The Federal Reserve - friend or foe of the economy?

[archimonde9999]

I don't know much about economics but I come across a lot of videos discussing central banks and the Fed on YouTube (I've linked a recent one below).

Do you think the Federal Reserve is good or bad for the economy? Open to opinions.

The critical people say the Fed's system is based on debt (in video) - is this true?

Also, do you think Trump will bring about a recovery to America's economy?

[Spectral]

I think pretty much anyone that uses "the economy" as a serious phrase doesn't really have any idea how "the economy" works.

[Independent voter]

All the fed does is set the interest rate it lends money to other banks. It sets the rate to zero interest or whatever and banks can borrow from it at that rate. Doesn't mean Joe Average can borrow money at zero interest.

It seems like it's working to me, when the fed raises or lowers the interest rate, it's huge news in the business community. It seems very important to them.

But yeah, I don't really understand a lot of it, just what I hear on the radio at work.

[Spectral]

All the fed does is set the interest rate it lends money to other banks. It sets the rate to zero interest or whatever and banks can borrow from it at that rate. Doesn't mean Joe Average can borrow money at zero interest.

It seems like it's working to me, when the fed raises or lowers the interest rate, it's huge news in the business community. It seems very important to them.

But yeah, I don't really understand a lot of it, just what I hear on the radio at work.

Zero lower bound, something something, liquidity trap, something something.

If you buy the Krugman et al analysis, the core problem is that even with rate effectively at zero, there simply isn't enough demand for money at the moment to goose the economy to any significant extent via monetary policy. This seems to be pretty hotly disputed by other economists like Scott Sumner, but I frankly get in over my head pretty quickly when I try to read about it.

[Acidbaron]

A friend since without it, "the economy" would have taken more serious hits.

Due to the political landscape in America it's considered taboo to tell banks or better yet regulate banks too much in what they can or cannot do. That's simply it.
If banks were forced more to give out smaller loans, it would be more noticeable to all, however mind you even in Europe where they are encouraged to do so, it doesn't happen.

[Shadowferal]

Hmf...
The fed gave away $16 Trillion to bail out American and foreign banks and businesses and no one knew about it.
And even worse, some of those on the Fed's board of directors or employed by the Fed are those very same people running those banks/businesses.

"No agency of the United States government should be allowed to bailout a foreign bank or corporation without the direct approval of Congress and the president."
~Bernie Sanders

[Puremallace]

Fed has two simple mandates:
1. Control inflation
2. Pass policies that encourage full employment defined at below 5% on the U-3

It is two contradictory missions. To encourage job growth you lower rates but it also increases the risk of inflation. CONGRESS should be in charge of creating jobs but they have happily ceded their duties to the fed.

[Shadowferal]

'Audit the Fed' bill gets new push under Trump

Controversial legislation to subject the Federal Reserve’s monetary policy powers to outside scrutiny is getting new life in Washington.
Rep. Thomas Massie (R-Ky.) and Sen. Rand Paul (R-Ky.) have re-introduced legislation to “Audit the Fed,” after a similar effort stalled in the last Congress.
Under the bill, the Fed’s monetary policy deliberations could be subject to outside review by the Government Accountability Office.
Proponents of the measure argue that the Fed is too powerful and lacks sufficient oversight for its interest rate decisions. But Fed officials from Yellen on down, as well as other critics, have warned that such a policy could subject the Fed to undue political pressure and discourage it from taking unpopular steps for the good of the overall economy.
The proposal has garnered some bipartisan support and has passed the House several times in past Congresses.

----------------------------

As it appears, I'm in full support of this...

[Skandulous]

All the fed does is set the interest rate it lends money to other banks. It sets the rate to zero interest or whatever and banks can borrow from it at that rate. Doesn't mean Joe Average can borrow money at zero interest.

It seems like it's working to me, when the fed raises or lowers the interest rate, it's huge news in the business community. It seems very important to them.

But yeah, I don't really understand a lot of it, just what I hear on the radio at work.

You obviously don't understand ANY of it because the FED does way more than set the interest rate and that interest rate does effect the rate the average joe can borrow money at.

[Felya]

As it appears, I'm in full support of this...

Let's add a few more details to that. Who is the Fed holding the power over? Who has the power?

[Shadowferal]

Let's add a few more details to that. Who is the Fed holding the power over? Who has the power?

How about we get that audit done first?

[Felya]

You obviously don't understand ANY of it because the FED does way more than set the interest rate and that interest rate does effect the rate the average joe can borrow money at.

It's sensationalist... they had 3 minutes and wasted some of it telling you the world will burn. Omitted simply calling their money circulation 100+ years of inflation, instead going with 'since the fed, amount of money has increase, but value decreased'... uhm, duh...

https://en.m.wikipedia.org/wiki/U.S._Savings_bonds

- - - Updated - - -

How about we get that audit done first?

The thing you quoted stated they are too powerful, thus needing the audit. Them being too powerful is the crux of the audit. Yet, me asking over who the power is held, is for another time? That doesn't make any sense...

[Fencers]

Foe. Capitalism is the only true evil in existence that we know of.

Pres. Jackson and Pres. Kennedy had the right of it but were still attached to the idea of ownership.

[Shadowferal]

The thing you quoted stated they are too powerful, thus needing the audit. Them being too powerful is the crux of the audit. Yet, me asking over who the power is held, is for another time? That doesn't make any sense...

They have no oversight, and they have relatively recently given out trillions...And I say lets give them a thorough audit with public oversight. No more secret loans and bail outs.

What exactly are you trying to say? That they should continue as is?

[Acidbaron]

Hmf...
The fed gave away $16 Trillion to bail out American and foreign banks and businesses and no one knew about it.
And even worse, some of those on the Fed's board of directors or employed by the Fed are those very same people running those banks/businesses.

