Noobie question to libertarians about the federal reserve.

[Atreus21]

Every econ text I've ever read said that central banks were extraordinarily helpful. Even intuitively I know one major benefit of them is that they can keep failing banks afloat so as to nip in the bud a catastrophic and self-sustaining run on banks.

My only issue with libertarians, even though I'm a big fan of Friedman, is that they very frequently call for an end to the Fed. Is this because they see the Fed as not doing its job well or because they see an intrinsic problem with central banks?

Disclaimer: I am no economist, so please make any responses in as layman-like terms as possible.

 

[MooseNSquirrel]

Its because of belief in dogmatic traditions.

 

[bamacre]

http://www.huffingtonpost.com/2009/09/07/priceless-how-the-federal_n_278805.html

Is this because they see the Fed as not doing its job well or because they see an intrinsic problem with central banks?

Look up Austrian Business Cycle Theory.

 

[Atreus21]

http://www.huffingtonpost.com/2009/09/07/priceless-how-the-federal_n_278805.html



Look up Austrian Business Cycle Theory.

I read the Huffington piece, but I wish you'd give me a few cliffs on Business Cycle theory. I have a job you see, and although I neglect it enough to make stupid P&N topics, I can't neglect it sufficiently to research such a large subject.

 

[Anarchist420]

Every econ text I've ever read said that central banks were extraordinarily helpful. Even intuitively I know one major benefit of them is that they can keep failing banks afloat so as to nip in the bud a catastrophic and self-sustaining run on banks.

My only issue with libertarians, even though I'm a big fan of Friedman, is that they very frequently call for an end to the Fed. Is this because they see the Fed as not doing its job well or because they see an intrinsic problem with central banks?

Disclaimer: I am no economist, so please make any responses in as layman-like terms as possible.

A central bank is not necessary to prevent bank runs. If Congress disallows banks from loaning peoples' deposits, then a Central bank isn't necessary. Like Bamacre said, read ABCT.

 

[bamacre]

I read the Huffington piece, but I wish you'd give me a few cliffs on Business Cycle theory. I have a job you see, and although I neglect it enough to make stupid P&N topics, I can't neglect it sufficiently to research such a large subject.

:biggrin:

Artificial expansion of credit leads to malinvestment, puts economy on unsustainable path, inevitably leads to bust.

http://www.youtube.com/watch?v=d0nERTFo-Sk



http://en.wikipedia.org/wiki/Austrian_business_cycle_theory

For when you get home from work...
http://www.youtube.com/watch?v=jj8rMwdQf6k

 

[BoberFett]

A central bank is not necessary to prevent bank runs. If Congress disallows banks from loaning peoples' deposits, then a Central bank isn't necessary. Like Bamacre said, read ABCT.

If a bank can't loan out deposits, there is no reason for it to exist.

 

[Dekasa]

A central bank is not necessary to prevent bank runs. If Congress disallows banks from loaning peoples' deposits, then a Central bank isn't necessary. Like Bamacre said, read ABCT.

At an incredibly severe cut to the money supply, which allows low-interest loans and is a necessity to opening and maintaining small businesses (by people who aren't born with money).

 

[matt0611]

If a bank can't loan out deposits, there is no reason for it to exist.

I think he's referring to demand deposits. Not savings account / time deposits.

 

[bamacre]

If a bank can't loan out deposits, there is no reason for it to exist.

He needs to clarify his statement. Ideally banks would offer two kinds of deposits, one offering interest income on deposits lent out. With the current system, businesses don't need our money, banks won't pay jack for money deposited into a savings account. Why would they? They can borrow from the Fed at zero percent. They don't need your stinkin' money, and thus, they don't need to pay you interest on your savings.

 

[bamacre]

At an incredibly severe cut to the money supply, which allows low-interest loans and is a necessity to opening and maintaining small businesses (by people who aren't born with money).

Not to mention low-interest loans for things like housing. Oh wait, :hmm: .