Monetary Reform

  

Categories: Econ, Regulations

If you hear a call for “monetary reform,” we’re talking big news and a major overhaul. Monetary reform refers to changing our current system of how “money” is supplied to the economy.

We say “money” because some monetary reformers argue that the U.S. dollar isn’t worth anything.

Why? Because it isn’t backed by anything.

In ye olden days, the USD was “on the gold standard”—ever heard of it? That tied paper bills to actual gold. You could walk into a bank and redeem your cash for gold. This made people feel better about using little bits of paper to trade for things. Today, however, we’re off the gold standard, and the U.S. dollar isn’t backed by anything tangible.

Another major way that the monetary system could change is by changing (or getting rid of) the central bank, which was made to support the economy when, um...stuff hit the fan (crisis time). Some economists argue that things would be better off without a central bank. For instance, some economists argue that, if the banks weren’t bailed out during the 2008 financial crisis, it would be better, since now that bad behavior is incentivized. Now, banks have no reason not to be irresponsible with consumer money, because they know the central bank will step in to save them.

Less familiar (to Americans, anyway) proposals for monetary reform include government-issued credit, free (no interest), and government-issued social credit, which would theoretically disperse economic and political power to individuals.

Welcome to the Pandora’s Box of monetary reform.

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and finance Allah shmoop What is the Fed shmoop the

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Fed A k a The Federal Reserve It's the central

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bank of the United States and its independent of the

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three branches of U S government and it's also responsible

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for well the health of America's financial system More less

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An apple a day keeps the USD looking a OK

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by setting the country's monetary policy regulating financial institutions and

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the Fed is central to the US economy and well

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to the strength of the dollar You probably heard of

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the Fed chair He's sometimes in the news since he's

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well more or less the face of the Fed For

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instance Ben Bernanke got a lot of screen time whether

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he liked it or not since he was the Fed

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chair during the two thousand eight financial crisis The Fed

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chair and the vice chair are appointed by the president

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four year term In total there are seven members on

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the board of governors all appointed by the press and

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confirmed by the Senate The Fed is supposed to be

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independent of current political happenings and the current presidential administration

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of three U S Government branches All right well the

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board of governors including the Fed chairman are the seven

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head honchos of the Fed But the board of governors

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aren't the only ones in club fed All right well

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we also have 12 Federal Reserve banks that span the

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country Each Federal Reserve Bank is responsible for a region

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of the US So the Federal Reserve banks are kind

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of like the nervous system of the federal Fed branching

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out to reach all areas of the U S They're

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located in major cities in the regions that they serve

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in each of the Reserve Bank's do their own day

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to day thing But they're supervised by the Board of

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Governors while the Board of Governors is supervising 12 Fed

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Reserve banks that 12 Fed Reserve banks or supervising other

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banks called member banks which include all national banks So

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you know most banks we'll reserve banks lend money to

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banks to accept deposits keeping liquidity minimum standards and then

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these banks enforce compliance of laws designed to protect consumers

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like things like the fair credit lending laws and all

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that kind of stuff We'll reserve banks are weird since

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they're kind of private and kind of public What economists

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call Quays I governmental They're supposed to function publicly supervising

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the commercial banks in their area and everything but they're

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largely managed and funded privately Commercial banks in each region

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hold stock in their regions Federal Reserve Bank which means

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the reserve banks are essentially owned by commercial banks It's

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the same idea that shareholders have those who own shares

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of stock in a company owned that company well except

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that reserve banks are supposed to be keeping a regulatory

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eye on these banks that are funding them So the

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reserve banks are funded by the banks that they're policing

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Yeah maybe conflict of interest there Why Well because they're

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not supported by tax dollars They're supported by the interest

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they collect from commercial banks Well remember when the Fed

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was made it was designed to be separate from the

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current politics and from the rest of governments The idea

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is that no matter which way the political wind is

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blowing the Fed can remain strong and independent you know

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the Beyonce away A lack of funding from the public

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sector means that well they had to get it from

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the private sector Reserve banks aren't like normal banks Each

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Reserve Bank has its own nine member board of directors

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Three of the directors were chosen by the Board of

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Governors Up on High and the other six Reserve Bank

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directors are elected by the member banks in their region

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they regulate And member banks also elect 2/3 of reserve

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bank directors which means member banks have a big hand

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more piece to the Fed puzzle We've got the board

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of governors the Reserve banks and finally the funk also

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of the Fed now the FOMC isn't exactly its own

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branch It's made up of people from the board of

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governors and the president of the Reserve Bank's Well the

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chair of the board of governors is usually the chair

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of the bomb But don't worry there is some democracy

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to it The epilepsy also includes all the board of

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governors as voting members plus the president of the Federal

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Reserve Bank of New York Right that one special It's

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the on ly reserve bank prez who always gets a

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vote There are four other voting spots in the FOMC

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that the remaining 11 Reserve Bank president's fill by battling

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it out Thunderdome style Yeah okay while the other four

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voting spots are filled by the remaining 11 Reserve Bank

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president's taking turns serving for one year at a time

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any given time they still take part in the FOMC

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governors the reserve banks and how they all come together

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in the Federal Open Market Committee make up the Fed

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actually designed to be separate from the federal government Even

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some politicians have made that mistake before Nathan Oh it

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wasn't pretty While the Fed functions is a commercial bank

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hall monitor and piggy bank for the U S Treasury

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the main thing the Fed is known for in the

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public eye is changing of interest rate The general idea

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of interest rate tinkering is that the process ripples outward

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affecting the entire economy of the U S and the

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world When the Fed charges higher interest rates to member

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banks well member banks in turn charge higher mortgages car

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loans credit card rates to consumers When things are more

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expensive consumer spending generally slows when the Fed makes it

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cheaper from member banks to borrow well Interest rates are

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low then and that usually increases consumer spending Through this

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ripple effect of interest rate Pickering's and controlling the money

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supply the Fed aims to keep prices stable and unemployment

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low You know the stuff of monetary policy well Besides

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conducting monetary policy the Fed is also supposed to keep

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financial system stable to police commercial banks and to protect

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consumers from predatory banking practices or anything It's just not

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fair While it's supposed to work that way it doesn't

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always since member banks fund and elect the same Reserve

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Bank reps who were supposed to be policing them While

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they're about to be you know conflicts of interest There

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of New York's Reserve Bank the one special Reserve bank

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that always gets to vote in the bomb was also

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on the Goldman Sachs board of directors and they invested

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had a whole bunch of stock in Goldman Sachs And

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of directors who've been affiliated with Citigroup JPMorgan Chase and

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also working for Reserve Bank is the kind of conflict

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