# What would happen if the US decided to punt the FED? **URL:** \ **Category:** Great Debates\ **Created:** [July 19, 2016, 2:31am UTC](https://boards.straightdope.com/t/what-would-happen-if-the-us-decided-to-punt-the-fed/760279 "2016-07-19T02:31:03Z")\ **Posts on this page:** 17\ **Page:** 5
**Author:** ![DrDeth](https://avatars.discourse-cdn.com/v4/letter/d/b487fb/32.png) [@DrDeth](https://boards.straightdope.com/u/DrDeth)\ **Post date:** [July 22, 2016, 5:37pm UTC](https://boards.straightdope.com/t/what-would-happen-if-the-us-decided-to-punt-the-fed/760279/81 "2016-07-22T17:37:32Z")
> [@WillFarnaby](#): > > 1850 was before the true gold standard. I expressly mentioned 1879-1913 as the pre-Fed gold standard period. > . \*\*No True Scotsman. \*\*The USA was on the Gold standard 1776 thru 1933. ---
**Author:** ![DrDeth](https://avatars.discourse-cdn.com/v4/letter/d/b487fb/32.png) [@DrDeth](https://boards.straightdope.com/u/DrDeth)\ **Post date:** [July 22, 2016, 5:39pm UTC](https://boards.straightdope.com/t/what-would-happen-if-the-us-decided-to-punt-the-fed/760279/82 "2016-07-22T17:39:40Z")
> [@rat\_avatar](#): > > The gold standard proponents also ignore the issues with population growth relative to gold supply. With todays world population there is only around 24 grams of gold per person in the entire world. And of course China, Australia, South Africa and Russia would control the Worlds economy. ---
**Author:** ![WillFarnaby](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/willfarnaby/32/514_2.png) [@WillFarnaby](https://boards.straightdope.com/u/WillFarnaby)\ **Post date:** [July 22, 2016, 6:20pm UTC](https://boards.straightdope.com/t/what-would-happen-if-the-us-decided-to-punt-the-fed/760279/83 "2016-07-22T18:20:15Z")
> [@DrDeth](#): > > You cant cherry pick out dates. According to Gold bugs from 1776 to 1935 the economy of the USA should have been stable. It was anything but, with periods of up to 30% inflation and periods of 20% deflation. That’s a 50% variation. After we got off the gold, the variation has not been higher than 15%. In other words, the Gold standard was DE-stabilizing. > > While, yes, there \*are \*benefits to a mild deflation (and mild inflation too), a 20% deflation is disastrous. If you are unwilling to examine the nuances of monetary policy beyond a comical GOLD/NOT GOLD dichotomy, why are you even posting in a thread like this? There were numerous monetary schemes in the period you are talking about. ---
**Author:** ![WillFarnaby](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/willfarnaby/32/514_2.png) [@WillFarnaby](https://boards.straightdope.com/u/WillFarnaby)\ **Post date:** [July 22, 2016, 6:21pm UTC](https://boards.straightdope.com/t/what-would-happen-if-the-us-decided-to-punt-the-fed/760279/84 "2016-07-22T18:21:46Z")
> [@DrDeth](#): > > \*\*No True Scotsman. \*\*The USA was on the Gold standard 1776 thru 1933. No, not No True Scotsman, One True Scotsman, specifically the Scotsman between 1879-1913 ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [July 22, 2016, 6:45pm UTC](https://boards.straightdope.com/t/what-would-happen-if-the-us-decided-to-punt-the-fed/760279/85 "2016-07-22T18:45:05Z")
> [@WillFarnaby](#): > > You sliced and diced my paragraph so you could unload a canned attack on right wing rhetoric about Friedman and the Depression. I had made no reference to Friedman’s views on the Depression, but you tried to associate me with the flawed right wing rhetoric. That’s disrespectful. Wrong. I quoted and refuted one specific sentence in your post. And it wasn’t a “canned” attack — I’ve nothing better to do than think and type from scratch! 🙂 I used the teachings of Milton Friedman to discuss the Great Depression, since that economist is widely respected on both the “left” and the “right.” I’m sorry if he’s not respected in outer space … or Alabama. Rather than “slicing and dicing” your paragraph, I excerpted a single brief phrase: “even Milton Friedman.” I did this because I had two specific questions about it: (1) Why did you write “even,” and (2) is “even” an adverb? :rolleyes: _You_ have been continually disrespectful of _me_. To make amends, why don’t you expound on the strange idea you’ve dangled: > [@](#): > > Rather than focus on specific 19th-century monetary details, wouldn’t it be more constructive for you to post an essay explaining your hilarious assertion that property rights arose in spite of government, rather than because of it? ---
