[DickP]

I usually always go the opposite direction of everyone, popular opinion usually sucks ass. So when I got a facebook alert about Bernanke and the Fed getting ready to lay out a plan to stop the stimulus, CNN asked, "is it about time to end the stimulus?"

And no joke, out of 70 comments, 50 of them contained the phrase in some way or another "END THE FED"

End the fed everyone thinks, and I have this sneaking suspicion that would be a terrible idea. And sure enough I found an article that makes complete sense in this matter,

A) Why we need the Fed...
B) The Fed has many functions...

So like a rare sort of parasite that takes over the host and the host in fact needs the parasite to survive, I think we end up needing this central bank to do many things which, if they were to stop overnight, would be like pouring radioactive iodine into an open wound (not salt).

So, let's look at it the logical way, and what the Fed in fact does and why we need the fed, even though I'm admitting the Fed is like a parasite, not in a good way, but the system is set up so that the parasite is here to stay whether you like it or not.

The natural place to begin is with the Fed's responsibilities. Here are its four central duties, from a document (.pdf) on its website:

1. Conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates
2. Supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers
3. Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
4. Providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system

So the first important point is that the Fed actually does a lot. You can't simply eliminate these functions. If you got rid of the central bank, you would need to push many of these functions to other regulators or private firms. For example, inflation has to be kept in check somehow. Prudential supervision is also important. The problem with eliminating the Fed is that you would need to delegate these responsibilities to another entity that could do them better.

Let's consider two of the most important of the Fed's duties: supervision and monetary policy.

Supervision

As a bank supervisor, the Fed oversees a number of financial firms such as bank holding companies, state chartered banks within the Federal Reserve System, and foreign branches of member banks. Although the Fed isn't the only bank supervisor out there, it plays a key role as supervisor of these institutions.

Monetary Policy

The U.S. needs some monetary policy. The government has chosen to allow the Fed conduct monetary policy with significant independence, directing it to achieve two objectives: price stability and full employment. This means the Fed has a fair amount of freedom to play with interest rates, purchase assets, and even conduct emergency lending activities to achieve those ends.

What If There Was No Fed?

Now that we understand some of the most important duties of the Fed, what would happen if we simply eliminated it? Obviously, these duties would still have to be carried out so they would have to become the responsibility of someone or something else. I spoke with two former Fed officials who argued that providing the Fed these responsibilities is better than other alternatives.

Supervision

One of those former Fed officials, Richard Spillenkothen, is possibly the perfect person to explain why it's so important that the Fed is involved with supervision. Through 2006, he was the lead banking regulator for the Fed. He now serves as a director with Deloitte & Touche's Governance, Regulatory, and Risk Strategies services practice. He explains that the supervisory function of the Fed is important for a few reasons:
...............

A team approach that includes the Fed will provide a robust supervisory framework.
This isn't to say that the Fed should necessary be the only regulator out there. "Regulators bring their differing perspectives to the table," Spillenkothen noted. The Fed's point of view is just one of many. Other regulators like the Securities and Exchange Commission, Federal Deposit Insurance Corporation, and others also make important contributions to supervision. But a team approach that includes the Fed will provide a robust supervisory framework.

..............

Periodic bank panics occurred under the gold standard; the Fed was founded to deal with those. And you're at the mercy of the supply of gold in the world, and its distribution among countries. You get situations as had occurred in the 1920s, when some countries accumulated large volumes of gold and they put downward pressure on the price levels of other countries that didn't have those large quantities of gold. It wasn't until after the U.S. went off the gold standard that we were able to begin emerging from the (Great) Depression.
He believes central bankers can do a better job of achieving price stability and other objectives with more flexibility than a commodity standard that ties the money supply to rigid rules.


http://www.theatlantic.com/business/...the-fed/69554/

So in conclusion, the Federal Reserve was established in 1912, and to listen to Ron Paul or uninformed people just repeating the mantra "END THE FED" fail to understand American History before that date, and think life was rosy and the world was wonderful. DEAD WRONG. American History since our founding is littered with hundreds of minor and major market panics, instability, national debt crises, and so on, everything that we're experiencing today was felt by our ancestors 10-fold if not worse.

The fed was supposed to be the cure for terrible bank crises, so I'd argue that the Fed in general did not do the job 100%, but honestly, the world is not perfect, economists get it wrong sometimes, and there is not man behind the curtain pulling levers controlling the world economy. Nor is anyone immune to greed, including Federal Reserve bankers in positions to manipulate.

[skynet]

We need the Federal reserve like we need another hole in our ass...

[pipMasterG]

The tinfoil hat + the argument "WE NEED THE FEDERAL RESERVE" work wonderfully together

[DickP]

The tinfoil hat + the argument "WE NEED THE FEDERAL RESERVE" work wonderfully together

Thanks, i agree.

Look at this argument, it leaves out a lot: