Tuesday, November 16, 2010

For Whose Benefit Is Monetary Policy Run?

I find it very interesting that people care about money, want to have more money, but do not understand very much about how the Federal Reserve Bank has and continues to manipulate the value of our money. The article in the Sunday New York Times, How To Make The Dollar Sound Again, is seen by too few people. The Federal Reserve Bank's relationship with commercial banks has become much like the corrupt relationship between the Food & Drug Administration (FDA) and the drug companies. The original purpose of our central bank has been corrupted. I wrote many months ago that the job of the Federal Reserve Bank is not to prop up the economy. Fiscal policy is the responsibility of the Congress and the executive branch, the administration. The central bank should be concerned with protecting the integrity of the dollar because the value of the dollar affect all of us that use our currency. Why should a dollar earned and saved in 1960 be worth less than 1/7th of a dollar today in purchasing power? This is a crime that goes unreported, not understood and is perpetuated every day by the actions of the Federal Reserve Bank. I ask, For whose benefit is monetary policy run?

Stay tuned.


LceeL said...

You're kidding, right?

Remember that "Military-Industrial Complex" so famously pointed to by President Eisenhower? That "Dangerous" liaison he warned us about?

Well, when that speech was first drafted, the reference he was GOING to make (but didn't - and that itself is a whole 'nuther story) was to the "Military-Industrial-Congressional" complex. Every element of which requires funding. By banks.

Yes, who DOES the monetary policy of this country benefit?

It ain't you and me - that's for sure.

And yet .. it's supposed to be.

troutbirder said...

I do understand about the perversion of most federal regulatory agencies to the benefit of the corporations. I thought the Fed was supposed to be independent?

Robert said...

Policy makers and the Federal Reserve might have trouble measuring inflation since the problem varies a lot from sector to sector. My parents bought a color TV in 1964 for around $400. Today the TVs are better and cheaper. Many consumer products have gone down in price due to improvements in technology. Long distance phone service is cheaper, for instance.

If one is measuring inflation as the price of goods, it doesn't seem to be much of a problem. On the other hand, look at the cost of health insurance today; it has skyrocketed over the years. Try buying a house in the San Francisco Bay area; one just about has to be a millionaire to enter that market.

Many of the things that have gone up in price are considered essentials, such as housing and health care.

Our problem is not so much the over all inflation rate, but the diverging inflation rates. Those who aren't having problems providing their essentials, such as folks who bought into housing early, and/or folks who's health insurance is covered by employers might not see the true inflation.

Meanwhile, the economy has been very successful in bringing a lot of goods and services at low prices. Now there are many new products on the market due to technology. If one isn't too worried about the essentials, it still looks pretty good. This can blind folks who are highly placed in policy making positions.

The overall inflation rate doesn't tell us very much, but looking more closely at diverging inflation rates between different sectors is more useful.

Maybe entities like the Federal Reserve should look more at things like the housing affordability index for various cities. Then it would be less likely that policy makers would miss things like the housing bubble. It seemed like most of "inside the Beltway" crowd was oblivious to that problem until Fall of 2008.