Mark Spitznagel Asks "Wouldn't We Be Better Off Without Central Banks?"

Submitted by Mark Spitznagel via Institutional Investor,

Happy 100th Birthday, Federal Reserve – Now, Please Go Away

Nearly 100 years ago, on December 23, 1913, the Federal Reserve Act was signed into law, giving the U.S. exactly what it didn’t need: a central bank. Many people simply assume that modern nations must have a central bank, just as they must have international airports and high-speed Internet. Yet Americans had gone without one since the 1836 expiration of the charter of the Second Bank of the United States, which Andrew Jackson famously refused to renew. Not to be a party pooper, but as this dubious anniversary is observed, we should ask ourselves, Has the Fed been friend or foe to growth and prosperity?

According to the standard historical narrative, America learned a painful lesson in the Panic of 1907, that a “lender of last resort” was necessary, lest the financial sector be in thrall to the mercies of private capitalists like J.P. Morgan. A central bank — the Federal Reserve — was supposed to provide an elastic currency that would expand and contract with the needs of trade and that could rescue solvent but illiquid firms by providing liquidity when other institutions couldn’t or wouldn’t. If that’s the case, then the Fed has obviously failed in its mission of preventing crippling financial panics. The early years of the Great Depression — commencing with a stock market crash that arrived 15 years after the Fed opened its doors — saw far more turmoil than anything in the pre-Fed days, with some 4,000 commercial banks failing in 1933 alone.

A typical defense acknowledges that the Fed botched its job during the Great Depression, but once the wise regulations of the New Deal were put into place, and academic economists realized just what had gone wrong during the 1930s, it was relatively smooth sailing from that point forward. It would be silly, these apologists argue, to question the advantage of central banking now that we have learned so many painful lessons from experience, which Fed officials take into account when making policy decisions.

What about the excruciating pain of the recent past, dubbed the Great Recession of 2008 and 2009? In the five years from 2008 to 2012, almost 500 banks failed. What would history need to look like for people to agree that the Fed has not done its job?

But wait! The Fed is necessary to the promotion of stable economic growth — or so the conventional wisdom says. The idea is that without a central bank, the economy would be plagued by wildly oscillating business cycles. The only hope is a countercyclical policy of raising interest rates to cool an overheating boom, and then slashing rates to turn up the flame during a bust.

In actuality, the Fed’s modus operandi has been to trick capitalists into doing things that are not aligned with economic reality. For example, the Fed creates the illusion, through artificially low interest rates, that there are both higher savings and higher consumption, and thus all assets should be worth more (making their holders invest and spend more — can you say bubble?). The perpetuation of this trickery only delays the market’s eventual, and often precipitate, return to reality.

Many economists now recognize that the massive housing bubble of the early and mid-2000s was caused by the artificially low interest rate approach of Alan Greenspan’s Fed, enacted in response to the dot-com crash (itself the ostensible result of artificially low rates). At the time, this was viewed as textbook pro-growth monetary policy: The economy (allegedly) needed a shot in the arm to get consumers and businesses spending again, especially after the 9/11 attacks.

It appears those textbooks are wrong. Economists George Selgin, William Lastrapes, and Lawrence White analyzed the Fed’s record and found that even focusing on the post–World War II era, it is not clear that the Fed has provided more economic stability when compared with the pre-Fed regime, which was characterized by the national banking system. The authors concluded that “the need for a systematic exploration of alternatives to the established monetary system is as pressing today as it was a century ago.”

In other sectors, we don’t normally defer to a committee of a dozen experts to set prices. Yet this is what the Fed does with its Open Market Committee, which routinely sets a target for the federal funds rate as well as other objectives. If we all agree that central planning and price-fixing don’t work for computers and oil, why would we expect them to bring us stability in money and banking?op09

On this, the 100th birthday of the Fed, it’s time to ask ourselves: Wouldn’t we be better off without a central bank?


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/-BvgpDmKaLI/story01.htm Tyler Durden

Religion Briefs 12/25/13

DCCI to hold New year’s Eve service
Destiny Christian Center, International will hold a New Year’s Eve service Tuesday, Dec. 31, at 9 p.m. Breakfast will be served after worship. The church is at 182 N. Glynn St (Ga. Hwy. 85), Fayetteville. For more information, call 770-719-8521 or visit www.destinycci.org.

