If the Fed were dissolved tomorrow

Probably a lot of pain near term, dust settling medium term, much better for lower/middle class long term

The Fed is the highest level front of all time. if it were dissolved, that wouldn't eliminate the people pulling the strings.

I’m not sure when the Fed became this boogeyman to blame for everything, but the truth is probably somewhere in between.

They’re not the one who creates the debt, and they’re not the one who sets intermediate to long term interest rates.


I’m not suggesting they’re flawless by any stretch, but the idea that they’re in the way of middle class prosperity is news to me. I’d love for someone to articulate why that’s the case.

Was Vivek Ramaswamy going to dissolve the Federal Reserve too along with all the alphabet agencies if he became President? If so, did he ever give a reason why?

Economic disaster like never seen before. All you have to do is look back at the economic cycles pre-Fed. I’m don’t think everything they do is good, so changes are needed, but the elimination would be terrible.

The End of the World Is Just the Beginning: Mapping the Collapse of Globalization LINK

You should read this book if you want a deeper understanding of how it all ties together. It doesn’t address your question specifically but you’d understand your question more clearly after having read this.

quote:

---

Yes.

---

LOL

I guess if you are comparing it to the Argentina peso, sure.

I didn’t bring up BTC. I would hardly call it stable. The opposite actually. It is however the first rules based monetary the world has ever seen which I believe the we will eventually find immense value in.

The problem with fiat is there can never be stability when we can print it out of thin air.

Saying it’s the most stable in the world is for one inaccurate. Secondly, the argument is a false dichotomy.

The federal reserve is the worst thing that has ever happened to the US.

1. The Federal Reserve's policy acts as a hidden tax and is fundamentally flawed. Its primary aim seems to be shielding the wealthy from poor financial decisions.

The 2008 bailout and 2020 Covid response exemplifies this, essentially printing money to safeguard the elite, thereby dictating market winners and losers. This is evident in the DOW's 20-year charts, showing a significant acceleration in growth post-2008, indicating the inflation of an ongoing bubble.

2. True sound monetary policies would not entail devaluing the public's wealth for redistribution. Currency should not be merely FIAT; instead, its oversight should be Congress's responsibility, with its value determined by market forces.

And 3, the most important,Congress transferred their duties to an independent, unmonitored private entity, a task originally meant for Congress to ensure accountability to the citizens through checks and balances.

In order to make a decent guess at what it would look like if the Fed were dissolved, we first have to objectively look at what the Fed does.

The Fed mainly does (or, is supposed to do) three things:
1. Sets interest rates
2. Manages the money supply
3. Regulates the financial industry

We can define each of those points without getting too wordy.

Sets interest rates:
-This is fairly straightforward for most who post here.
---The Fed sets the Federal Fund Rate, which is the interest rate banks borrow from one another.
---They also set the Federal Discount Rate, which is the interest rate banks pay for borrowing from the Fed.
---They also set Reserve Requirements for banks, this is the amount of liquidity a lending institution must keep on-hand.

Managing the money supply:
-The Fed buys and sells securities to increase and decrease the amount of money in the economy (M1)
---Money is a commodity like anything else, the more of it which exists, the less valuable it becomes. Conversely, the less of it in the economy, the more valuable it becomes.

Regulating the financial industry:
-The Fed monitors banks to make sure they are following the laws set in place to make the industry more stable, this includes things like assessments of their risk-management systems, meeting reserve requirements, etc.

So if we dissolve the Fed overnight, then most (if not all) of those things are suddenly being self-managed by each institution. What could that mean?

Banks would then determine their own lending rates to each other. Likely, we would see some banks continue to offer low-interest loans to one another, but human interests being what they are we would likely see an eventual move toward some sort of cliques which may or may not be beneficial to the economy. For example, JPM may say "frick all y'all, we don't need your loans but we'll loan to you only at a premium", or they may exclude any bank below $n deposits. They may even decide "we won't loan to you but we'll buy 10% of your stock" or "we're starting a club, you have to pay a membership fee and members get a lower rate".

Banks able to get those lower rates would then have more money to loan and could loan them at lower rates, thus hampering the growth of smaller banks. It could also set up a scenario where smaller banks lend at lower rates but are more strict on their criteria for loans.

Along with this, there's no Fed to borrow from so that avenue of emergency borrowing is dead (the assets of the Fed would have been split up among the member banks, I guess).

There's also now no reserve requirement, so banks could lend every last dollar they have on deposit. This point by itself would be very bad as all the liquidity the Fed had been keeping out of the economy would very likely be thrown back in, and at low rates to encourage more lending. Inflation would likely take off, except now there would be no control mechanism for pulling that money back out.

The Fed keeps Congress afloat by buying up so much of the debt. If the Fed didn't buy so much, auctions would eventually fail. If auctions fail, the Dollar collapses. I mean... we could always just assume Congress would stop deficit spending if the Fed were dissolved, right?



The incident with SVB is an excellent example of what can happen with institutions when the Fed isn't giving some of them enough oversight. There is an argument here that such events are Darwinism in action and thus help strengthen the industry in the long run, but that's a bit of a mixed bag. You can't make the world completely idiot-proof because the world will always make better idiots.

So, at the least we can guess that simply dissolving the Fed (ie: without anything to replace it) would cause a sharp rise in inflation (at least in the near and medium terms) due to so much money being available for lending at low rates with nothing to reign those rates in other than possible bank collapses due to runs. Along with that, with the Fed not around to keep Treasury auctions from failing, eventually an auction would fail and the Dollar would free-fall in a collapse every bit as spectacular as Jackie Chiles' tits.



While we can say "that's because Congress" and be 100% correct, it wouldn't be the least bit help in putting food on the table in the immediate aftermath of such a crash.

To sum up, simply dissolving the Fed without some other mechanism ready to be put in place to manage inflation and hold banks to regulatory standards would be disastrous.