Hi, I am brand new to this site,not brand new to Economics, however.
Looking at the recent moves by the FED and then today’s move by the ECB in keeping their interest rates steady, it seems that the ECB is doing a much better job than the FED.
What’s the general opinion here? Thanks,
Kat
I think there are some fundamental difficulties in answering this question. The ECB may be doing a better job than the FED in terms of stability or something. But perhaps we can infer that the ECB has an easier situation to deal with. Most people here regard central banks as de-stabilising, so it seems reasonable to assume that both the FED and the ECB contributed to the problems they face. Insofar as this is the case it seems reasonable to conclude the ECB is doing a better job. But there are other factors and not necessarily all problems can be linked to the central banking system. Also perhaps we would have a different perspective with more knowledge on their objectives.
Regarding the general opinion here, most Austrian economists contend central banking causes problems and they advocate free banking instead. They give good reasons for finding our current arrangement economically inefficient and also unethical/illegal. They then explain how an alternative monetary system would avoid these problems. There is very little in the way of comparison of existing central banks by these people though. The important point for Austrians is that all central banking systems are flawed and probably unjustifiable. So I suspect many might consider the comparison of the FED and the ECB uninteresting.
Personally I don’t feel equipped to make a comparison on how they are doing, so I’ll basically have to evade your question! One thing I feel is that though I’m mostly in agreement with the Austrian economists on banking, I would be more qualified to comment on these kind of affairs if I knew a bit more about the worldview of central bankers - their theory.
What do you think? What is your background to this issue? Are you new to Austrian economics?
Yes, I am brand new to Austrian economics.
What is interesting to me is that it appears the ECB understands that lowering interest rates will make inflation problems Europe is already facing worse, whereas the FED is concerned about ??? (I don’t know). I am still trying to figure out what the FED is really trying to accomplish.
It’s apparent that lowering interest rates will only hurt the current economic situation more than it will do good. Add in the fact that now the FED wants to auction off more money to banks, money we do not have in gold reserves, I am honestly confused. I am starting to wonder if the people in charge even know that you can’t just keep printing money.
I do believe, however, the FED and ECB are faced with different problems and maybe the ECB has a bit of an “easier” time as it hasn’t been around for as long as the FED has.
I also agree that both are responsible for the problems Europe and the US are facing. However, I also wonder what would happen if we got rid of the FED today and the ECB tomorrow.
I’m no authority on austrian economics, but I think the general opinion is “it’s impossible to know”.
Let me explain:
Like any good, the supply and price of money should be decided upon by the market. Fixing the price of a good at a higher level than the free market price will create surpluses, while fixing it lower will create shortages (I think almost all economic schools would agree on this). The ECB, or even the FED, could at this instant be following a policy that coincides exactly with what the interest rate and money supply would have been in a free market, but that would only be a serendipity.
The fact that the ECB has kept its rate steadier doesn’t have to mean that they are doing a better job. Yes, the world is always changing, but even so, we cannot predict if the market rate of interest would’ve been changing quickly or slowly in a free market.
My opinion: It is not impossible to know who is the better central banker; the one who inflates the least. That is easy. The real question is why is there a central bank.