**Author:** ![WillFarnaby](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/willfarnaby/32/514_2.png) [@WillFarnaby](https://boards.straightdope.com/u/WillFarnaby)\ **Post date:** [July 22, 2016, 7:08pm UTC](https://boards.straightdope.com/t/what-would-happen-if-the-us-decided-to-punt-the-fed/760279/86 "2016-07-22T19:08:50Z")
Anyone with a shred of impartiality can see what you did. I indulge you on occasion but my patience has worn thin. It’s enough to sift through all of the masturbatory claptrap, I don’t feel it necessary to tolerate the blatant rhetorical tricks. ---
**Author:** ![DrDeth](https://avatars.discourse-cdn.com/v4/letter/d/b487fb/32.png) [@DrDeth](https://boards.straightdope.com/u/DrDeth)\ **Post date:** [July 22, 2016, 8:05pm UTC](https://boards.straightdope.com/t/what-would-happen-if-the-us-decided-to-punt-the-fed/760279/87 "2016-07-22T20:05:45Z")
> [@WillFarnaby](#): > > why are you even posting in a thread like this? . :rolleyes::rolleyes::rolleyes::rolleyes::rolleyes::rolleyes: ---
**Author:** ![DrDeth](https://avatars.discourse-cdn.com/v4/letter/d/b487fb/32.png) [@DrDeth](https://boards.straightdope.com/u/DrDeth)\ **Post date:** [July 22, 2016, 8:07pm UTC](https://boards.straightdope.com/t/what-would-happen-if-the-us-decided-to-punt-the-fed/760279/88 "2016-07-22T20:07:01Z")
> [@WillFarnaby](#): > > No, not No True Scotsman, One True Scotsman, specifically the Scotsman between 1879-1913 Cherry pick a small period, say 30 years and you can show nearly anything. :dubious: ---
**Author:** ![Jonathan\_Chance](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/jonathan_chance/32/701_2.png) [@Jonathan\_Chance](https://boards.straightdope.com/u/Jonathan_Chance)\ **Post date:** [July 22, 2016, 9:36pm UTC](https://boards.straightdope.com/t/what-would-happen-if-the-us-decided-to-punt-the-fed/760279/89 "2016-07-22T21:36:53Z")
septimus, WillFarnaby Both of you are getting overly personal. Knock it off or bad things can happen. ---
**Author:** ![WillFarnaby](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/willfarnaby/32/514_2.png) [@WillFarnaby](https://boards.straightdope.com/u/WillFarnaby)\ **Post date:** [July 23, 2016, 3:59pm UTC](https://boards.straightdope.com/t/what-would-happen-if-the-us-decided-to-punt-the-fed/760279/90 "2016-07-23T15:59:36Z")
> [@DrDeth](#): > > Cherry pick a small period, say 30 years and you can show nearly anything. :dubious: > **[R41887.pdf](https://sgp.fas.org/crs/misc/R41887.pdf)** my bolding: > [@](#): > > Although much of the monetary debate of the 1870s was about ending the paper money standard and reestablishing gold convertibility, a relatively minor recodification of law in 1873 turned out to have enormous implications for the monetary system. In defining the dollar and the coins of the United States, the legislation omitted the 412.5 grain silver dollar. Consequently, it eliminated silver as anything but fractional currency. **What followed was the only period in U.S. history that can strictly be called a gold standard: 1879-1933.** So the pre-Fed gold standard would be 1879-1913, and the post-Fed gold standard would be 1913-1933. ---
**Author:** ![Jonathan\_Chance](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/jonathan_chance/32/701_2.png) [@Jonathan\_Chance](https://boards.straightdope.com/u/Jonathan_Chance)\ **Post date:** [July 23, 2016, 4:17pm UTC](https://boards.straightdope.com/t/what-would-happen-if-the-us-decided-to-punt-the-fed/760279/91 "2016-07-23T16:17:22Z")
septimus, I gotta admit, snipping two part of a quote like you did up there looks like you’re attempting to change the content - or impart your own spin on it - of another posters post. Such could be potentially actionable and I’d prefer you find some other way to achieve your debate goals. And again, both of you calm the hell down. ---
