Editor's Note: Bob Gelfond argues for privatizing the Fed. Is he onto something, or is he just a nutty libertarian? Readers weigh in.
Leave Currency to Fed
Gelfond is correct about one thing, the government should be left to defend the borders. But defending the currency is best left in the hands of the Fed.
This idea is one of those pipe dreams that is best left on paper for business students to debate! Can you imagine walking into Wal-Mart and being told your Citibank dollars are now worth half what they were yesterday? That would be chaos plain and simple.
-- Carl V Sposito
Prices Don't Adjust
Bob Gelfond's arguments for privatizing the fed are voodoo economics just as surely as supply-side was before it. As any high school economics student knows, money serves three purposes, only two of which Mr. Gelfond recalls. It is a store of value, a unit of account
a medium of exchange.
Stipulating that Mr. Gelfond's analysis of first two uses of money is correct, I believe he misses the boat on point three. Macroeconomic theory tells us that in the short run, prices are sticky and will not adjust.
I respectfully disagree with the bulk of your argument, glad only that the first sentence of your last paragraph -- that these changes are not imminent -- is true.
-- Matt Kramer
Dollars? Marks? Citidollars ? J.P. Morgan dollars? Are you kidding me? I say replace our current system with casino chips like they use in Vegas: Caesar's Palace, Mirage, MGM Grand (my personal favorite because of the roaring lion logo), et al. I have more faith in the Nevada Gaming Commission than those old fogey-stogeys at the Fed. Also, they're much more decorative, and I suspect no would dare try to counterfeit them because they'd know better than to mess with 'da boys.
-- Soman Mathai
Guarding the Hen House
Mr. Gelfond: Interesting article and, unlike some readers, it's just the stuff I look forward to read on
! My interest in the article stems from the strong notion that we are moving more toward regional controls of goods which, in turn, reach out globally. Technologically and economically, we have become interdependent with several nations in ways we have not before. A privatized Fed would allow quicker moves to global economies of scale while encouraging domestic regional markets to "get in the game."
My concern is the related issue of timing. Time is not only money, it is the mechanism which determines healthy or unhealthy money supply. People in charge of the money use time and, in the Fed's case, authority, to create a standard. The Fed's use of time and authority, for good or ill, brings a common standard to the markets which is independent of the market. While many may wish all controls be given to the market with the blind belief that the market can take care of itself and this commodity (money), I believe we need a more objective wolf guarding the hen house. Thanks again for stimulating a boring subject with a capital(istic) idea.
-- Will Mason
Inflation the Culprit
I think Gelfond is right. The continuing inflation of the money supply via the Fed is the reason prices have not had an orderly deflation over the last 5 years. I wonder what Steve Forbes thinks of Gelfond's idea.
-- Leon Gaudiosi
Bob Gelfond is absolutely correct. Money is fundamentally no different from any other good. It just happens to be the most liquid one and convenient to use as a medium of exchange, rather than rocks, chickens, cattle, gold coins, etc.
I will go even further and suggest that the central banks are going to lose their monopoly, whether they like it or not, because technology is eliminating the edge they have enjoyed. When the various forms of internet "cash" now under development are perfected, we won't need dollars or yen or marks anymore. And those who produce these inferior goods will have to find other work.
-- Patrick Watson, Austin, Texas
Money a Mere Creation
Finally someone who understands that money is a creation of the market. Having the government dictate the supply and quality of money makes as much sense as the government monopoly control over pencils.
As for recent Fed history (Alan Greenspan, Paul Volker) you must give them credit for avoiding disasters, but we are not assured of being so fortunate in the future.
-- David Conell, Albuquerque NM
The Possibilities are Endless!
The article was good, right up to the Citidollars etc....where do we go from there? Chasechange? DLJdollars? CramerCheese? Greenbergguitas? The shake out to credibility could be brutal and costly!
-- James Irvine
Objectivism Rears Its Head
Sounds like you're cribbing from Greenspan's younger days when he was a disciple of Ayn Rand...
Hard to believe that he grew up to be the power he is today!
-- Jeffrey Jacobs
Just a Few Problems
Privatizing the Fed? At first blush it sounds a little crazy. But why not it has worked in other areas of government, has it not? I will tell you why in one word Chaos! The economy would be at constant risk, speculators would trade the various currencies prices would be unstable, people would change jobs based on what currency in which they were to be paid.
These are only a few of the problems I could think of the top.
-- Carl J. Wehner
Heart's in the Right Place
Is Gelfond right on the Fed? Or is he just a nutty libertarian?
On paper, privatizing the fed sounds like a good, capitalistic idea. In reality, it would pose major problems, as it did in the pre-Civil War period.
First, Gelfond fails to point out that during the period of private money in the 1800's many shysters established banks, issued their own currency, converted deposits into hard assets such as gold, and then disappeared, thus leaving behind an impoverished people holding worthless paper. Recreate this type of system today and the S&L debacle will look like amateur night.
Secondly, allowing for the privatization of money would, ironically, require more government regulation to insure that personal lifesavings would not be wiped out by corporate corruption or incompetence.
Lastly, private currencies would lead to the creation of dozens, if not hundreds, of floating exchange rates. JPMorgan dollars would be worth how many Citi dollars, which would be worth how many Indiana State Bank dollars, which would be worth how many Texas Community Bank dollars, which are worth....well you get the point. These exchange rates would make currency traders ecstatic, but would significantly hinder business nationally and internationally. A single currency makes business easier to conduct, which is why Europe is trying so hard to roll out the Euro.
So, while my capitalist's heart is with Gelfond, the brain has to write off the idea as a nutty Libertarian proposal. Sorry Gelfond.
-- Steven Heim, Culver, Indiana
Bob, lives in dream land, where everyone tells the truth and no fraud exists. Let any bank or company print and sell money? $10,000,000,000.00 worth of Bree X, please.
-- James I. Maloney
Stick with Greenspan
Your writer says . . . " currently the markets are content with Alan Greenspan, but intelligent arguments can be made that current policy is either too tight or two easy".
Sounds to me like you could make an intelligent argument that he just described exactly the duty of a central banker.
My hat's off to Greenspan; he's this market's best friend. The writer sounds like a shill for Big Banking.
-- Gary Christy
"The United States may have been spared the worst of the crisis in Asia, but a crisis it has been for those Asian nations. And much of the blame goes to the government's interference in their economies."
..hmm. Let's see, "the government's interference in their economies." So, is that the US Government's interference in the Asian economies?
And then the post went downhill.
I suspect the notion of privatizing the Fed makes as little sense as the article. Makes me wonder not only about the author but also about what the
was thinking of in publishing it. I'd give the post a D- and
an F- on this joint effort. My guess is the author is in way over his head. So what does that say about TSC?
-- William C. Bitting