August 2021

Sun Mon Tue Wed Thu Fri Sat
1 2 3 4 5 6 7
8 9 10 11 12 13 14
15 16 17 18 19 20 21
22 23 24 25 26 27 28
29 30 31        
Blog powered by Typepad

« How do you explain this? | Main | The SDAE's FEE Publication Prizes »


Feed You can follow this conversation by subscribing to the comment feed for this post.

Throw the Fed into Mount Doom.

Well, maybe that petition should be written after all: here's an unexpected article, published just two weeks ago in a major German newspaper, calling for the same thing, "Abolish the central banks"/Schafft die Zentralbanken ab!:

Problem is, there's no living Austrian economist who has won a Nobel Prize. Too bad Hayek isn't around.

Milton Friedman was well placed to advise governments and influence policy after the stagflation of the 1970s because of his Nobel.

Sukrit, You don't need a Noble to to advise on government policy. Look at Neel Kashkari. More important is who you know, not what you know (like Kashkari and Paulson) and much less still what academic awards you have. The Austrian school therefore shouldn't give up.

I wouldn't want to try to transition to free banking when most existing banks are having solvency issues. (A majority of commerical bank assets in the U.S. are in mortgages or "other" securities. With housing prices down 20%, there are solvency issues with many banks.)

I don't think it is the time to get rid of deposit insurance either.

While I still favor private money as a long term solution, this would be a bad environment in which to implement it. IT is asking for failure.

As I see it, we are left with--we need fundamental reform to make sure that this doesn't happen again.

I think getting rid of reserve requirements would be a timely reform. If banks can't borrow to cover reserve deficiencies, they need to hold larger balances, and required reserves are just wasted.

I think getting rid of capital requirements might be a good idea too. While I continue to think of a capital ratio as being the key confidence building element for depositors in a free bank, when there are bad loans, the point the "capital" needs to be used. The last thing that should be done is for the bank to maintain the ratio by selling of the best assets and refraining from making new, sound loans.

On the other hand, if small banks are to grow and take advantage of the real intermediation opportunties created by the problems are existing large banks, they need to be well
capitalized as they grow.


It's typically only in the moment of crisis that you get your chance to make structural reforms. If not now, when? Bogdan's (interesting!) link notwithstanding, I don't see much momentum for the sort of structural reforms Austrians tend to prefer. We should keep pushing, however, in part because the failures of the pending reforms may give us our chance in the relatively near future. (I don't look forward to that, however, because such a chance will come only after a bad patch.)

Roger is totally right, central banking won't be abolished without a major crisis. Crisis are always the tipping point, the events that create the momentum which reduces the political barriers to change. It is when the enormous inertia of the tyranny of the status quo is breaking down that real change becomes possible. Crisis offer opportunities where the politically impossible becomes politically inevitable, to use Friedman's words.

There will always be good reasons not to change, especially to safeguard the system, etc. Roger Douglas, the architect of the NZ reforms, has repeated over and over again that the reformer must ignore these. When the time comes, one must strike fast and broad. That's how, for instance, NZ was able to remove all subsidies in spite of people explaining how this would hurt the economy.

The time may now be coming for a change of monetary system (worldwide) and for a passage to free banking. What matters is that the politically impossible becomes inevitable. It is only in times of crisis that this is the case.

Here are your allies from Sri Lanka.

Many investors and concerned citizens around the world are showing their outrage at what the Federal Reserve has done to the American economy with their easy money policies which caused the credit & real estate bubble and subsequent global financial meltdown.

Join the thousands who are signing & commenting on the Abolish the Federal Reserve Petition at

The comments to this entry are closed.

Our Books