If the federal reserve was created in the USA in 1913, what was inflation and economic growth like before then? Was there a time in history before then that was better than what has happened since 1913?
and presumably this isn't just a US story. What has the rest of the world experienced?
Select to expand quotephiln said..
If the federal reserve was created in the USA in 1913, what was inflation and economic growth like before then? Was there a time in history before then that was better than what has happened since 1913?
and presumably this isn't just a US story. What has the rest of the world experienced?
From The Evil Princes of Martin Place. I have highlighted in bold the answer to your question.
"Why Are Central Banks Revered Rather Than Reviled? The central bank is the most visible and powerful manifestation of these harmful statutes and destructive practices. Unfortunately, for far too long central bankers have been revered as architects of financial stability rather than reviled as agents of monetary chaos. According to its web site (dated 6 November 2009), the Federal Reserve System is the central bank of the United States. It was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system. Over the years, its role in banking and the economy has expanded. Today, the Federal Reserve's duties fall into four general areas: conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates .
Similarly, the Reserve Bank Act 1959 states: It is the duty of the Reserve Bank Board . to ensure . that the powers of the Bank . are exercised in such a manner as, in the opinion of the Reserve Bank Board, will best contribute to: the stability of the currency of Australia; the maintenance of full employment in Australia; and the economic prosperity and welfare of the people of Australia. It's high time that somebody finally blew the whistle and pointed an accusing finger: the Federal Reserve System ("Fed") and the Reserve Bank of Australia (RBA) - like all other central banks - have failed utterly, completely and miserably to achieve these objectives. (Indeed, Chapter 8 will demonstrate that their achievement is, as a practical matter, simply impossible.) As an example, consider "stable prices" and "the stability of the currency."
Figure 1 plots the purchasing power (PP) of the $A and $US since the formation of the Fed and RBA in 1913.1 Within a decade of the Fed's birth, the purchasing power of the American currency halved: the basket of consumer goods and services that cost $US1 in December 1913 cost exactly twice as much in March 1920. PP subsequently rose from $US0.50 to $US0.78 by the nadir of the Great Depression in 1933. Since then, however, its slide has been unrelenting - to a derisory $US0.0454 in July 2010. The consumer goods and services that cost $US1.00 at the beginning of 1913 thus cost $US22.02 in mid-2010. That's a total rise of consumer prices of no less than 2,102% during the past 97 years. Who in his right mind calls that success? The U.S. has enjoyed many things since 1913, but a stable (in terms of its PP) currency simply hasn't been one of them. Figure 1
Only a Crazed Partisan of the State Could Call This "Success"
The Federal Reserve, RBA and the Currency's Purchasing Power
1913-20102
The RBA has trashed the $A's purchasing power even more thoroughly. The basket of consumer goods and services that cost the equivalent of $1.00 in 1913 cost more than three times as much ($3.49) in 1920; as a result, the PP of the $A plummeted to $A0.29. As in America, so too in Australia: PP subsequently rose - indeed, doubled - to $A0.41 in 1933. Since then, however, and as in the U.S., its slide has been unremitting - to a derisory $A0.0097 in 2010. In other words, the consumer goods and services that cost $A1.00 at the beginning of 1913 cost $A102.98 in mid-2010. That's a total rise of consumer prices of almost 5,000%! The Federal Reserve took 68 years - from 1913 to 1981 - to crush the PP of the $US from $1.00 to $US0.10. The RBA needed only 55 years. What about the era of allegedly "low inflation" since the early 1990s? The $A has lost half of its PP since 1988; and it has lost one-fifth since 2004. Since the Great Depression, Australia has enjoyed many things; but at no time since then has it enjoyed anything that by any reasonable standard could be called "stable prices." As we'll see in subsequent chapters, most of the conventional wisdom and mainstream propaganda about central banks and monetary affairs is at best misleading and at worst flatly incorrect. It's vital to understand that there's more than correlation at work here: this book will demonstrate that central banks such as the Fed and RBA have caused the destruction of their respective currencies' purchasing power. (This fact is closely related to another, which we will also describe and substantiate: far from smoothing the ups and downs of the business cycle, as the mainstream relentlessly asserts, central banks have