The Crdit union analogy was just that… where state banks could be to Namu banks what Credit unions are to Fed banks: independant, not necessarily private.
This way, even though Namu policy may benifit only two-thirds of the countries involved, individual countries can still maintain some fiscal policy with the state banks, which are not Namu insured, but are basically just what they are now: state banks.
Hmm, I see what you mean though, because then if Namu set a tight money policy through interest rates and yet Mexican Central Banks needed to loosen the monetary policy by lowing their interest rates, we all run to Mexico and get loans.
But wait… either way that helps the Namu in the end, doesn’t it? so long as we don’t hurt the economy in any country nothing is wrong. And of course, there will always be those who won’t use Mexican Banks even if they’re giving money away, much like many of us don’t use credit unions.
Let’s get back to basics so we can try to understand each other.
In the US, bastion of capitalism that it is, your average bank/credit union on the corner is privately-owned and can offer whatever interest rates it thinks will be profitable to its depositors/borrowers. These banks and credit unions are for most purposes identical in this regard and in all regards that will concern us when discussing monetary issues. When these private banks/credit unions lend each other money or have to borrow from a governmental entity on an emergency basis, the interest rate they borrow at is set by the Federal Reserve Board, lovingly referred to as the Fed.
The Federal Reserve Board is not a bank–it regulates banks (along with several other governmental entities). The Federal Reserve Banks are under the control of the Federal Resrerve Board but do not set interest rates; they make the emergency loans to the private banks if this ever becomes necessary. They also distribute currency and collect economic data. The Federal Reserve Banks do not make loans to the public–only to banks. (The Federal Home Loan Banks are quasi-governmental banks which fulfill similar functions for savings associations–also like credit unions and private banks for our purposes–which originally had a mission to promote home ownership.)
Almost all banks, credit unions and savings associations are insured by the Federal Deposit Insurance Corporation (another entity which is not a bank).
So, your analogy starts with the relationship of a credit union to a Fed bank. (A private bank is identical to a credit union for this purpose.) The credit union might borrow from the Federal Reserve Bank in its district if it had an emergency shortage of funds; it would not borrow from and has no direct relationship with the Fed itself.
If what you mean is that each country can have private banks all having the right to borrow from the namu fed at interest rates set by the namu fed, then none of the private banks will be any more able to influence monetary policy than any single private US bank today can influence monetary policy.
If you mean that each country can set up a fed to set its own interest rates, this is unworkable because borrowers will follow the lowest rates within a unified eonomic entity; since this will drive down rates throughout namu because there is a single currency and a single economic system, I think we will find that this will be unworkable–we will need a central, unique fed or there would be chaos.
Oh, I’m aware of how the Fed/Credit Union interaction-- or lack thereof-- works. But you are, again, stretching the analogy too far there.
the idea is that we, in the USA and each country, would retain state banks. These banks are independant of the Namu banks. All banks use the same currency. Forget about private banking for now. That is so far away from what I was trying to say that it is severely clouding the issue.
Say the Namu banks take a look at inflation and decide they need to impliment a particular monetary policy. Namu Greenback waves his hand, and the interest rates are set. This policy, however, really isn’t in the best interest of, say, Mexico. Mexico has its own banking system which, though it uses Namu currency, is not under Namu control (not NDIC heh). They can, and will, set whatever interest rates they want. Because they are a state bank, they will still have some control over the monetary policy of their state.
Hmm, but now I see a problem. The problem isn’t in Mexico lowering interest rates at state banks and everyone running down there to get the cash, its when the Namu banks offer low rates and Mexico needs a tight-money policy. Nothing prevents-- or possibly can prevent-- the Namu banks from giving out loans under a Namu easy money policy. Hmmmmmm.
So…err, how is the EU going to handle this with the Euro? Are their respective economies that locked/in synch to allow the unit, whereas we Northwestern Hemispherers are out of step?
Here’s what I don’t follow–when you say “state banks,” what do you mean? The equivalent of a Federal Reserve Bank? Federal Reserve Banks don’t set interest policy now. If you mean a state-owned bank which sets interest policy independent of the namu fed, then these banks are feds on a small scale and we don’t currently have these (maybe the word “retain” is confusing me) (and it is of course ok if you want to make these up for speculative purposes–but the analogy doesn’t work). Also, what do you mean when you refer to namu banks? Just a fed-like entity which is not a bank? Only one policy body would be needed.
The EU has adopted economic performance standards which each member must meet–no governmental deficit spending permitted even if the local economy is in a slump. England could not abide these restrictions when it had a rough spot a while back and that is pretty much why England dropped out of the currency union.
The Fed is a bank…its a banker’s bank, not a bank for you or I. It is the Bank of Banks. that’s why its called the Federal Reserve Bank.
The Namu = the Fed[sup]2[/sup]. Namu banks are like banks that adhere to the fed’s standards.
We would keep the Fed and Fed banks. We would also have the Namu and its banks. I realize using Namu as both the main policy-setter and the currency itself is possibly confusing things here.
The Federal Reserve Board (the “Fed”) and the Federal Reserve Banks are part of the Federal Reserve System. Yes, the Fed is sometimes referred to as a central bank (because other countries have combined the policy function of the fed with a state-owned bank) but the Federal Reserve Board (policy function) is not the same as a Federal Reserve Bank (bankers’ banks).
Sorry to quibble about this and highjack the discussion.
I want to retire to Mexico in a couple of years and I like things just the way they are. I’ll stay there no more than 10 years, so could you just hold off on your plans for the Unification of North America until 2013?[list][list][list][list][list][list][list][list]
