“5 reasons the Fed is obsolete” – Jim Jubak

When I saw the title to this article, i was very excited to say the least. Between this fantastic Wall Street Journal article  (please read it.) and now the potential for MSN Money to be ragging on the Fed, perhaps the winds were changing. Unfortunately my hopes were dashed when I realized Jim actually just thinks the Fed hasn’t done enough… and even scarier that, in the face of globalization, i fear he is indirectly advocating some kind of global central bank to replace the Fed.

Some of Jim’s ‘reasons’ for the Fed’s bungle…

     “The Fed failed to use its power to set margin rates for stock trading in the run-up to the bursting of the 2000 bubble. “

While Jim is saying that interest rates should have been higher, he fails to recognize that the rates were low because of the Fed, or if he does, he fails to recognize that the Fed has no business manipulating interest rates period. Every time they do, they create an inflationary bubble that bursts. Interest rates are prices and should be left to market forces like any other. Price controls end in disaster. (like right now.)

“The Fed failed to use its power to raise reserve requirements for banks in the run-up to the bursting of the bubble in 2007.”

Notice the common the theme here? Failed to use it’s power? Clearly. Anyway, it’s the same as before, either Jim doesn’t realize that the only reason the banks keep such low reserves is because  FRB, or fractional reserve banking, is enabled by the Fed and the FDIC. Bank runs are inherent in a FRB because there is never enough money on hand. The Fed has no business telling banks how much money to keep in reserve. Let the banks do it themselves (and remove FDIC coverage for bank runs) and very quickly you will find the banks that practice FRB fail and people stop putting their money in them. Problem solved.

“The Fed let other central banks take the lead on innovative regulation. Contrast the Federal Reserve’s do-nothing approach to the latest financial bubble with the actions taken by the central bank of Spain.”

Oh Jim, why? All he is doing is detailing things that would happen naturally in a true free market, but he’s advocating them be forced by socialism.

“What this all adds up to in my arithmetic is an institution that talks mostly to itself. Whatever else the Fed may be, it’s surely not a cauldron of new thinking and different points of view.”

Well that certainly is true, but according to my arithmetic, Jim isn’t exactly a spring of new ideas himself. Just the same old  interventionist policy in the face of catastrophes that were caused by the same interventionist policy.

Strength In Emerging Markets

In a main-stream adoption of Peter Schiff’s assessment of the strength of emerging markets, this article points out a growing belief that emerging markets will outperform developed ones as we move through the recession.

Despite, and without, the macro-economic analysis, it is logically not that hard to figure out why this is so. Emerging markets generally have large natural resource reserves, translating to potential true wealth, while developed economies are stricken with debt and enlarged service and financial industries that produce little. That, in combination with generally lower wages, will attract what intact investment money survives from the developed economies of the world, furthering the gap between the two classes of economies.