

[dxcxdzv]

USA have an incredible power concerning money.
Since Roosevelt every moneys of the world defend themselves against the US dollar. So the US dollar rate has a huge impact on the world economy.

Every central bank can decide of the money rate, and so grow inflation, with simply creating more money which affects the change rates.

USA already had a bad experience concerning the central bank with Jackson if my memories are good.

[Vlerchan]

Every central bank can decide of the money rate, and so grow inflation, with simply creating more money which affects the change rates.
Sure - I was more hoping to get an insight into Rainbow Dash registering this as a criticism.

It's also that central banks decide an inflation rate and then pump as much liquid as required to reach this rate. So it's the other way around than as described here.

[Microcosm]

How does the FED 'grow' inflation?

Pumping money into the system to lend to other banks.

Is all inflation bad?

Probably.

Who would you rather ran it?

Some group of individuals who are part of the government and elected perhaps by Congress. Also, they'd need to release all or most proceedings for public viewing so they're not hiding anything(which they do a LOT as it currently stands).

What would you believe these people would bring?

Yes, they would have some degree of political desires running their decisions, but they'd also be less inclined or obligated to pump so much money into the system to lend to other banks because they are no longer a private organization.

The FED is regulated though.

While this video is pretty exaggerated, it's quick and easily shows a very basic explanation of just how much debt the FED puts us in.

iP9H5fADC0E

Why is that? Because they aren't acting out of the good of everyone and the good of the U.S. economy. They act out of their own self-interest. How? Because they are a private organization.

The value of the dollar just goes down and down until it eventually becomes the German mark at the end of World War I. This is because the FED keeps creating money out of thin air and loaning it to other banks for no good reason other than self-interest.

"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered."
-Thomas Jefferson

[Vlerchan]

Probably.
If we had no inflation there would be little impetus to spend.

That's the reason near-deflation levels within Europe are so bothersome.

Some group of individuals who are part of the government and elected perhaps by Congress.
Central bank independence promotes low inflation with no apparent cost in terms of real economic performance, irrespective of political institutions.

http://www.people.fas.harvard.edu/~iversen/PDFfiles/Grillietal1991.pdf

In his paper, we document two empirical relationships that have emerged as the former communist countries have taken steps to transform their economies from command systems to market-based systems. First, increased central bank independence has tended to improve inflation performance

http://www.federalreserve.gov/pubs/ifdp/1995/519/ifdp519.pdf

The problem with the FED being under political control is that it opens it up to short-term electoral interests. Heading towards an election it suits the ruling group to lean on the FED in order to reduce interest rates in order to produce a short-term jump in aggregate demand.

but they'd also be less inclined or obligated to pump so much money into the system to lend to other banks because they are no longer a private organization.
I'll repeat what I said to Reise.

No modern central bank works around attempting to target a set monetary base. Central banks work to target a set inflation rate. It pumps as much liquid into the system in order to hit targeted inflation rate. If politicians took over the FED it would be expected to do the exact same - Except since it isn't insulated from political pressures it would be less inclined to engage in unconventional policies like QE.

[video]
Most economists agree that the gold standard was largely behind the Great Depression. So I'm docking 10 points for that opening.
It exaggerates the money-creation process, a lot.
I don't see the big issue with devaluation, at all.
It's never explained how the FED is going to lead us to a financial crash.
It's a joke - in short.

This also isn't a criticism of Independent central banks. This is a criticism of all central banks.

Do you believe we should return to the gold standard?

They act out of their own self-interest. How? Because they are a private organization.
That doesn't explain Why.

The value of the dollar just goes down and down until it eventually becomes the German mark at the end of World War I.
No-one cares that the German Mark lost value, but that the German mark lost value so quick.

The US dollar depreciating over the course of 100 years is not something that we should be remotely concerned about.

This is because the FED keeps creating money out of thin air and loaning it to other banks for no good reason other than self-interest.
That, dubiously, and to stimulate economic activity.