You must release the federal government’s gold hoard. It would be difficult to have a gold money when the citizenry holds virtually no gold. It would make sense to exchange the federal government’s gold (at a “best-guess” exchange ratio) for the current money supply (currency and checkable deposits). The ratio would be calibrated to neither greatly shrink nor greatly expand the current volume of spending in the economy, eliminating inflation and deflation from the conversion process to the extent possible. Give the banks a little time to prepare to handle this distribution and to prepare for life without regulation and you’ll be fine.
One way to get rid of the Fed may be to do nothing, I presume that is what Bernanke would recommend. Then let nature take its course. It won’t be pretty, and it will be troublesome, but the Fed will be gone.
I’m skeptical there would be much “deposit insurance.” A bank in a free economy has to appear sound. The best way to do this is to BE sound—to have demonstrably high reserves, diversified investments, etc. Most banks would be embarrassed to admit they had “deposit insurance” and would try to downplay it, not brag about it.
Couldn’t the gvt. end the Fed. by taking away all monopoly status from it and taking itself out of all banking functions? Anybody could then compete with this newly privatized bank.
I have a suggestion. Why not freeze the money supply to begin with, i.e. a non-expansionary monetary policy leading to absolutely no expansion of monetary base at the time whenever it happens. It would also entail doing away with the fractional-reserve banking system which is virtually a ponzi scheme. The thing about a Gold standard is that govt will make mistakes and will eventually freak out when they face the prospect of losing all their gold. So tying govt mandated to dollars is ofcourse not a good thing. They ofcourse should not be allowed to outlaw holding of gold by the citizens, as FDR did. Freezing money supply will mean that there wont be any monetary inflation and people will retain the value of their dollars and not see their real wages decline. There is absolutely no doubt in my mind that monetary inflation is the greatest cause of increasing inequality - the more the inflation, more the inequality, unfortunately for which capitalism takes the blame.
Sonam Agrawal: I think you’re speaking of influencing, or forcing outright, expansion, contraction or freezing the money supply by legislation and/or regulation or by the decision of an entity (the Fed.) given monopoly status by gvt. That’s controlling the money suppy by initiatory force, in this case, thru gvt.
But, money supply should uninhibitedly fluctuate by the market, meaning, by people’s desires, down to the individual, as they register it by supply & demand. This way money supply goes up or down as production goes up or down. If you produce more, less, or the same amount, you get more, less, or the same amount of money. This covers whether you produce more of what we already have, or something new. If you, thus, get more money, the continuing value of others’ work remains reflected by a larger money supply, no loss to anybody. If you, thus, get less, money supply drops, no gain for anybody. Whether you get more or less, everybody else stays the same.
With new technology or methods which increases productivity, everybody wins, starting with the innovaters. If the innovaters win the most, that’s their right. This win for all is facilitated by an increase in the money supply, with the 1st. new money going to the innovaters and the rest to everybody else. As to how this works, in detail, I defer, right now. Maybe a whole book, maybe a big book, is needed to cover it.
13 Comments to “Yaron Answers: How Would One Phase Out The Federal Reserve?”
You must release the federal government’s gold hoard. It would be difficult to have a gold money when the citizenry holds virtually no gold. It would make sense to exchange the federal government’s gold (at a “best-guess” exchange ratio) for the current money supply (currency and checkable deposits). The ratio would be calibrated to neither greatly shrink nor greatly expand the current volume of spending in the economy, eliminating inflation and deflation from the conversion process to the extent possible. Give the banks a little time to prepare to handle this distribution and to prepare for life without regulation and you’ll be fine.
One way to get rid of the Fed may be to do nothing, I presume that is what Bernanke would recommend. Then let nature take its course. It won’t be pretty, and it will be troublesome, but the Fed will be gone.
Yaron mentions the work of Larry White. White is doing a live event on the subject of ending the Fed on 9/25 which you can watch here.
What would replace deposit insurance? If nothing, then why ‘would’ people trust banks with their money?
In a free, unregulated mkt., private insurance companies might offer deposit insurance.
I’m skeptical there would be much “deposit insurance.” A bank in a free economy has to appear sound. The best way to do this is to BE sound—to have demonstrably high reserves, diversified investments, etc. Most banks would be embarrassed to admit they had “deposit insurance” and would try to downplay it, not brag about it.
I would go further and claim that any banking system wherein there exists widespread “deposit insurance” is likely an unsound system.
Wouldn’t a record of how many claims on which banks have a bearing on it?
Maybe they would not? Maybe they could purchase deposit insurance? Or they could store their money in a 100% reserve bank. The market will provide.
Thank you for responding to my question.
Couldn’t the gvt. end the Fed. by taking away all monopoly status from it and taking itself out of all banking functions? Anybody could then compete with this newly privatized bank.
I have a suggestion. Why not freeze the money supply to begin with, i.e. a non-expansionary monetary policy leading to absolutely no expansion of monetary base at the time whenever it happens. It would also entail doing away with the fractional-reserve banking system which is virtually a ponzi scheme. The thing about a Gold standard is that govt will make mistakes and will eventually freak out when they face the prospect of losing all their gold. So tying govt mandated to dollars is ofcourse not a good thing. They ofcourse should not be allowed to outlaw holding of gold by the citizens, as FDR did. Freezing money supply will mean that there wont be any monetary inflation and people will retain the value of their dollars and not see their real wages decline. There is absolutely no doubt in my mind that monetary inflation is the greatest cause of increasing inequality - the more the inflation, more the inequality, unfortunately for which capitalism takes the blame.
Sonam Agrawal: I think you’re speaking of influencing, or forcing outright, expansion, contraction or freezing the money supply by legislation and/or regulation or by the decision of an entity (the Fed.) given monopoly status by gvt. That’s controlling the money suppy by initiatory force, in this case, thru gvt.
But, money supply should uninhibitedly fluctuate by the market, meaning, by people’s desires, down to the individual, as they register it by supply & demand. This way money supply goes up or down as production goes up or down. If you produce more, less, or the same amount, you get more, less, or the same amount of money. This covers whether you produce more of what we already have, or something new. If you, thus, get more money, the continuing value of others’ work remains reflected by a larger money supply, no loss to anybody. If you, thus, get less, money supply drops, no gain for anybody. Whether you get more or less, everybody else stays the same.
With new technology or methods which increases productivity, everybody wins, starting with the innovaters. If the innovaters win the most, that’s their right. This win for all is facilitated by an increase in the money supply, with the 1st. new money going to the innovaters and the rest to everybody else. As to how this works, in detail, I defer, right now. Maybe a whole book, maybe a big book, is needed to cover it.