Edgefield plans New Year’s Eve service

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via The Citizen http://www.thecitizen.com/articles/12-24-2013/religion-briefs-122513

Dogwood Church will offer GriefShare in January

Dogwood Church, 975 Ga. Hwy. 74 South in Tyrone, will offer a GriefShare support group to be held from 7- 8:30 p.m. on Wednesday evenings beginning Jan. 8. The group will meet in the atrium area of the church office.

“GriefShare is a 13-week program led by friendly, caring group of people who will walk alongside you through one of life’s most difficult experiences,” a spokesperson said. “You don’t have to go through the grieving process alone.”

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via The Citizen http://www.thecitizen.com/articles/12-24-2013/dogwood-church-will-offer-griefshare-january

Dickinsons serve as Boy Bishops at Christ the King

On a recent Sunday morning at the Cathedral of Christ the King in Sharpsburg, two brothers shared the honor of being named St. Nicholas bishops for the Advent season.

Isaac Dickinson, 16, was the bishop during the 8:30 a.m. service while his brother, David Dickinson, 18, served at the 10 a.m. service. Each service began, as usual, with the processional hymn and acclamation. At the rear of the procession was a young man in the full regalia of a bishop – a young man they knew very well, but were more accustomed to seeing in the cassock and cotta of an acolyte.

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via The Citizen http://www.thecitizen.com/articles/12-24-2013/dickinsons-serve-boy-bishops-christ-king

Christine Lynette Graves, 88, of Fayetteville

Christine Lynette Graves, 88, of Fayetteville, passed away December 17, 2013. She was preceded in death by her son Terry Graves. She is survived by her daughter Linda Kelley; grandson Collin Kelley and nephew Clark Dorsey. 

A funeral service will be held Thursday, December 19, 2013 at 4 p.m. at the Chapel of Mowell Funeral Home, Fayetteville.  Reverend Glenn Stringham will officiate. The family will receive friends Thursday from 3 to 4 p.m. prior to the service. 

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via The Citizen http://www.thecitizen.com/articles/12-24-2013/christine-lynette-graves-88-fayetteville

Kathryn Joann Lee, age 79

On Saturday, December 14, 2013 in Interlachen, Fla., Kathryn Joann (Koop) Lee passed away, joining her husband William R. Lee in the Kingdom of Our Lord. She was born March 14, 1934, the second daughter of Harold Edgar and Clara (Euler) Koop in East Meadow, Long Island, N.Y.

Kathryn was a retired pharmacy technician and enjoyed a varied work history while raising six children. She was a faithful member of Interlachen First Baptist Church.

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via The Citizen http://www.thecitizen.com/articles/12-24-2013/kathryn-joann-lee-age-79

Michael Kenneth Smallwood, 48

Mr. Michael Kenneth “Mike” Smallwood, 48, entered through the gates of Heaven at 1:45 a.m. Wednesday, December 18, 2013 at Georgia Regents Medical Center in Augusta, Ga.

The funeral service will be at 2 p.m. Saturday, December 21, 2013 at the Thomson High School Auditorium with Rev. Addison Belangia, Rev. Scott Franklin and Rev. John Spencer officiating. Interment will be in Westview Cemetery in Thomson.

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via The Citizen http://www.thecitizen.com/articles/12-24-2013/michael-kenneth-smallwood-48-0

Michael Kenneth Smallwood, 48

Mr. Michael Kenneth “Mike” Smallwood, 48, entered through the gates of Heaven at 1:45 a.m. Wednesday, December 18, 2013 at Georgia Regents Medical Center in Augusta, Ga.

The funeral service will be at 2 p.m. Saturday, December 21, 2013 at the Thomson High School Auditorium with Rev. Addison Belangia, Rev. Scott Franklin and Rev. John Spencer officiating. Interment will be in Westview Cemetery in Thomson.

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via The Citizen http://www.thecitizen.com/articles/12-24-2013/michael-kenneth-smallwood-48

Chaplin Howard Tisdale, 92 of Peachtree City

Chaplin Howard Tisdale, 92 of Peachtree City, Ga. passed away Dec. 22, 2013.

He was born on Oct. 25, 1921 in Ellisville, Miss. to the late Samuel & Ethel Tisdale. He was a US Navy Veteran of WWII. He was a graduate of Auburn University and also a graduate of Southern Baptist Theological Seminary, one of the largest seminaries in the world, located in Louisville, Ky..

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via The Citizen http://www.thecitizen.com/articles/12-24-2013/chaplin-howard-tisdale-92-peachtree-city