muz
Golden Master
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The way I see it, local and regional banks would be more responsive to their respective economies than the Fed ever could be so I think the country would be better off not having these banks not tethered to the Fed. And isn't it true we didn't have depressions before the Fed existed?
So you would advocate doing away with the fed in order to have interest rates set locally . I agree perhaps in a country as big as the USA the fed might preside over an area way to large to be doing good for every economy in every state ,however the alternative is allowing interstate economic competition which already exists but if you allowed the interest rate to be amended at state level there is a real risk one state could try and ruin another and you would end up with slum towns where only the very poorest lived because a favorable interest rate attracts everyone to another state or you would end up with everyone depositing all of their money in bank accounts in one state because of a favorable interest rate there . however the idea of an independent central bank setting interest rates is something i couldn't disagree with .
The problem with trying to historically analyses the cycle of depressions before the fed is that prior to the fed the economy was not the same ,in the 19th century you had the industrial revolutions which established the industrial economy of which we pretty much now have a modern version of worldwide . however now we manufacture less and rely on a service based economy a lot more , some people speculate that is where we went wrong . prior to that in the 17th and 18th century you had colonial farming economies . dont forget up until the 1800's slavery was used , whilst completely inhumane slavery makes sound economic sense because you are getting labour for free and so whilst now wage costs are an economic factor back then wage costs wouldn't have even been a consideration whilst you paid for the slaves this was nothing compared to what wage costs would have been .
We have a central bank in the UK as well which sets interest rates . I have long been a proponent of this type of system rather than letting interest rates be set locally or letting the government have control over interest rates because it is conducive to stability . The risk of having some ulterior motive played out when setting interest rates is very prevalent if you let the government set them for example a leader who knows an election is approaching , they create economic conditions that make them look good in the short term but aren't actually good in the long run . Whereas having central banks where you have economic experts making the decision who are not at the whim of the electorate and dont have a fixed number of terms etc is in my view the key to sound economic decision making . The only thing these economists who work at the central banks have to loose is their reputation which would make them act to the very best of their abilities .
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