The Federal Reserve

[Typhoon]

might be a dumb question, im full of dumb.

why exactly is their not enough gold ?

wont it just get more expensive when the world economy grows ?

Yes..... which will result in global deflation and this isn't good. Lookie here.......

"......It's a sort of Malthusian problem: production grows geometrically (if not exponentially) while metal supplies grow arithmetically if at all. There is no diminishing return in the mining of fiat money, no environmental depredation, no slave labor, no need to go to war to get fiat money. Fiat money has its temptations, but like most gold bugs, you don't even acknowledge that there are two pans on the gold standard scale. Metal-backed money has lots of negatives, chief among them the inability to keep up with the output gap....."

Yes.

Thanks for the link.

On the other hand, I don't think that the Fed should be setting the prime lending rate, rather it should be determined by some free market price discovery mechanism.

[noddy]

might be a dumb question, im full of dumb.

why exactly is their not enough gold ?

wont it just get more expensive when the world economy grows ?

Yes..... which will result in global deflation and this isn't good. Lookie here.......

"......It's a sort of Malthusian problem: production grows geometrically (if not exponentially) while metal supplies grow arithmetically if at all. There is no diminishing return in the mining of fiat money, no environmental depredation, no slave labor, no need to go to war to get fiat money. Fiat money has its temptations, but like most gold bugs, you don't even acknowledge that there are two pans on the gold standard scale. Metal-backed money has lots of negatives, chief among them the inability to keep up with the output gap....."

hmmm, fair enough.

fwiw an international committee looking after a "basket" doesnt exactly inspire me with confidence, we have such things in my country and like all committee driven things its slow to react to changes in consumption patterns or volatility in the basketed items ... it becomes politically difficult to add or remove things from the basket.

[Simple Minded]

Yes.

Thanks for the link.

On the other hand, I don't think that the Fed should be setting the prime lending rate, rather it should be determined by some free market price discovery mechanism.

Colonel,

The free market determines interest rates to a much greater extent than both the Central Bankers, or those who wish to believe in conspiracy theories (Bilderburgers, Illuminati, etc.) are willing to admit. Never underestimate the importance of optimism/pessimism and the perception of risk. Trust is the key ingredient.

If Central Banks truly were in control of interest rates, the Greeks would not have to pay more in order to sell their bonds than the Swiss, or the US. Again, trust!!! Trying to get people who are pessimistic about the future to borrow is like pushing on a rope.

I recall seeing many historical charts of the Fed supposedly controlling interest rates over decades. The Fed simply lagged the market by several months. After seeing the data, it is hard to believe that so many accept the controlling view.

If I recall the source I will post it.