In Fed We Trust (Sort Of)

Speaker 2

I'm Phil Magnus, the economist. Whew. Indeed. Yes, Federal Reserve is ⁓ essentially what we call a central bank. It's the central bank of the United States. It was created back in nineteen thirteen and it's gone through several evolutions since then. ⁓ but it's basically charged with managing the money supply. ⁓ and it does through so through a variety of instruments. Some ⁓ involve the way that it governs and regulates ⁓ certain types of lending arrangements between banks. ⁓ it's not actually setting an interest rate for us as consumers. ⁓ it does set a rate of basically what it charges to facilitate transactions between banks. ⁓ and it also engages in transactions that either buy up or sell Treasury securities. It's a mechanism for issuing debt. It's also a mechanism for monetizing debt that's coming out of what the US Treasury Department is doing to spend. And as a result of these transactions, it can both ⁓ accelerate or slow the rate that money enters into circulation in the economy. So statutorily, the Federal Reserve has what's referred to as a dual mandate. ⁓ and that mandate is its charge from Congress. It says, you know, your goals and the the monetary policies you set ⁓ should be to ⁓ aim for price stability over time. ⁓ in other words, don't inflate, don't hyperinflate ⁓ the currency. And then also maintain stable employment. So avoid situations where unemployment shoots through the roof. And ⁓ this dual mandate is kind of their governing charge. Now the way that's interpreted over has changed quite a bit over time and expanded, and the Feds moved into new policy areas. ⁓ but the de facto version of it right now is they try to choose an inflation target that's under two percent. ⁓ in a given year. They don't always meet that. They failed pretty spectacularly in recent years, the two thousand twenty two inflationary crisis being the most notable one. But even still we're s we're not quite back down to this two percent inflation target. ⁓ but at least that's the statutory aim of what they're supposed to be doing.

Speaker 1

And the Federal Reserve, is it a private? Is it public? I I've heard it described as independent within the government.

Speaker 2

It's a quasi public, quasi-private entity. ⁓ it's private in the sense that it has a lot of ⁓ interactions that occur between ⁓ you know the constituent banks of the Federal Reserve System, although it is chartered and created by Congress. And it's kind of in this constitutional vague zone because the original constitution in seventeen eighty-seven, it didn't really specify that we need to have a central bank. In fact, it gives power to mit coins and create money. To Congress, and often that was referred to, at least in the context of of gold ⁓ and precious metals, that Congress would establish that. Now, early in the Republic, Alexander Hamilton is the first Secretary of the Treasury, he kind of leads the effort to create a national bank of the United States. And ⁓ this comes through a couple of iterations where it's created, then it's rechartered, although its constitutionality was challenged in the early days of. of the Republic. ⁓ there were a couple major Supreme Court cases on it that essentially uphold and say, okay, well, Congress can grant this power through ⁓ implied authorities that it has under its enumerated powers. It can create a charter for a central bank, but it became politically controversial because the central bank was also seen as an an agent of corruption. It was also seen as a mechanism for monetary manipulation. And then during Andrew Jackson's presidency, he made it a major policy initiative to not recharter the central bank of the United States, ⁓ to to basically abolish it. So when it came up for a vote in the eighteen thirties, Jackson launches what he's referred to as the bank war, and it basically gets rid of the central bank. So we have no central bank between then and nineteen thirteen when the Federal Reserve is created again. hearkening back to that older model from the founding era that was always constitutionally challenged and questioned and dubious, ⁓ and yet nonetheless existed. And we basically been operating under that ever since.

Speaker 1

Wow, I had no idea that there was a period where we got rid of it because ⁓ I don't know, maybe it's just my my modern experience of life, but it just seems like once something gets going in the US, it just I mean, what did that look like during during that time? I mean, what did banking look like? What did ⁓ commerce what w you know, what what was happening without a central central bank? Yeah, so

