An Alternative to the Federal Reserve

A Better Alternative to the Federal Reserve?

A reader has an interesting suggestion:

Here’s whats needed– a new constitution:

The Federal Reserve shall, each quarter, determine if there is a need to print more money. The growth in the money supply shall not exceed the growth in GDP. If money does need to be printed, it shall be distributed evenly to the people. Banks will need to then compete for capital from the citizenry. This will be the world’s first bottom-up credit based monetary system.

http://themeanoldinvestor.blogspot.com/2011/07/kowalski-constitution.html

A constitutional amendment is not needed. Congress created the Federal Reserve, and has the power to terminate it or limit its powers. But the idea of a bottom-up distribution of enough money to allow growth is an interesting one (assuming that we stay with a fiat money system, and don’t switch to a gold-backed currency).

By way of background, Milton Friedman showed that a formula could be used to adjust the money supply to promote economic growth and prevent bubbles. Friedman showed that a formula could work better than the decisions of the Federal Reserve open market committee.

Steve Keen showed that money given directly to the little guy stimulates the economy much better than money given to the big banks. (This is especially true given that the Fed is intentionally curbing lending by the banks, and keeps choosing the too-big banks over the little guy, which prevents a recovery and only dooms both.)

The economy is tanking, unemployment is skyrocketing and we’re stuck in a ditch because government policy is redistributing money from the American people to the wealthiest .1%. Like a poker game where one guy gets all of the chips, the game is ending because the American people don’t have enough chips to “play” the game anymore.

Economists say that the Federal Reserve should be ended – or its powers be dramatically curtailed.

According to non-partisan government observers, the Federal Reserve is corrupt and riddled with conflicts of interest.

Many high-level economists have blasted the Fed for bungling virtually everything it does, and causing both the Great Depression and the current economic crisis.

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