Fed Up - Part 1

  • September 9, 2013 · 7:30 PM
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Hey All-

I agreed to give a talk on the Fed at the upcoming Agora Fest so I plan to use the next couple of Meetups to prepare.  I've circulated (and you've discussed) an outline on a possible "How the Fed Works" YouTube video and we'll use that to structure our discussion.  THIS WEEK, we'll talk through the parts of this outline on "Stated Purpose of The Fed" and "How The Fed Works" and we'll cover other parts next week.

Voluntarily,

-Joel

Readings:

The Creature from Jekyll Island by G. Edward Griffin - free download: http://archive.org/details/CreatureFromJekyllIslandByG.Edward-G.EdwardGriffin

The Mystery of Banking by Murray N. Rothbard - free download: http://mises.org/Books/mysteryofbanking.pdf

Wall Street, Banks, & American Foreign Policy by Murray N. Rothbard - free download:  http://library.mises.org/books/Murray%20N%20Rothbard/Wall%20Street,%20Banks,%20and%20American%20Foreign%20Policy.pdf

 

How The Fed Works:

History

1.  Gold Standard

a.  19th Century Booms & Busts

b.  19th Century Bailouts: suspension of specie payments

2.  Push for Euro-style Central Bank

a.  Eastern banking establishment concerns over competition with other banks

b.  Eastern banking establishment concerns over competition with cash-based investment (saving)

c.  History of European Central Bank

Stated Purpose of The Fed

1.  “Lender of last resort”

2.  Banking services for U.S. government

How The Fed Works

1.  Buys stuff and pays for it with money created out of thin air – increases money supply

2.  Sells stuff – decreases money supply

3.  History of inflation (no net inflation before Fed; constant upward bias since 1913)

4.  Most “stuff” bought historically has been Treasuries.  That changed during recent bailouts though Treasuries still significant part.

5.  Profit dynamics

a.  Receive interest on purchased Treasuries

b.  Return profits to U.S. Gov’t

How Fractional Reserve Banking “Works”

1.  History

a.  gold receipts used as money

b.  goldsmiths inflated money supply by issuing more receipts than gold

Impact on Economy(ies)

1.  Artificially low interest rates – Malinvestment – boom/bust cycle

2.  Ready source of funds for government  – increased spending – increased deficits & debt

References

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