Speaker 2

It never goes away. So it it goes through a couple different cycles of of types of policy that are in place. Although the early part of it is referred to as the free banking era. And you know, the free banking era, it's ⁓ most banking functions are are facilitated in the private sector. And ⁓ you know, banks would issue their own private currency notes, essentially. You can find these in the in ⁓ go back to like the 1850s, you can find old currency collectors, they'll have the The such and such Bank of North Carolina or the such and such Bank of Ohio. And ⁓ these are notes that are ⁓ reflecting what they claim to have in their institution as ⁓ you know, a a core of reserve deposits that they're doing financial transactions upon. They're lending out against those reserve deposits. And bank solvency comes down to a matter of reputation. And the idea here is that the free market determines ⁓ that if if a bank is engaging in risky and dangerous lending behavior and becomes insolvent, well the market judges that the bank goes out of business. It goes under. Whereas other banks that have reputations for ⁓ exercising wisdom in what they loan, well, ⁓ those are the banks that excel and gain consumers and gain a ⁓ a reputation for quality and trust and and their credit. ⁓ so basically in the in the competitive free banking era, these types of institutions start to emerge and fulfill functions of lending, both with the public sector and then certainly as a very private robust economy. The U.S. Treasury Department tried to insulate itself from political factions and political pressures after the bank war of Andrew Jackson. So in the eighteen forties, the ⁓ there's a ⁓ move to establish what was called the the independent treasury system to ⁓ basically isolate and insulate ⁓ the treasury's ⁓ monetary functions on issuing and taking on debt ⁓ for the United States government from the ⁓ the pressures and throes of Congress. ⁓ and it actually worked pretty well ⁓ for quite a bit of that era, although you start seeing ⁓ especially in the Civil Wars wake, the federal government starts taking on more debt. ⁓ its expansions have grown. ⁓ a lot of it was to pay for the war. The government itself starts issuing what were referred to as greenbacks. That's where the the green association with the currency comes from. ⁓ and these are paper ⁓ currencies rather than the gold coinage that had been literally the coin of the realm before then. And ⁓ the it you know it starts Becoming a political matter, can the government sustain taking on more and more debt through instruments of of treasury finance? This comes to a head a bit in the late 19th and and early 20th century, ⁓ you know, during eras of recession and depression, usually referred to as panics or financial shocks. And sometimes this could be triggered by ⁓ everything from a natural disaster. sometimes it could be triggered by a scandal. There are a bunch of scandals in the political and public realm. Sometimes it was triggered by a large bank failure. And that triggers a run on in the private sector of people on the reserves in their bank. And then solvency issues start to spread between multiple financial institutions. And what happened really in the late 19th century is whenever there was a panic or a bank run, ⁓ oftentimes the financial sector is shored up by rich people ⁓ or by the solvent institutions. Taking on some of the debt of the insolvent ones for the greater good of the system. And what it really comes down to is they had a significantly large share in the health of the overall system that they were willing to do that. It helped the banking sector flush out the inefficient and failing and irresponsible institutions. This comes to a head in 1907. There's one of these panics, the panic of 1907, very complex caused event. But the private sector essentially dealt with it. Although it triggered a wave of progressive era reformers that thought, well, the private sector's left with this burden. ⁓ we actually need a central bank to do this. ⁓ and you know, this is the era of expertise-driven government. It's the notion that Woodrow Wilson promulgated in his academic work before he's president. Never a good idea to elect an academic as president. He was a Princeton man, ⁓ he had all sorts of fancy theories up in his head that ⁓ didn't quite.

Speaker 1

A Princeton man.

Speaker 2

work out so well in practice. But it it's really after the panic of nineteen ⁓ seven, you start getting progressive reformers in collusion with the banking industry. So that's another part of the story that's often forgotten is the bankers actually come together and the progressives are offering, hey, we'll get the government to take on this burden for you. And the bankers are like, okay, yes, we like that. So they establish a central bank and that's the Federal Reserve system that emerges in nineteen thirteen.

Speaker 1

When it comes to like booms and busts, when you're comparing them, were they worse or better during the time when you had a central bank?

