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Comment by potatolicious | Hacker News Reader

More relevant to the general population: when your nest egg's value is anything but safe, you are going to spend your money as soon as you get it - this has more ill effects than I can enumerate

This reminds me of my grandfather's stories during the Chinese Civil War (or shortly after the capitulation of the Nationalists anyway), where he'd get his pay and immediately bike at lightning speed to the market to trade it for sustenance.

Of course, the only thing that fixed that was a complete currency reset:

http://en.wikipedia.org/wiki/New_Taiwan_dollar

I'm not sure if the US would really be better off with that.

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The same thing happened in Argentina and the same thing could happen in the U.S. Countless fiat currencies in history have experienced the same fate. The only solution I have ever seen in my research is to return to a commodity backed currency.

If there are other solutions, I don't know of them, but would like to.

Currencies backed by anything are a terrible idea. Most economists now believe that deflation caused by a gold-backed currency was one of the primary causes of the Great Depression. Imagine how much worse it will be with, say, an oil-backed currency. What would 2007 have done to our economy?

Central fiat banking is the best known solution to the currency problem. This solution gets hated on by a lot of people who don't know any better, but think they do. The central requirement is that the currency-makers be independent of just about everyone, so that nobody can debase the integrity of the currency for political reasons. This angers everyone who thinks they know better than the central bank, but the anger of the average anti-establishment type is fickle and transient. It also angers the politicans, who are more dangerous--the examples of Argentina and Taiwan given here demonstrate not the dangers of fiat currencies, but rather that any currency should be kept far, far away from politicians.

> The central requirement is that the currency-makers be independent of just about everyone

Thus ignoring our entire system of checks and balances. Do you not see the danger, here?

> This angers everyone who thinks they know better than the central bank

AKA, every market participant.

> but rather that any currency should be kept far, far away from politicians.

In what sense are central bankers not politicians? They are not elected, that's for sure. However, they exercise a large amount of control over our economy and very much influence official political action. In a sense, they are very much a separate executive branch of our political system.

There is no pre-existing "system of checks and balances" when it comes to banking. But let's pretend there is.

As an analogy, consider that we have managed to get on with a politically independent Supreme Court, with their least proud moment (Dred Scott) being when they decided to ignore their charter and bow to the will of the people.

I have no problem trusting independent bodies with things, so long as they are well-chosen and truly independent. History shows that this is a much better idea then trusting either the econo-politically elite or the demos.

> I have no problem trusting independent bodies with things, so long as they are well-chosen and truly independent.

Right, and a well-chosen king rules better than a representative democracy. The problem is, how do we choose a king well? Likewise, how do we guarantee the Fed is well chosen and truly independent? I submit that we can't.

> History shows that this is a much better idea then trusting either the econo-politically elite or the demos.

Care to elaborate?

Thus ignoring our entire system of checks and balances. Do you not see the danger, here?

Except that we have checks and balances. The chief central banker must be appointed and confirmed and reconfirmed on a regular basis. This in itself provides a check and balance very similar to the one where the Supreme Court Justices must be appointed and affirmed by the other two branches, but are then almost entirely independent afterwards.

Similarly, the other two branches could pass legislation affecting the other levers of the economy if the Fed is doing poorly or even disbanding and replacing the Fed if it truly must. Doing something like this would be incredibly difficult, but this is part of the point. The Fed is meant to be mostly independent.

There are checks and balances to reign in the Fed in the extremely unlikely event that it goes out of control, and the rest of the time it is meant to be independent and sheltered from most of the ups and downs of the rest of the political process.

It sounds like you are describing hyperinflation of the kind experienced in Germany in 1922 and 1923. It can cause chaos where people have to spend money as fast as they can get it or they lose value and in extreme cases it becomes cheaper to burn money than to buy firewood with the money.

A more moderate level of inflation though will not cause such problems and a modest and predictable level of inflation can be beneficial to economies.

> you are going to spend your money as soon as you get it - this has more ill effects than I can enumerate

You are referring to hyperinflation? When money can loose significant value overnight?

Or maybe you know what bad things are caused by high (but reasonable) inflation?

Most US citizens not only spend all the money they have just earned but they spend money they are yet to earn, and their economy was rolling just fine.

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