Abolish the Fed

Can someone please explain why we should not abolish the Federal Reserve or explain why lawyers won't discuss the bankruptcy of the corporate US in 1933 the keeps us perpetually indebted to the international bankers. How rich are those Rothschilds anyway? Is there such a thing as kazillion?

It took a long time for people to accept paper (and some are still bitching about it as we see here).

No one, to my knowledge, is objecting to fiduciary paper currency -just to fiat currency. In fact, most of the gold people are perfectly in favor of over issuance of this paper - as long as holders can redeem. I, OTOH, have more rigid requirements before I'm happy.

PLEASE POST A LINK TO THE ECONOMIST ARTICLE OR GIVE THE TITLE

I, OTOH, have more rigid requirements before I'm happy.

Are you telling me that if you showed up at a dealership with $25,000 worth of gold (consider the implications of that piece of syntax) that the dealer wouldn't take it? Sure they would, after converting the gold to dollars and discounting it for their hassle and the poor performance of gold. Thus you are quite free to carry gold coins or paper certificates, the problem is you'll have to sell them at a discount.

I OTOH might be quite happy with a note on a basket of bonds with a good record of appreciation. Some people might pay me a premium for my notes based upon their perception of the value. They might not therefore need 100% reserve-backing based upon that particular transaction because the reserve amount need only be the value of the note.

Pooled risk has NEVER operated on 100% reserve backing. That is why it is a valuable capital allocation and risk management service.

What makes it inherently unstable is the relationship between liabilities (which are deposits due on demand) supported by assets of a longer maturity.

This problem was solved 40 or 50 years ago, at Bell Labs. Telephone companies have the same problem: how to accommodate customers who come and go at whim, using relatively fixed capital assets. I do not understand the math, but it relies on the so-called "law of large numbers" to predict that this-sized central office will support that-sized town. There is a confidence interval here... there will be outlier situations (e.g. cell phone usage after the WTC attack, Mother's Day) where some will people will not get dial tone. There is also a fair amount of waste as $40 million assets run at idle speeds from midnight to dawn.

Still, this system works remarkably well for everything from telephone service to airline scheduling, and it is used throughout our economy to find a reasonable level of assets to deploy to accommodate volatile demand. Doing the same thing with "money" makes perfect sense.

Usually the people who use this system use an alternate technology to handle the outlier situations, because just throwing more of the same sort of capital at the problem becomes extraordinarily expensive as we approach the worst-case scenario. AT&T has some "mission control" somewhere that can change call routing on the fly to deal with regional bottlenecks that pop up; the electric utilities have a grid that can do a similar thing. The regional Federal Reserve banks do that with money.

My point is that this is not some weird construction we only see in banking; it's the general solution to the problem of accommodating volatile demand with capital-intensive technologies.

It does fail at the margins; there are delays in making calls on Mother's Day, and lots of people in New York could not get dial tone on 9/11. Building everything to accommodate worst cases, however, is hugely wasteful, and in some cases can become infinitely wasteful.

There's probably a "fanatic's role in history" in this for some guy who wants to argue in favor of spending more for greater safety, but the empirical evidence says that the public does not really want to pay for perfect safety.

You are just not bothering to make important distinctions that are central to the discussion. Specifically, the legal relationship between you and an institution is...

All that, and you come back with legal distinctions? And tell me that those are the ones "central to the discussion"? Pffft. I already stipulated to not being a lawyer, and to not caring how the lawyers end up papering what happened. Lawyers rarely initiate deals; they come around afterwards to tell us what buzzwords they used to write the deal down. We humor them in this by paying them money. It's all very important, I know, but it's not what causes anything to happen.

by not bothering to make the distinction, you end up believing your alternatives are the current institutional structure or no institutional structure

Au contraire. By taking the view from 30,000 feet, I am able to see past current legal practice and focus on the parties and what they are trying to accomplish. I basically ignore institutional (and technical) form and try to imagine how this would happen in an ideal world. Sometimes the result of doing this is impractical, but other times it spots an innovation that would confer competitive advantage on the first guy who tries it. I know that because I've done it.

One of my better stock-picking rules is to sell the minute a company appoints an accountant or a lawyer to the CEO spot. Sometimes these guys surprise me, but mostly they don't.

My point is that this is not some weird construction we only see in banking; it's the general solution to the problem of accommodating volatile demand with capital-intensive technologies.

The order of magnitude of difference is enormous. If a gym tells me I can use the gym from 9-5 and I show up at the same time as all the other gym members that is an unfortunate, minor inconvenience; if everybody tries to make a phone call at the same time, that is an inconvenience. If everybody shows up to the bank for their "money" some won't ever get it. Without FDIC there would be frequent runs as there used to be prior to FDIC. Assuming you consider a paper dollar as the ultimate backing, the current system has about a 1% coverage. Of course with unredeemable tokens serving as money, the Fed can costlessly create it to fulfill demand, and with our system, it will soon flood the market and become worthless.

Also, with rergard to all important assets and liabilities, every single non-bank business finances the assets with liabilities of equal or greater maturity.

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