The Federal Reserve should be abolished

Thanks Con for providing more examples of the Federal Reserve's immorality. Rebuttal: C1-Interest Rates This claim illustrates many of Pro"s positions: P1) Federal Reserve punishes innocent people, P2) Federal Reserve rewards irresponsibility and P3) Federal Reserve distorts markets. The Fed setting interest rates at artificial levels is part of the immorality of its actions. An interest rate set at an artificially level distorts the market for future money; an interest rate is simply the price of future money. This market price for future coordinates current consumption with future consumption (www.nomadpress.com/gunning/subjecti/workpape/neogrowt.pdf ). With the market for money distorted, businesses in many industries have now coordinated future failure. With failure coordinated, a downturn in one becomes a downturn for many, in other words a recession. Con demonstrates this in the following statement ""when they cut interest rates to 4.75% to counter the Asian financial crisis. This helped keep the American economy strong to prevent a global economic crisis, specifically leading to an abundance of Internet start-ups." Many of these Dotcom companies had no income, assets, or even a product. These companies attracted investors that could borrow money at a lower interest rate than rate of return. A profitable situation until the Fed funded bubble was shown to be fraudulent (http://time.com...). Pro continues to illustrate the Fed"s interest rate immorality: "P1) Lower interest rates increase spending and investment in the economy." Coordinating misallocation of resources "P2) As spending increases, businesses become richer, and can hire more workers and pay existing workers more." This spending is based on false forecasts of future consumption that is spread across many industries thus coordinating business failures. "P3) Richer people can spend more." Those with political connections would be a better description. "C) Lowering interest rates allows economic growth and less unemployment rates." Lower interest rate coordinates un-productive investments, causing recessions as measured in macro-economic terms. Rebuttal: C2-Inflation Targeting This claim also illustrates many of Pro"s positions: P1) Federal Reserve punishes innocent people, P2) Federal Reserve rewards irresponsibility and P3) Federal Reserve distorts markets. "The Fed aims for a 2% increase in inflation over the medium term, which helps prevent deflation." Deliberate currency inflation is immoral, by directly reducing wealth of individuals. Looking at the targeted 2% rate, if today $1 can purchase 100 widgets, next year with everything else equal, that same $1 will only purchase 98! The holder of that $1 did nothing but was punished for holding that $1 for a year by 2 widgets. If Janet Yellen broke into a house stealing 2 widgets the police would have her in cuffs. Yet, defined as inflation it is not a crime, just another example of the Fed"s immorality. Deflation, the macro economist"s bogey man, striking fear to their core, causing underwear changing at the Fed, looking at a blog post by a modern macro oracle, Paul Krugman, on the reasons to fear deflation, (http://krugman.blogs.nytimes.com...) -First, "when people expect falling prices, they become less willing to spend, and in particular less willing to borrow." This is treating deflation as falling prices. People are always looking for a better price; it is part of the supply and demand model. When a price decreases, people purchase more of a good, not less. In borrowing money, having less debt is good for people. Yet, to macro economists both ideas reduce GDP, a measure with no relevance. -Second, Krugman continues "even aside from expectations of future deflation, falling prices worsen the position of debtors, by increasing the real burden of their debts." This changes deflation to the value of currency. If currency is gaining value, it makes it harder for people that borrowed money to pay this money back. Thinking about this, and asking "who owns the most money?" that would be the US government. Currency deflation would make it harder for the government to pay interest on nation debt, and make future borrowing more expensive. -Third, Krugman states, "in a deflationary economy, wages as well as prices often have to fall", that is exactly how markets function. Wages are the price of labor. Wages function as any other price and will reach a peaceful equilibrium. Yet, Krugman leaves out the real reason of macroeconomic fear, falling prices render Fed policy tools ineffective. By macroeconomic definitions an economy is in recession if GDP decreases for two quarters, with failing prices nominal GDP will also decrease, (since the ruler now has deferent markings). With a mythical economic measurement falling few politicians have the leadership ability to say, "This is a good thing." Terms like liquidity trap and secular stagnation are invented to describe a fictional problem. Currency deflation increases the value of a currency, thus a person"s purchasing power is increased by only keeping cash in a mattress. Decreasing prices encourage consumption at a lower price which is good for consumers; nobody complains that they spent too little on a product. Currency deflation equals liberty! "P1) The value of debt on companies and people increases." Thus, encourages real wealth building, nobody has ever said "wow, I have too much money in my savings account, earning a good interest rate." "P2) Companies and people are less likely to spend/invest." See, P1. "P3) Companies are making fewer profits." In nominal terms, no change in real terms. "P4) Companies are forced to lay off and decrease wages for workers." False, there is not causation. Any example provided, will demonstrate that unemployment caused failing prices, not the failing prices. "P5) People save their money more." See, P1. "C) Deflation is dangerous to the economy and lowers consumption." Deflation is a good thing, and increases real wealth! Rebuttal: C3-Bank Supervision and Regulation Bank supervision is required due to the Fed"s policies of fractional reserve banking. A Fractional reserve banking system is inherently unstable thus requiring supervision and regulation, which an inventive banker will always find a loop-hole or mouse-hole to exploit for personal gain (http://www.newleftproject.org...). If the misconduct in the 2008 Financial Crisis was so wide spread, but only one big banker has been jailed (http://www.nytimes.com...). This can only mean that most banks were fully compliant with banking regulations. The Federal Reserved created this immoral banking system that requires heavy regulation, in order to function. Pro commends Con for an excellent job, illustrating Pro's premises of the Federal Reserve's immorality, thus unless Con is actually for punishing innocent people, rewarding irresponsibility, and/or distorting markets (Pro can not see how ethical person could be for any of those positions) is also for abolishment of the Federal Reserve.