**Author:** ![crypto](https://avatars.discourse-cdn.com/v4/letter/c/b3f665/32.png) [@crypto](https://boards.straightdope.com/u/crypto)\ **Post date:** [July 27, 2016, 9:58pm UTC](https://boards.straightdope.com/t/what-would-happen-if-the-us-decided-to-punt-the-fed/760279/92 "2016-07-27T21:58:34Z")
> [@RickJay](#): > > I’m not sure where your idea comes from that United States Notes were an invention of the Kennedy administration. They were a creation of the Lincoln administration and were continuously in use thereafter. My idea was incorrect. It would seem that what I was thinking about was the use of Silver Certificates. United States Notes were still in use, and were, as you pointed out, since the civil war. > [@WillFarnaby](#): > > I know you don’t advocate that but what would happen is that they would print money willy-nilly. I agree with you. However, if the US would put laws in place (like balancing the budget, and not printing money to solve every problem), could it work? Or is it impossible to legislate discipline WRT money? > [@bump](#): > > Huh? There’s no good reason to “combat” inflation in the sense of getting rid of it, or going into deflation. A certain degree of inflation is _good_ for the economy. > > What the Fed does do is try and influence inflation to remain at a more or less low-ish, steady and predictable rate, so that the economy hums along. Can you explain a couple of things? 1. why is deflation necessarily bad? If my money in the bank can buy MORE of something, I don’t see the problem. 2. why is a certain degree of inflation good? Wouldn’t a steady exchange rate (i.e. No inflation or deflation) be the best possible scenario? If a dollar bought a gallon of milk 50 years ago, and bought a gallon of milk today, how would that be bad exactly? Seems to me that inflation is designed to increase prices indefinitely, eroding the real purchasing power of the money used over time. ---
**Author:** ![Trinopus](https://avatars.discourse-cdn.com/v4/letter/t/2bfe46/32.png) [@Trinopus](https://boards.straightdope.com/u/Trinopus)\ **Post date:** [July 28, 2016, 2:45am UTC](https://boards.straightdope.com/t/what-would-happen-if-the-us-decided-to-punt-the-fed/760279/93 "2016-07-28T02:45:51Z")
> [@crypto](#): > > . . . why is deflation necessarily bad? If my money in the bank can buy MORE of something, I don’t see the problem. . . . It hurts investment. Why invest, when my money is becoming “more valuable” by itself. It discourages spending. Why buy a car today, when it will cost me less tomorrow. Thus it slows the economy. It isn’t sustainable (obviously!) It’s making something for nothing, which, ultimately, has to be paid for somewhere, by someone. Inflation isn’t fun either, but at least (sigh) it’s “natural.” ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [July 28, 2016, 4:12am UTC](https://boards.straightdope.com/t/what-would-happen-if-the-us-decided-to-punt-the-fed/760279/94 "2016-07-28T04:12:05Z")
> [@crypto](#): > > 1. why is deflation necessarily bad? If my money in the bank can buy MORE of something, I don’t see the problem. Look at it from the bank’s standpoint. If it has to pay you more, in real terms, than you deposited, it has no incentive to accept your deposit! And you certainly won’t want to borrow, if you’ll need to repay with more valuable dollars. Long-term commitments may be harder to make. I might agree to pay you $10/hour, but not if I’m contracted to pay that for a year and _the amount will increase in real terms_. See? Deflation will impede the whole cycle of finance. Once you accept that deflation is bad, it should be easy to imagine that slight inflation, e.g. 2%, _is better than no inflation_ — for one thing, it leaves a margin for error, since you _don’t_ want deflation. But it is important to keep in mind that money value, i.e. price levels, is primarily just an accounting device. 10% inflation doesn’t make everyone 10% poorer; 10% deflation doesn’t make everyone 10% richer. Yes, some people will win or lose when price levels change, but for the beginner’s _big picture of the whole economy_, these should be treated as secondary. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [July 28, 2016, 6:23am UTC](https://boards.straightdope.com/t/what-would-happen-if-the-us-decided-to-punt-the-fed/760279/95 "2016-07-28T06:23:13Z")