Speaker 2

And that that's the great debate. The the claim is made that the central bank exists to soften the blow of the bust, to ease the bust by counter recessionary measures that it normally includes loosening up the money supply. And then in times of boom, you want a tighter money supply, ⁓ tighter monetary policy in general to kind of take the edges off of the cycle. And at least that's in theory how it's supposed to work. And it's always promulgated in that way. It said, these are the reasons we need a central bank, is it can ⁓ counteract the cyclical nature of the market of going through recessions and booms. ⁓ now in practice, the central bank is also a very political animal. It's responsive to pressures from Congress. We know that in recent memory, we also know it in historic examples. Recent memory, so 2022, we had an emerging inflationary crisis, ⁓ caused for a variety of factors. COVID spending was one of them, but there were also deeper structural problems. And the pressure coming out of the Biden administration in Congress was this is only transitory. And as a result of that, Jerome Powell, who was the chairman of the Fed at the time, ⁓ adopted the transitory narrative that basically meant, well, if we just wait this out, it'll go away. And they delayed for probably several months too late. To take any countermeasures to tame inflation. In other words, raising the Federal Reserve's discount rate, which is one of the mechanisms that they have, tightening up ⁓ monetary policy in general. And those delays just exacerbated the problem, and then inflation skyrocketed to a significant and substantial loss in the purchasing power for most Americans, felt on their salary, felt at the grocery stores, you name it. ⁓ and I I argue that quite a bit of that was a result of political pressure. That otherwise would not exist if there was a market mechanism in in the other place. And then the other famous example is the Great Depression in 1929. ⁓ so remember the Federal Reserve is created in 1913, supposedly to flatten and smooth out ⁓ the ebbs and flows of the business cycle. Well, there's a ⁓ a shock in 1929, the stock market collapses, other structural problems in the economy start to emerge. And what does the Federal Reserve do? Is Well, they misdiagnosed the entire situation. And they actually start tightening down on monetary policy into 1930, 1931. And a contractionary monetary policy at the outset of a depression is a really bad idea, it turns out. And what they end up doing is they supercharge the Great Depression. So in many respects, monetary mismanagement by the Federal Reserve. Is one of the probably top two or three reasons why the Great Depression becomes great.

Speaker 1

I read The Forgotten Man by Amity Schlaze, I believe that that's how you present. I read the ⁓ graphic novel. ⁓ so as the ⁓ astute academic I am, I I read the graphic novel. And I was really blown away by so many of the details in there, just what happened ⁓ during the Great Depression. The big one for me was FDR. Confiscated gold. Yeah. Yeah. Walk me through this because you see a bank, you know that the bank is holding some gold in a vault, but we're talking about confiscating from everyone, right? How does that how does that work?

Speaker 2

Well and he did this by executive order. ⁓ there's a there were several Supreme Court challenges over whether this was even legal. Cause up until that point, gold had been the basis of the currency system in the United States. You know, they fix it at a set dollar amount per ounce of gold, and that's the coin. That's the physical thing you had in your pocket. ⁓ and then there's also ratio, silver to gold, ⁓ it closed throughout the entire monetary system. And When you got dollar bills, you got paper currency before that. ⁓ if you read some of those old currency notes from the late 1900s, early ⁓ twentieth century, they are basically redeemable for gold or silver, they're they're certificates basically indicating that yes, this is an equivalent value of a precious metal. And what FDR does, ⁓ you know, there's a huge debate over why and when he does it. ⁓ I think the best evidence is he was ⁓ kind of throwing stuff at the wall to see what Would stick. The FDR did not have a a very good grasp of the emerging panic and crisis of the depression and didn't really have a a a clear plan of what to do about it. So he is trying anything and everything he can. And that includes a few hairbrain schemes. Includes a few things that are actually a little on sounder basis, such as ⁓ trying to ⁓ retract the United States out of its tariff protectionism. But one of the things he tries is ⁓ he basically severs the private sector gold standard. And it's the first of two major phases that break the gold standard in the US. Second one is Richard Nixon in 1971. But FDR orders the confiscation of private gold. He's like, ⁓ don't worry. You send your gold in, we'll give you dollars back in return. Everything will be just fine. It's the exact same amount. ⁓ you just no longer have gold. ⁓ private gold is is withdrawn basically from circulation. ⁓ they quit minting gold coins. ⁓ they ⁓ withdraw from that element of the entire currency system. And yes, there are penalties attached to if you're in the private sector and you have large holdings of gold for things other than like jewelry, you have to send it in.

Speaker 1

Yeah, I was gonna ask the equivalent of ⁓ of a Mr. T back in the depression, wearing all that gold around his neck. I mean I mean it gold is very heavy, it'll weigh you down, but I can imagine you know someone not wanting to give it up and just wearing it in any way that they can. You know, they're they're earlobes just hanging down to the floor with gold earrings.

Speaker 2

With bags of gold. It's a major shock to the financial system. And I guess the argument that's made is gold had a stabilizing factor when it was chained to the dollar because it kind of self-enforced a mechanism against inflation. Yes, the the price of gold changes, ⁓ especially if you discover a new gold mine in the ground and you get more of it out of there, ⁓ that'll affect the price, the market price of gold. But by being fixed to a relatively stable commodity, the dollar's value itself doesn't change all that much. When you sever that, well, then the political incentives of the government are to ⁓ debt finance everything, essentially. Would we

Speaker 1

You know, we probably don't want to get you know too into the weeds when it comes to like cryptocurrency, but like Bitcoin. But like Bitcoin doesn't it doesn't exist in that you can't physically hold it. I can't wear a necklace of Bitcoin.

