Saturday, November 14, 2009

Get rid of the Fed

What is the purpose of the Federal Reserve? To prevent inflation? Be lender of last resort?
Before the creation of the Federal Reserve in 1913, periods of inflation were small and followed by periods of deflation such that the over all inflation prior to the creation of the Federal Reserve was close to 0. Since the creation of the Federal Reserve, we have had the longest period of sustained inflation.
Lender of last resort? We had clearinghouses that fulfilled the same basic function. Except that they were accountable to the banks who used them. The Fed is not subject to the same market pressures that insure efficiency of our monetary system.