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20 sats \ 8 replies \ @Undisciplined 2 Nov \ parent \ on: Central banks need escape route from cycle of boom and bust econ
Exactly, they're the cause of the business cycle.
If they could somehow have their ability to expand credit removed, then there could be central banks that don't do anything other than sit on a big pile of real assets. That wouldn't cause business cycles, but there's also no reason any regime would keep such an institution around.
Actually, if the Fed quit it with the easing and tightening, the individual banks would expand on their own hook.
It is the fractional reserve system, in toto, that needs to be removed.
Then let the peoples time preference for money determine natural interest rates.
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Sort of, but without central bank credit expansion, bank runs are a real threat to independent banks engaged in fractional reserve lending.
In an environment like that, I'd expect business cycles to be very mild.
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The only way they had credibility was with FDIC.
Get rid of the FDIC and the banks will have to behave themselves or go bankrupt.
They won’t, theoretically, lend much more than they have taken in as deposits.
They won’t be backed by the Fed, they won’t be naked short on commodities.
That would cure many, many problems.
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Malinvestment drives the economy into the ground.
Malinvestment arises due to economic miscalculation because of “unnatural” interest rates.
The natural interest rate is the rate that demand for and supply of money balance. That would be savings and loans.
With the Fed arbitrarily deciding the interest rates, nobody can do proper economic calculation for investments.
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Yes, they are at risk of a bank run, but that is the controlling factor for banks; bankruptcy.
Too many fractions, loss of business. THEY earn those consequences.
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