Speaker 2

New alloy. Yeah, yeah. You got a little USB drive around your neck or something. Right, right, right.

Speaker 1

If we were to kinda go back to using a some standard, I mean what what would it be?

Speaker 2

⁓ you know, that's a a a great historical question. There are reasons why gold emerged in antiquity as a basis of most monetary systems. And you can find this all over the world. ⁓ it's ancient Greece and ancient Rome. They have gold coins. ⁓ you go to the Far East, they also have gold coins in that era. And I think part of it, what it is, is it emerged because it was, you know, it's relatively compact and small and easy to travel with. You can, it's very durable, it's a metal. it it doesn't like break down in your hands. You couldn't have a ⁓ potato standard or a carrot standard or something that like rots in your pocket. ⁓ but you can have a gold standard because characteristics that made it very conducive to solving the information problem of traveling with money. It it's really easy to tell if something is real gold or not. It's also easy to tell if a a coin contains the weight that it claims on its face. See you just you put it on a scale, you weigh it. You know, if I if I showed up in China in like the the thirteen hundreds and I was carrying a bag of rocks and the rocks all had a stamp on them and said the king of England says this these rocks are worth money, ⁓ do you think the the trader in China would accept them? Probably not. But if I showed up with gold, ⁓ even if it's a completely different unit, they can weigh that, they can look at it, they can figure out, ⁓ okay, this is pretty convertible to the same stuff that we use, and vice versa. ⁓ so you see coinage traveling all across the world because it's it's widely accepted. It solves that information problem, but it's also self-enforcing on its stability because it's it's relatively hard to create more gold. ⁓ you got to dig it out of the ground. Silver was the same way. You've got to dig it out of the ground. And because of that mechanism in there, it becomes really hard for governments to engage in monetary malfeasance. They can't just decree. gold is a different value at its weight, or or when they try to, what it does is it it ⁓ it actually ⁓ flushes out the stronger currency instruments, the actual real gold coin, and then the devalued coin ⁓ starts become more widely adopted. You have an inflationary crisis. So there are all these examples from like the Roman Empire of emperors that tried to debt finance all of their public spending by devaluing their currency. And instead of what used to be a solid gold coin, now it's gold plated. And when when it's gold plated, well people you know, you aren't fooling anybody when they see the gold plated coin and the real gold coin. They're like, ⁓ I'm gonna keep the real gold coin, maybe melt it down. This junk that's gold plated, ⁓ you know. ⁓ so so so that played out historically insofar as gold is its self-enforcing standard. Well, what can we do today? ⁓ you know, I think the ship has sailed from getting back onto the gold standard in an immediate policy sense. And part of the reason is that our currency is rapidly devalued since the time we broke that ⁓ that link. ⁓ you know, it used to be about $20 an ounce, and they they tried to maintain it at $35 an ounce of gold. ⁓ the private sector couldn't engage in it, but they they allowed foreign governments and their official monetary reserve assets under the Bretton Wood system after World War II. To exchange at $35 an ounce for gold. And that worked as part of the international monetary system and ⁓ maintained relatively stable exchange rates. But by the nineteen sixties or so, we got to a point there were too many US dollars in circulation abroad. Foreign governments start redeeming those dollars for gold that drains down Fort Knox. including the money that FDR had a ordered confiscated during the depression and moved into the reserve assets of the United States. So then again in 1971, Richard Nixon severs the gold window like the last vestige of the gold standard and pushes through a policy devaluation of the dollar. And they ratchet it up a a couple more times in the in the years that follow, then the dollar becomes fully a fiat currency on the full faith and credit of the United States. And now it floats on international exchange systems as a market mechanism.

Speaker 1

Well I'd like to take a moment to ⁓ say ⁓ farewell to pennies, which did did not make it. They are I don't know when they stopped being copper, but ⁓ they are no more.

Speaker 2

Here's classic example. They used to be copper, solid copper all the way through, and then then they were copper plated zinc, and then suddenly they're no more.

Speaker 1

Well I I wonder is it possible for the new head of the Fed to bring back pennies if they ⁓ to make to make that pitch?

Speaker 2

⁓ I think a lot of that comes out of ⁓ it's required by acts of Congress and then the president has some discretionary power to order the Treasury Department. ⁓ Trump's gotten very creative with that discretionary power. But ⁓ you know, that's one of the reasons why he he ended the the penny, because they were basically losing money on the amount of even with the fake copper coated zinc, cost more to make a penny than the penny was actually worth.

