Granddad, Did You Believe in Central Banks Once?

[rpr]

I thought this was an interesting article.
http://www.bloomberg.com/apps/news?p...d=aNdzlfjZPuxM

What are the alternatives to fractional reserve banking? What risk do derivatives, swaps and forex pose to the stability of the global financial system? I'm also intrigued by the SGC.

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For about a decade we all believed central banks could ensure people had jobs, and could afford food and housing and such. That all changed after the Gigantic Global Bubble Burst of 2008.
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What everyone failed to realize was that the billions of people in China, Vietnam and other Asian countries didn't want to spend the rest of their lives living in huts in the countryside and working in factories for a pittance.
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What are hedge funds and the derivatives market? Well, they are illegal now, Joel. As the global economy started to crumble under the weight of soaring raw material costs, financial markets melted down, with prices of stocks and bonds whipsawing. Hedge funds were supposed to be clever investors; it turned out that they had all made the same bet on the global economy staying wonderful for ever.

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[kimchi]

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What are the alternatives to fractional reserve banking?

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A return to the gold standard? It's possible people will use gold debit cards that will debit 'gold-grams' from their bank account instead of paper fiat currency. Gold-grams might be a better alternative to the global currency which smells of a New World Order, which incidently, so does the privately owned Federal Reserve.

The gold standard is disliked by central bankers for many reasons, including its forced discipline on monetary policy. It would prevent governments deficit-spending their way into office.

There are a glut of books around now singing a similar tune to that article. They range from a prediction of a global depression worse than the 1930s to a return to the stone-age.

[DesertCat]

The gold standard would ensure we wouldn't have any boom/bust cycles as the economy stayed out of recessions & we had no inflation from the late 1800s until it was abandoned in the late 1960s.

Edit: Of course I'm being a smart ass. I'm all for a balanced budget and understand the argument for a currency that's more difficult to manipulate, but I've never understood how proponents of the gold standard reconcile it with the Great Depression, inflationary periods that occured under it, etc. It seems like it should work, but never did.

[iron81]

This topic comes up frequently in Politics. You can do a search there, but here's a couple threads to start you off.

Link

Link

[kimchi]

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The gold standard would ensure we wouldn't have any boom/bust cycles as the economy stayed out of recessions & we had no inflation from the late 1800s until it was abandoned in the late 1960s.

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Boom/bust cycles are a product of many things, one of which is the availability of cheap money from banks practicing fractional reserve. In fact, I think the 'money changers' in the temple were the only thing that got Jesus pissed off enough to seriously lose his temper. This game has been going on for 1000s of years - gold standard or not.

[KDuff]

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Gold-grams might be a better alternative to the global currency which smells of a New World Order, which incidently, so does the privately owned Federal Reserve.


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The term New World Order is always misapplied by loons. When George Bush used the term, he was referring to the alignment of the international state system. Principally the bipolar power struggle between the USSR and USA. Nothing more. Its policy implications have nothing to do with far fetched machinations of world government or global serfdom.

[DcifrThs]

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The gold standard would ensure we wouldn't have any boom/bust cycles as the economy stayed out of recessions & we had no inflation from the late 1800s until it was abandoned in the late 1960s.

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Boom/bust cycles are a product of many things, one of which is the availability of cheap money from banks practicing fractional reserve. In fact, I think the 'money changers' in the temple were the only thing that got Jesus pissed off enough to seriously lose his temper. This game has been going on for 1000s of years - gold standard or not.

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business cycles are mainly the result of human's 2 inherent problems: 1) the inability to predict the near future, and as a result, 2) extrapolating recent trends into the future. these give the whipsaw effect to inventories & the economy in general. other things definitely contribute but all else equal, the biggest forces behind a business cycle are those imo.

we have seen, recently, the reduction in amplitude of cycles due to the increased ability (credibility) of the central banks to manage inflation/growth. they will NEVER be able to eliminate the business cycle though as a result of how humans interact w/in the economy.

w/o central banks, the highs would be way higher & the lows way lower.

Barron

[DesertCat]

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w/o central banks, the highs would be way higher & the lows way lower.

Barron

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What about Milton Friedman's theory that the central banks caused the great depression by essentially massively shrinking the money supply?

[NajdorfDefense]

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w/o central banks, the highs would be way higher & the lows way lower.
Barron

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What about Milton Friedman's theory that the central banks caused the great depression by essentially massively shrinking the money supply?

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They did, but they learned their lesson. Note no longterm depressions in First World countries since then save Japan which did massively restrict credit in the 1990s. Whoops.

Inflation is generally a bigger concern.