> [@septimus](#): > > Look at it from the bank’s standpoint. If it has to pay you more, in real terms, than you deposited, it has no incentive to accept your deposit! And you certainly won’t want to borrow, if you’ll need to repay with more valuable dollars. Long-term commitments may be harder to make. I might agree to pay you $10/hour, but not if I’m contracted to pay that for a year and _the amount will increase in real terms_. > > See? Deflation will impede the whole cycle of finance. Once you accept that deflation is bad, it should be easy to imagine that slight inflation, e.g. 2%, _is better than no inflation_ — for one thing, it leaves a margin for error, since you _don’t_ want deflation. > > But it is important to keep in mind that money value, i.e. price levels, is primarily just an accounting device. 10% inflation doesn’t make everyone 10% poorer; 10% deflation doesn’t make everyone 10% richer. Yes, some people will win or lose when price levels change, but for the beginner’s _big picture of the whole economy_, these should be treated as secondary. Not just banks. Anyone getting a loan suffers from deflation (and banks are getting a loan from depositors) since you pay back with valuable money. That’s how the old widow lost the farm in the late 19th century. High inflation is bad because prices go up faster than incomes, which suppresses purchasing. Lower inflation encourages investments because while prices don’t get ahead of income, there is still an incentive to buy now before prices rise. Anyone who went through the early '80s knows this stuff pretty well. ---
**Author:** ![WillFarnaby](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/willfarnaby/32/514_2.png) [@WillFarnaby](https://boards.straightdope.com/u/WillFarnaby)\ **Post date:** [July 28, 2016, 4:19pm UTC](https://boards.straightdope.com/t/what-would-happen-if-the-us-decided-to-punt-the-fed/760279/96 "2016-07-28T16:19:25Z")
Deflation was pervasive during the Second Industrial Revolution in the United States. This has been shown to be one of the greatest periods of economic growth in US history. Milton Friedman agreed with this and he was an advocate for inflation. This inconvenient fact is why inflation advocates, who place a premium on empirical analysis in other economic discussions, always retreat to theory when deflation is discussed. Now that it has been shown that the historical case against deflation is very weak, let’s take a look at their theories. They will say that if deflation is projected nobody will borrow because they are paying back their loan with dollars worth more. Ok, so if inflation is projected, nobody will lend because they will receive payments with dollars worth less. Is either the case? No, of course projected inflation/deflation can be accounted for in the interest rate. There is a lot of confusion around deflation. One cliche says that if prices are falling nobody will buy anything. Firstly, is that the case with iPhones, TVs, and computers? No. There is a value attached to having a good now instead of then. Inflation advocates suggest that if I’m hungry and the price of steak is falling, I’ll wait until near death before at last I reach out for the steak with my dying breath. This is absurd. The deflation fear stems from more foundational misunderstandings about the economy. Inflation advocates believe as Keynes did that increased consumption makes the economy grow. In reality, capital investment and the division of labor grows the economy. You cannot increase consumption without it being preceded by an increase in production. ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [July 28, 2016, 4:28pm UTC](https://boards.straightdope.com/t/what-would-happen-if-the-us-decided-to-punt-the-fed/760279/97 "2016-07-28T16:28:36Z")
> [@WillFarnaby](#): > > Deflation was pervasive during the Second Industrial Revolution in the United States. This has been shown to be one of the greatest periods of economic growth in US history. Was there a causal relationship? > [@WillFarnaby](#): > > No, of course projected inflation/deflation can be accounted for in the interest rate. A real interest rate of 5% is achieved with 10% inflation by setting the nominal interest rate to 15%. How do you achieve a real rate of 5% when there is 10% deflation? [Previous page](https://boards.straightdope.com/t/what-would-happen-if-the-us-decided-to-punt-the-fed/760279.md?page=4)