Re: Reengineering the Fed

[Dennis R Redmond <dredmond@xxxxxxxxxxxxxxxxxxxxx>]

On Sun, 5 Oct 1997, William F. Hummel wrote:
> I gather from these comments that the Fed is the problem.  Do you
> think the problems would go away if the Fed changed the interest
> rate?  If so, in what direction, and how would it help?  What
> else do you think the Fed can and should do?  No generalizations
> please.

The Fed is not the villain per se, it's just one of the more important
administrative units by which capital rules. Fed thinking generally
reflects the consensus of the bankers, so criticizing the Fed generally
means taking potshots at the current rentier orthodoxy. Civilizing capital
would mean democratizing not just the Fed, but the entire credit economy
(replacing greed-driven banks with credit co-ops and the like, taxing
speculation and using public investment to power the economy instead of
relying on Wall Street's electronic casino). What should the Fed
do? Keep real interest rates consistently lower than real GDP growth.
Greenspan actually did this in 1991-93, when short rates went down to 3%;
this bailed out a liquidity-drained economy, and in general turned what
could've been a massive credit collapse into a harsh but limited
recession. Since then, the rentiers have regained their nerve amidst
the Wall Street bubble-euphoria, and have pushed for more tightening.

> Precisely what do you mean by democratization.  Would you have
> Americans vote on monetary policy in some way?  If so, can you
> describe a modus operandi that makes sense?

Lots of other countries have monetary systems directly under the thumb of
elected (or bureaucratically selected) national governments: France, South
Korea, Taiwan, even Japan. Why not put the Fed under the supervision of
the Treasury Department?

-- Dennis