Re: Re: Gold

[Jim Devine <jdevine@xxxxxxxxxxxxxxx>]

At 03:08 PM 06/28/2001 -0700, you wrote:
> The reason the Fed began in the first place is that the demand
> for money fluctuates.

The supply of money also fluctuates despite the efforts to anchor it to the
gold reserve. But more importantly, the reason why they set up the Fed was
that despite the gold standard (which is supposed to stabilize the
economy), the US economy went through a series of "panics" followed by
waves of bank failures. The big bankers around J.P. Morgan tried to solve
the problem for years, but in the end gave up and decided that a little bit
of "socialism for the rich" was needed. So the Fed was set up to socialize
bank losses, acting as a lender of a last resort. It didn't do a very good
job for years, until the Federal Deposit Insurance Corporation was
established in response to the Depression (stabilizing the banks) and a
large federal budget arose with World War II (stabilizing aggregate
demand). Of course, as the US economy started falling apart in the 1970s
and the move toward _laissez-faire_ (neoliberalism) intensified,
instability has risen again.

Jim Devine jdevine@xxxxxxx & http://bellarmine.lmu.edu/~JDevine