Jim Hickey’s American Politics

Let's Get Real.

Do Economists Believe the Federal Reserve is Good for the Economy?

The Federal Reserve came into being over a hundred years ago. The modern American financial system is built around this system. A lot of people don’t know why the federal reserve exists. Many famous presidents have actually considered trying to dismantle the Federal Reserve. Ronald Reagan was one of them.

It’s actually hard to seperate the Federal Reserve from the rest of the United States’ financial situation because it is actually made up of several different branches. Each branch prints and issues its own money. A small number of economists think that the Federal Reserve should be dismantled. America’s money was previously propped up by the Gold Standard. The dollar was valued by being compared against the value of gold. This was abandoned by the 1930’s because of the great depression.

The Federal Reserve system is generally much more stable because dollars can be printed almost infinitely. This allows the United States government to find stable levels of inflation. Each loan issued is a debt that needs to be paid back. The interest gained is used to issue more loans. This typically leads to economic growth. Economic growth in a nation as large as America is hard to gauge because it is a fully developed country. Most Americans have all of the goods and services that they need to live. America’s economy is growing at a slower rate than most other nations, but some economists would argue that this is a good thing. American economists expect rates of inflation to remain stable. Most of Wall Street’s biggest problems in the past 100 years have been due to the government issuing more loans than people could pay off. This created severe instability in the economy.

Some economists think the federal reserve is unnecessary because commercial banks could simply issue loans. The federal reserve is more or less acting as the controls on the money supply. A few economists argue that this is bad because it leads to a less stable economy. The handful of federal reserve branches that exist around the United States are able to function as well as they do because they can issue tons of money to these commercial banks. A lack of overall control on the money supply could theoretically lead to chaos.

Christian Broda is a financial professional from New York. He has suggested that the central bankers are not going to notice financial excesses until it’s too late for them to do anything about it. This is an interesting argument because it puts a different spin on a lot of things that economists take for granted. The Federal Reserve has almost no regulation. They can set any rules on money that they want. Broda suggests quantitative easing by the Federal Reserve is having a negative effect on the economy. He has suggested that these bankers are less likely to notice these financial excesses because they have to wait until the full effects of the loans and interest rates have taken hold on the economy.

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