Anonymous
Anonymous asked in Social ScienceEconomics · 1 decade ago

Private central bank vs direct government control (of course, some kind of bank to store all that money)?

There seems to be conflicting preferences between a private central bank (i.e. the Federal Reserve Bank like the U.S., the European Central Bank) system and direct government control of money (although, yeah, you may wanna get some kind of a bank or a vault or something to store all that money in it). For the pro-private central bank opinions, some thoughts I heard included:

1. As "private" as a central bank can be, it's still under government regulation- including the Fed too

2. Having a non-government "buffer" helps prevent the government from making rash decisions

3. The government can abuse the system and create inflation/deflation at will

4. The Federal Reserve Bank does not give "loans" to the government; the Fed is simply a giant bank account of all the banks operating in the U.S., and the government can't just simply demand the Fed for money (I have some problems with this one)

5. After Germany went through WW1, they forcefully printed more money in an attempt to increase its value, which resulted in inflation- a private central bank would not have let it happen (I have problmes with this one too)

6. Before private central banks, governments did a SHITTY job when it came to devising good policies for the economy

As for pro-government constitution, some thoughts I've heard:

1. The Federal Reserve Act in 1913 was passed in secret in the wee early morning of Dec. 23rd because just about every sane politicians opposed it- why did it have to be passed in secret by WHOLE BUNCH OF BANKERS??

2. Why did just about ALL of the important people in the American Revolution (most noatbly Benjamin Franklin) and many of the earlier American presidents eschewed private central banking? Hell, one particular man, Andrew Jackson, allegedly said that in his view, his best political achievement was: "I killed the bank!"

3. Why did JFK render the Fed useless with the flick of a pen and Lincoln circulated debt-free greenbacks to fund the American Civil War and then BOTH GOT ASSASSINATED RIGHT AFTER?

4. The Bank of England, a private central bank, attacked Henry I's tally stick system because money changers could not manipulate it- so, why trust these greedy money changers with a national monetary system?

5. The Federal Reserve Bank is beyond government control and is the main reason why America is in debt- any private central banks can potentially grow out of control and indebt its own country

6. Private central banks can manipualte inflatoin/deflation at will to gain more profit for themselves

Personally, I see that how figures like Caesar, Henry I, and early American leaders managed to bring financial success once they took government control over issuing money. So, I say that I trust the government when it comes to financial matters (of course, the government will probably have to hire economists and save its money in some kind of a bank). I would like to hear your opinion on this matter. Please state your preference and support it with some sources (so that I can look up those sources and gain more insight on this matter).

Update:

On the other hand, the Bank of Canada seems pretty dang private, but it doesn't get much attention as the Fed does nor is it known to erode Canadian economy. So, while I trust the government, I'm split.

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  • 1 decade ago
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    You really should get your facts straight.

    Appearances to the contrary not withstanding, the Federal Reserve is not private. As for the ECB, it is in no way private. I think the term you want is "independent".

    The Federal Reserve is "independent" in the same sense that the Constitution provides for an independent judiciary.

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

    Ditto for the ECB and most central banks.

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

    In a democracy, politicians have a strong incentive to pump up the economy so as to get themselves re-elected. (In the context of the U.S. Richard Nixon blamed McChesney Martin for his loss and so when he did become president, he appointed a very weak Chairman of the Fed to keep the Fed from being really independent.

    http://en.wikipedia.org/wiki/Arthur_Frank_Burns#Fe...

    Germany is another example and, more recently, Zimbabwe.

    So for democracies where politicians have to appeal to the voters, an independent central bank has major advantages even if it really isn't all that independent.

    On the other hand, China is not a democracy and in the past, there has been only one ruling party in Japan, so both have central banks with very close ties to the government, with no pretense of independence, and it has worked out for them.

    As for American history, Hamilton saw the central bank as a way of promoting the manufacturing of the northern states. (It is NOT true that all the founding fathers opposed a central bank.) The southerners saw this as benefitting the north but not the south and so opposed it.

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

    They were right about its favoring the north. And there are good reasons to believe that the monetary policies of the central banks did indeed hurt the farmers while helping the manufacturers.

    http://krugman.blogs.nytimes.com/2010/05/07/a-cros...

    http://macromarketmusings.blogspot.com/2010/05/kru...

    But, of course, it was manufacturing that, by 1900, made the U.S. the world's leading power. So is it better to be a small piece of a powerful country or a bigger piece of a less powerful one?

    As for the Federal Reserve, it is not in debt. It makes a profit every year and passes that profit back to the Treasury.

    http://www.federalreserve.gov/monetarypolicy/bst_f...

    The U.S. public debt is created by the spending decisions of Congress, not by the Fed.

    Government officials are human beings. They do what they perceive as being in their own best interest. To the extent that their perceptions are aligned with what is good for the country, the country wins. Otherwise, the country loses.

    We've seen plenty of cases where whole government departments have allowed themselves to be bribed by industry to terrible results. So "government is good/trustworthy" vs. "government is bad/untrustworthy" is far too simplistic.

    W.r.t. the Fed, Martin and Volcker were great; Burns and Greenspan were losers. So far, Bernanke is somewhere in the middle (he has been far too slow to recognize and then respond to the crisis; has done far too little and said many of the wrong things; but he has done some good things and avoided doing anything disastrous.)

  • 7 years ago

    The Socialist Myth of the Greedy Banker

    http://iakal.wordpress.com/2014/02/24/the-socialis...

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