Speaker 1

Yeah, and I think I'm gonna try to hold on to my pennies now because they're not gonna be around so they might actually go up in value. So getting back to the getting back to the Fed, like you know, who picks the head of the Fed? Because I I know I've never been asked to vote on that. Well this

Speaker 2

Yeah, and this is why it's a quasi-public entity kind of existing in this weird constitutional vague space. The president does get to nominate the head of the Federal Reserve. And the president also gets to nominate members of the board of governors. The chair of the Fed has to come from one of the seated board of governors members, and they all have to go through the Senate confirmation process. And now this is done on a rolling basis of terms, so they're they're kind of staggered out. So the idea is that. Every president gets a couple of seats that come up for renewal, and they can ⁓ either reappoint the same person or they can ⁓ appoint their own new ⁓ member of the Fed board. And then the chairman seat, which is the most powerful figure on the Fed board, also comes up on a fixed term. And when that happens, the president can nominate one of the members of the Federal Reserve Board of Governors to go up as chairman. ⁓ and what we just saw, so Kevin Warsh is the new chairman, Jerome Powell's. Term had ended. But Powell said, Well, I'm not going to resign my seat because he's still his governor's term ⁓ is still in place. ⁓ there was another vacancy that had emerged earlier in the year. ⁓ this is Stephen Myron, one of the previous ⁓ Trump appointees who was appointed midterm to finish out someone else's term that resigned. Well, his seat had expired, and to clear away for Kevin Walsh, Myron had to agree to resign. to open up that seat and then Warsh is ⁓ then confirmed by the Senate for that seat and then confirmed to bump up to chairman. So it is a whole political process.

Speaker 1

Does the chairman really matter? How much you know power do they have do they have? How accountable are they?

Speaker 2

Well, it it's it is seen as probably one of the most powerful positions in the US government. ⁓ they're supposed to be dispassionate, they're supposed to be removed from politics, they're supposed to be the experts, ⁓ in that respect. But, you know, they are political animals. And there's a long history going back to even the earliest days of the Fed's creation that the ⁓ the Federal Reserve Chairman does communicate quite a bit to political appointees such as the Treasury sec secretary. ⁓ more recently, ⁓ this has been kind of a a criticism that's emerged of the Trump administration. Trump has become very aggressive in challenging Jerome Powell's decisions. He wanted Powell to cut interest rates at a faster rate than Powell was doing after the 2022 ⁓ inflationary crisis. You know, they tightened up monetary policy. Trump wanted to loosen it as a stimulus effect to kind of juice the US economy. And Powell said, No, this is imprudent. We have ⁓ too much uncertainty. I'm gonna proceed much more slowly. And as a result, some of that political fight started to break out into the public, where Trump was ⁓ you know, remember he went over with the hard hat to tour the Federal Reserve building. And that was really kind of a flex of power to try to pressure Jerome Powell into ⁓ being more on his side of. ⁓ of things. ⁓ then they even gotten some of this law affair stuff of a potential investigation of the Federal Reserve over misappropriation of its building reconstruction funds. And ⁓ seen as like pressure on the Federal Reserve chairman. So I guess the short version is that the Fed chairman is a political animal at the end of the day, even though they're ⁓ operating in the world of trying to be the expert central banker ⁓ who is supposedly following what the advice of the scientific models say, not the throws and pressures of Congress. But the reality is Congress, the White House have various soft and hard pressures that they can apply to the Federal Reserve to get the chairman to do what ⁓ the President wants or come to heads with ⁓ the President as we saw most recently with Powell. Does

Speaker 1

The Federal Reserve ever get audited?

Speaker 2

It does not, ⁓ or at least not in any public way. And there there's been a ⁓ a big controversy about that for a year. I I remember Ron Paul when he was a congressman back in the nineteen nineties, was saying, Well, we need to audit the Federal Reserve 'cause this has never really been done in a full transparent way. You know, this is seen as like an oversight function in one respect, but the Fed will say, Well, if you audit us, you're going to put subject us to political pressure. So that's their counter argument. And the idea is, you know, what's going on behind the scenes needs to be private in order to insulate it from politics. I don't really buy that all that much. I think that's a ⁓ an opportunity to do ⁓ not only misconduct, but some shady things. More so I think it's an opportunity for the Federal Reserve to engage in mission creep. So remember it had that dual mandate that said the Fed is charged with price stability and keeping unemployment low, effectively. Well, if we've looked over the past few decades, the Federal Reserve now does things on like climate change policy. In the Biden era, some of the Fed governors that were appointed started saying, well, the Fed should do more with DEI initiatives. Trump, what what what's the central bank have to do with DEI? And it's coming up with like all these roundabout regulatory frameworks on how ⁓ the private sector should engage in banking in the DEI space or how ⁓ a responsible financial sector firm should behave toward the climate. You're like, wait a minute, this is way outside of the Fed's statutory mission and yet they're just kinda doing it because there's no real oversight mechanism to rein it in other than for Congress to criticize them.