"No agency of the United States government should be allowed to bailout a foreign bank or corporation without the direct approval of Congress and the president."
~Bernie Sanders

It is a rather big self serving circle isn't it. Talented people that start out in a public position to catch people doing tax evasion (random example) get recruited into the private financial industry only later to again serve the public system in the name of those banks at a higher position.

The ironic part is, there isn't that much of an alternative since you don't want a person not familiar with all that in that position, however it does mean those people do have their own interests to protect once in such a position.

And there is absolutely nothing we can really do about it. That's an interesting quote though, i didn't know the federal reserve had the power to bail out banks without congress approval, that's luckily something we still have in Europe, they are getting harder here on banks but they are still very much so protected.

[Kokolums]

A friend since without it, "the economy" would have taken more serious hits.

Untrue.

Before the Federal Reserve, the US economy would suffer more frequent recessions, but they would do less damage. With the Federal Reserve, recessions are less frequent but they are actually more painful. Think of the economy as a wave, oscillating between recession and boom. The Federal Reserve merely increases the wavelength and the amplitude of the economy. Recessions are rarer and much deeper.

For example, the Great Depression occurred AFTER the Federal Reserve had been fully established. This is because it helped create it by trying to put off smaller recessions, allowing a big crash to build up in the future. The inflation of the 1970s occurred under the era of the Federal Reserve, as well as the Great Recession in the 21st century.

Before the Fed existed, we'd have numerous "panics" but nothing that was absolutely disasterous.

How did we cope with recessions before the Federal Reserve? We government would basially strong-arm the Robber Barons and force them to give some of their wealth to finance a recovery. Please read the Panic of 1907 for an example of how recessions were handled before the Federal Reserve.

https://en.wikipedia.org/wiki/Panic_of_1907

The panic might have deepened if not for the intervention of financier J. P. Morgan,[3] who pledged large sums of his own money, and convinced other New York bankers to do the same, to shore up the banking system. At the time, the United States did not have a central bank to inject liquidity back into the market. By November, the financial contagion had largely ended, only to be replaced by a further crisis. This was due to the heavy borrowing of a large brokerage firm that used the stock of Tennessee Coal, Iron and Railroad Company (TC&I) as collateral. Collapse of TC&I's stock price was averted by an emergency takeover by Morgan's U.S. Steel Corporation—a move approved by anti-monopolist president Theodore Roosevelt. The following year, Senator Nelson W. Aldrich, father-in-law of John D. Rockefeller, Jr., established and chaired a commission to investigate the crisis and propose future solutions, leading to the creation of the Federal Reserve System.[4][5]

[Felya]

Foe. Capitalism is the only true evil in existence that we know of.

Pres. Jackson and Pres. Kennedy had the right of it but were still attached to the idea of ownership.

The Fed has nothing to do with capitalism. In fact, it shouldn't exist if we have full removal of federal ownership, inherent in capitalism extremes. It's why both links talk about agriculture... JFK's being explicitly attached to New Deal's farm subsidies... which is not capitalism...

[Acidbaron]

Untrue.

Before the Federal Reserve, the US economy would suffer more frequent recessions, but they would do less damage. With the Federal Reserve, recessions are less frequent but they are actually more painful. Think of the economy as a wave, oscillating between recession and boom. The Federal Reserve merely increases the wavelength and the amplitude of the economy. Recessions are rarer and much deeper.

For example, the Great Depression occurred AFTER the Federal Reserve had been fully established. This is because it helped create it by trying to put off smaller recessions, allowing a big crash to build up in the future. The inflation of the 1970s occurred under the era of the Federal Reserve, as well as the Great Recession in the 21st century.

Before the Fed existed, we'd have numerous "panics" but nothing that was absolutely disasterous.

How did we cope with recessions before the Federal Reserve? We government would basially strong-arm the Robber Barons and force them to give some of their wealth to finance a recovery. Please read the Panic of 1907 for an example of how recessions were handled before the Federal Reserve.

https://en.wikipedia.org/wiki/Panic_of_1907

We difference of opinion here because i believe it is not the concept of a reserve that is a fault here but the deregulation's that took place after Clinton's administration, that allowed the financial industry to gamble with funds they should never have been allowed to.

I guess we could argue that the current shape it has taken is a result of those administrations, but i don't find the core idea of a federal reserve to be at fault here the politics surrounding and malforming this into a tool to aid certain banks. Also since i wasn't sure if i was correct but the federal reserve took shape long before the 70's so i find your are either nitpicking a bit, since it was established before that time.

It's increase or decrease in power does not take away the core idea behind it, which is what i am actually saying is not bad at all but as i said before the current shape of it is something we could argue about and probably find some common ground on.

[Felya]

They have no oversight, and they have relatively recently given out trillions...And I say lets give them a thorough audit with public oversight. No more secret loans and bail outs.

What exactly are you trying to say? That they should continue as is?

The fact you are working that hard to not answer, does mean to me that you do know. Dissolution of bonds at the fall of USSR is a major part of what brought down USSR. We've seen who is most harmed in those cases. In US, bonds are the most reliable and secure form of retirement planning. The assumption is that without bonds in the Fed, population will have a choice of stashing or wall street for retirement planing.

Just remember what Lincoln said:

Government of the people, by the people, for the people, shall not perish from the Earth.

It helps to know who is too powerful, when people try to scare you.

[Shadowferal]

It is a rather big self serving circle isn't it. Talented people that start out in a public position to catch people doing tax evasion (random example) get recruited into the private financial industry only later to again serve the public system in the name of those banks at a higher position.

That's why it's called a "revolving door;" it goes from DC to Wall Street, then back again...and it's all because of money that feeds politicians' elections.