The Federal Reserve Bank of St. Louis tells us the Fed's congressional assignment is "To promote maximum employment and price stability." For these it talks about interest rates, and its aim is to increase the money supply so that prices rise gently at or around a 2 percent rate.
After defining the Federal Reserve System - the Fed - as the American central bank enjoying "a government-granted monopoly on the creation of legal-tender money," Woods proceeds to evaluate the Fed from a broad or macro perspective.
Woods takes us back through American history to see how banking and credit developed.
During the period between the expiration of the first Bank of the US and the creation of the Second Bank of the US - 1811-1817 - the government granted banks the privilege of expanding credit unsecured by deposits while allowing them to tell depositors attempting to withdraw their money to "Come back in a couple of years." While banks could be charged with legal counterfeiting and embezzlement, Woods does not use the terms.
The obvious result was a very fragile and undiversified banking system in which banks could be brought to ruin if local conditions turned sour.
As Milton Friedman was fond of pointing out, although the Great Depression claimed over 9,000 American banks, the number of banks that failed in Canada at that time was zero.
American bank panics, it turns out, were in large part the result of government intervention - in the form of unit banking - in the first place.
https://mises.org/mises-wire/woods-exposes-federal-reserve-system
No comments:
Post a Comment