exacerbated them.) As an initial point of corroboration, Figure 2 plots the PP of the U.S. dollar and British pound since 1800 - that is, during the approximately 100 years before and the approximately 100 years after the advent of modern central banking in these two countries. It shows that before (a) the abandonment of the classical gold standard during the First World War and (b) the creation of central banks with interventionist mandates (such as the Fed in 1913 and the Bank of England's policy since the First World War), the purchasing power of the $US and ? remained relatively stable. The War to Prevent Southern Independence - during which the U.S. abandoned the gold standard - provides the major exception to this stability. Since the Great Depression, however, these currencies' PP has inexorably fallen and cumulatively collapsed. In other words, under the relatively "free market" situation - namely the classical gold standard - that prevailed before the rise of modern central banks and their interventionist monetary policies, currencies didn't just retain their purchasing power over long periods of time: it rose appreciably. What cost $1 in the U.S. in 1800, for example, cost just $0.58 in 1913 (and $0.49 as recently as 1901). During this interval, the prices of goods and services fell at a compound rate of 0.5% per year. If you bought the same goods and services in 1800 and 1913, they would have cost $1.70 and $1 respectively. Clearly, the dollar bought much more in 1913 than it did in 1800; at the same time, people's wages rose by a cumulatively very significant amount during these years; as a result, and thanks partly to the gently falling prices of goods and services, standards of living rose dramatically. In sharp contrast, goods and services that cost $1 in 1913 cost $22.02 in 2010 ($1/$22.02 = $0.045). In other words, if you bought exactly the same products in 2010 and 1913, they would cost you $1 and $0.05 respectively. Clearly, the dollar buys much less today than it did in 1913. Under the watch of the Federal Reserve System, then, the PP of the dollar has plunged 95%. Other central banks have, to greater (like the Bank of England) or lesser extents, also presided over the destruction of their respective currencies' purchasing power."
Gosh, this is like discussing economics from the viewpoint of a baby.
So many things have happened over 100 years that affect prices, exchange rates, employment levels and everything else.
Trying to dumb it down to just the cost of a basket of goods is silly.
If these policies are so clearly bad, its a wonder that all the successful democratic countries in the world use the same system. Crazy huh!
If I gave someone $1000 today and there were no inflation (or worse; deflation) and the interest rate was only 4%, they would leave that money in the bank in a savings account.
Now, add in inflation of 4%, and that person could leave that money in the savings account where it would keep pace with its original cost, or they could invest it in riskier but higher return investments. These same investments are what create things in the economy. Otherwise it would just sit in the bank returning almost nothing to the economy.
BUT, I hear you say, the value of your money is falling each year? Yes, that's part of it too. Which is why a basket of goods costs more many years later.
If it didn't you would still be buying your $1 of items and being happy, but being on an income of $30 a month you would probably not notice the 'saving'. Lucky for us, with inflation, wage growth also happens.
Select to expand quoteFormulaNova said..
Gosh, this is like discussing economics from the viewpoint of a baby.
So many things have happened over 100 years that affect prices, exchange rates, employment levels and everything else.
Trying to dumb it down to just the cost of a basket of goods is silly.
If these policies are so clearly bad, its a wonder that all the successful democratic countries in the world use the same system. Crazy huh!
If I gave someone $1000 today and there were no inflation (or worse; deflation) and the interest rate was only 4%, they would leave that money in the bank in a savings account.
Now, add in inflation of 4%, and that person could leave that money in the savings account where it would keep pace with its original cost, or they could invest it in riskier but higher return investments. These same investments are what create things in the economy. Otherwise it would just sit in the bank returning almost nothing to the economy.
BUT, I hear you say, the value of your money is falling each year? Yes, that's part of it too. Which is why a basket of goods costs more many years later.
If it didn't you would still be buying your $1 of items and being happy, but being on an income of $30 a month you would probably not notice the 'saving'. Lucky for us, with inflation, wage growth also happens.
The excerpt from the book answers Philn's question concisely.