Speaker 1

On the employment front, you could say, hey, you should hire more people, but the jobs aren't there or the people, you know, looking for jobs aren't, you know, don't have the skills for those jobs. I mean, it's unless you're maybe like going through a scheme like doing like a DEI and and saying, okay, you need to hire this many people from, you know, this kind of demographic. Yeah, I'm trying to wrap my head around how how could they legislate that? Yeah.

Speaker 2

And it's kind of a reinterpretation of their statutory mandate. I'm I'm even critical of the fact that employment's a mechanism in there. I think the central bank, if it exists at all, and I'm not all convinced that it should exist, ⁓ but if it exists at all, its charge should be price stability, period. It's a banker. ⁓ the the employment component comes in. So in the mid-20th century, there was this ⁓ real technocratic approach to macroeconomics, and they discovered something that they thought was this relationship. They called it the Phillips Kirch. And it was this purported inverse relationship between the price level, so inflation on one axis and then unemployment on the other axis. And the reasoning was you could reduce inflation, cut down on the level of inflation, but the trade-off supposedly was that you'd get higher unemployment where you ⁓ produce unemployment, but then you've got to actually spend money to make that happen. And ⁓ at least the the simplistic trade-off was claiming that you'd incur inflation as a result. Well, it turns out by the late 1960s, this relationship is breaking down for a whole variety of reasons. The the most common economic reason is ⁓ the policy decisions that were made to operate on the Phillips curve ran into an expectations trap. If the banking sector or the general public expects the Federal Reserve to do something that changes the money supply or that ⁓ injects. ⁓ new money into circulation, well, their behavior changes in anticipation of it. So that was the expectations trap. I'd go even a step further, and I say this based on archival evidence. I think the Phillips curve was a completely spurious relationship. It was mistaken as an operationalized policy lever to relate unemployment and inflation together because it fit into the the 1960s Keynesian paradigm of the centralized managers of the economy that pull levers to stimulate or slow down as needed. And we've kind of been living in that relic of a system ever since. So I would say, you know, ⁓ if we have to have a central bank at all, it should be focused on one thing and that is price stability. And then we look at the history of the Federal Reserve, I think it's fundamentally failed over the past hundred and ten, some odd years to maintain price stability, which was its original charge.

Speaker 1

So in the circles that we run in, ⁓ and I'm going to be at Freedom Fest in July. It's ⁓ July eighth through the eleventh. You're bound to see shirts that say things like end the Fed. And I'm just I I don't think it's going to be ended, but you know, in a world where the the Fed is ended, you know, what does that look like? What are what are the results? Yeah, yeah. More good than harm, more harm than good.

Speaker 2

You I I think there'll be an initial shock from whatever scenario brought that into existence, ⁓ as we've seen with shocks at previous creations of the Fed or or ⁓ withdrawal from the gold standard. But you know, the longer term question is can we depoliticize ⁓ the monetary system and in so doing, yes, that is a net improvement that occurs. ⁓ what emerges in its wake? I think the probably the closest example would be we go back to that free banking era that I mentioned in the ⁓ post-Jackson era part of the nineteenth century. And there are some parallels in other countries that have had this. So ⁓ Scotland in the 1700s was a ⁓ was famous for having a free banking system vis-a-vis the more centralized bank of England. And the evidence from that era is that Scotland weathered recessions and depressions better than England did, just because there are market mechanisms now. introduced. That would be kind of like in the idealized dream world that we get, ⁓ if the Fed were ended, ⁓ some sort of self-regulating market mechanism free banking system is probably the next best alternative. Political reality, unless the Fed really, really, really screws up, and I mean screws up worse than they did in the Great Depression, the will to eliminate it doesn't seem to be there right now.

Speaker 1

Well Phil, we can't end the Fed, but we can end this podcast right now. We hope you enjoyed it. We'll see you next week for a whole new episode of Happy Our Ecom.