Thursday, April 26, 2007

Abolish the Federal Reserve

As long time readers know, I have no love for the Federal Reserve. When you give a bank the monopoly on printing money, well, that's what they will do. That the Federal Reserve's official policy is to maintain an inflation rate says a lot about the purpose of the bank. Our government issues debt and the Federal Reserve creates excess currency to inflate away the value of the debt. A little like the fox guarding the hen house if you ask me.

I believe that the only way we will ever have really good economic policy in the US is to abolish the Fed or move to a gold standard (which really amounts to the same thing). Most people don't believe this is possible, probably because there has always been a Federal Reserve during their lifetime. But there is one country that has no central bank and it's operating just fine thanks:

In this modern, post-–Bretton Woods world of "monetary order" and coordinated central-bank inflation, many who are otherwise sympathetic to the arguments against central banks believe that the elimination of central banking is an unattainable, utopian dream.

For a real-world example of how a system of market-chosen monetary policy would work in the absence of a central bank, one need not look to the past; the example exists in present-day Central America, in the Republic of Panama, a country that has lived without a central bank since its independence, with a very successful and stable macroeconomic environment.

Just think: a world where Ben Bernanke is just an economics professor. What a wonderful thought....

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