cameo wrote:
snip

This post is a clasic! I better save it because I've never seen the
current situation explained as well as this.

My main beef is with the Fed that to my understanding was established
with the primary goal of maintaining the value of the Dollar.

The Fed has a dual mandate - price stability and reducing
unemployment. The second mandate was from the Humphrey Hawkins bill
of 1978 ( 1977? one of those).

But look
what happened since they removed the gold backing of the $. The value of
today's $ is nowhere near what it was in years past except in the mind
of IRS when they compute capital gains and taxes owed on that.

It's messier than that. In parts of the economy, a dollar still buys
the same, but in other parts, no. you/I mainly see that because of
oil shocks and either entitlements or commodities that are under
subsidy that are indexed to inflation - and some other stuff.

The "other stuff" includes real estate, education, medical care
and government. Real estate now, not so much. Each of these things
has regulated supply ( not necessarily government regulated ) and
rising demand because of GDP growth and population increase.

A great deal of stuff gets cheaper year by year, when measured by labor
needed to buy something. Even subsidized commodities get cheaper.
Even automobiles have, adjusted for improvements, stayed a lot the same
for the last 20ish years in pure dollar terms. There's been like 1 or
2% annual increase in price, even though the offerings are usually
better ( have air bags, ABS, better engine control , other stuff ).

Stimulating the economy with money supply is not and should not be the
job of the Fed. But maybe I'm wrong. What do you think.


It is part of the job of the Fed. Inadequate money supply causes
deflation - the overall goods and services go up due to
GDP growth, population goes up. The money supply has to adjust to
accommodate that growth.

Inflation is painful; but deflation can threaten the basic fabric
of society. If the value of a dollar *goes up* ( which would happen
even if the amount of currency,credit & specie were merely fixed )
then people are incented to hold currency rather than let it at
interest, and economic activity plummets.

The question is how to regulate and govern the money supply. It is
not clear that economists know how to do this; indeed, it's nearly
clear that they don't . There are at least two camps and neither of
the two main ones seems to work.

Our central banks are made up of ... bankers, and they have biases.

--
Les Cargill