Keeping The Federal Reserve

To my rebuttal - The free market dictation isn't value neutral, and the boom-bust cycle my opponent listed as attributable to the Federal Reserve is plain false. Periods of booms and busts have existed long before the Federal Reserve was established, and is in fact, part of the reason the Federal Reserve was established in the first place. The current recession, caused by the Housing Bubble, had nothing to do with the Federal Reserve, as most banks which fell under the Fed's regulatory arm were, in fact, profitable. The standard argument, in regards to the on-going financial crisis, is that the government-backed monetary policy forced banks to take risks and lower standard, which in-turn is believed to have caused the Housing Crisis. This couldn't be further from the truth. Most high-risk loans fell outside of the regulatory arm of the Community Reinvestment Act, according to the bipartisan Financial Crisis Inquiry Commission. Thus, this attack on the Federal Reserve is based on an imaginary strawman, invented by proponents of the Free Market Fairy who fear the Inflation Monster. When he brings up Keynes philosophy in regards in employment interest and money-flow, he fails to mention that the very theory he's being critical of has been employed and proven successful. As a means to combat unemployment, the Federal Reserve is well-capable going through phases of quantitative easing (QE 1, 2, an 3 respectively), which increase money flow in the economy. The resulting capitol increases spending power, which, in turn, increases demand. This is an example as to how QE practices can work to reduce unemployment without having the adverse effect on inflation my opponent thinks would take place. Malinvestment comes from toxic-loans, not the interest rates the Fed sets for other banks. The free-market dictates the amount of investment in capital, regardless of the interest rates set by the Fed. It isn't setting a false sense of security, it's encouraging growth which leads to long-term economic prosperity. The liquidity trap he mentions fails to take into account the elephant in the room. Any other day, it's an issue. Today, we're in a global financial crisis in which our unemployment rate stands at 7.8% (according to the Bureau of Labor Statistics). You can't have your cake and eat it too. The tinkering with interests rates doesn't 'cause boom/bust cycles, but the basic economics of supply-and-demand do (as-in, if the demand causes the boom, and the ever-so ubiquitous supply without the demand to meet it causes the bust). For simple, steady prosperity to take place, regulation needs to protect the interests of the average American. When it came to the Community Reinvestment Act, the Federal Reserve worked. Now to my critique of his proposals -- a system of free banking has existed before, and it proved to be dangerous. Following the repeal of the merger provision of the Glass-Steagall Act in the 1990s, banks immediately began taking advantage of the new-found power to merge investment banks with commercial banks. If you're a bank, this is great because you can grow. If you're the person who has their money deposited in the bank, this is bad because the firewall which protected your assets is now being gambled in an inherent conflict of interest. The problem with gold is that it is a finite resource, and economically unviable considering the demands of today's market. These demands require the standard of today's market (a fiat currency). It's precisely why industrialized nations of today have adopted a fiat currency system. Now, having laid my critiques, I'd like to move on. We're not talking about competing standards of currency, but the benefits of a central bank within the United States. I ask my opponent to stay on topic.