Okay, we have really different views on economics. I would tend to disagree philosophically with the idea that "you have to whip their asses with the printing press" and as a result you and I probably won't agree on anything. That's OK, we don't have to.
I take the position that economic output driven my market manipulation (money printing, fixing the interest rate, driving inflation, etc) is undesirable because it sends signals to people about profits or losses or the amount of real resources available via the interest rate that aren't necessarily representative of reality. An example:
In magic-land there is no Fed and the interest rate is a number that clears the market between lenders and borrowers. As people save money they increase the amount of cash that banks have on hand. While they're saving money, they're not spending it and thus some amount of resources are piling up in the real world too, in unison with the amount of savings in the bank. As the banks' cash on hand goes up and nobody is borrowing, they will tend to reduce the rate of interest charged to induce more people to borrow, and reduce the rate of interest paid to reduce people's predilection to save. This causes the money to go to work, and at the same time, those resources which were piled up unused in the real world (in parallel with the money) were also put to work. To me this is a good thing, that stockpiles of money in the bank mirror stockpiles of raw materials in the real world as a result of people's reduced consumption and increased savings.
Now introduce the Fed which by virtue of it's ability to print money can cause bank deposits to increase while the raw materials don't pile up similarly. This causes all kinds of incorrect signals to propagate through socioeconomic life and induces people to make "bad" decisions. In my view this is unfortunate to have people making decisions thinking that the world is one way when in fact it is not, and perhaps going bankrupt as a result.
I imagine there might be disagreement about the relative importance of signalling vs. just making sure that money circulates, no matter what to keep the economy going. But would you disagree that the interest rate -- in the absence of a body which fixes the interest rate -- could tend to serve as a signal for the amount of under/over consumption that's happening in society? If so, why? And if you agree that it could, why is it not harmful to change that signal artificially?
EDIT: Even though I don't think we'll agree, thanks for explaining. Much appreciated.
I take the position that economic output driven my market manipulation (money printing, fixing the interest rate, driving inflation, etc) is undesirable because it sends signals to people about profits or losses or the amount of real resources available via the interest rate that aren't necessarily representative of reality. An example:
In magic-land there is no Fed and the interest rate is a number that clears the market between lenders and borrowers. As people save money they increase the amount of cash that banks have on hand. While they're saving money, they're not spending it and thus some amount of resources are piling up in the real world too, in unison with the amount of savings in the bank. As the banks' cash on hand goes up and nobody is borrowing, they will tend to reduce the rate of interest charged to induce more people to borrow, and reduce the rate of interest paid to reduce people's predilection to save. This causes the money to go to work, and at the same time, those resources which were piled up unused in the real world (in parallel with the money) were also put to work. To me this is a good thing, that stockpiles of money in the bank mirror stockpiles of raw materials in the real world as a result of people's reduced consumption and increased savings.
Now introduce the Fed which by virtue of it's ability to print money can cause bank deposits to increase while the raw materials don't pile up similarly. This causes all kinds of incorrect signals to propagate through socioeconomic life and induces people to make "bad" decisions. In my view this is unfortunate to have people making decisions thinking that the world is one way when in fact it is not, and perhaps going bankrupt as a result.
I imagine there might be disagreement about the relative importance of signalling vs. just making sure that money circulates, no matter what to keep the economy going. But would you disagree that the interest rate -- in the absence of a body which fixes the interest rate -- could tend to serve as a signal for the amount of under/over consumption that's happening in society? If so, why? And if you agree that it could, why is it not harmful to change that signal artificially?
EDIT: Even though I don't think we'll agree, thanks for explaining. Much appreciated.