Monday, April 11, 2011

CHAPTER 17: OK, now we know that the Federal Reserve System can literally create money.  Why would they want to do that?

One of the first things the Federal Reserve did was to help finance WWI.  Then WWII.   Then the welfare society, Then more wars.  You get the idea.  From a politicians point of view it certainly beats raising taxes if you want to get reelected. 

Another function of the Fed is to attempt to promote economic stability, to lower unemployment, to increase economic growth, and to protect the value of the dollar.

First there was the Great Depression, then the stagflation of the 1970's, twelve or so recessions, the dollar is now worth about 2 percent of its 1913 purchasing power, and we may be on the edge of another Depression.  Since 1970 economic growth has slowed by about 33 percent. 

If I were grading this performance I don't think it would deserve an A. 

A new function of the Federal Reserve is to help the government bail out failing businesses.  Having the power to create money has it's benefits if you are on the receiving end.  But woe to the people who have saved their dollars expecting to use them later.  Those dollars become less and less valuable in exchange until ultimately they may  become completely worthless.  Germany in the 1920s..  Continentals, greenbacks, and confederate money are all examples of this process.

Read this.    

Review Questions:  Is the Federal Reserve System a private or a public institution?   When was it formed.  Where? Why in secret? 

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