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Comment by pas | Hacker News Reader

Central banking - especially in the US - tries to keep inflation and unemployment low. In accordance with Real Business Cycle theory.

The theory says that the central bank should help speed up the economy when it's too slow, and apply the brakes when it's getting too hot.

The problem is that when a recession (inevitably) hits, it'd be good if people had savings, social security, etc. If there were structured ways to unravel over-leveraged investments, and so on, without hurting the people.

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The real problem is that monetary policy is only half of the coin, and the other half, fiscal policy, seems to never be enacted according to the theory. Just look at the current state of it, with record budget deficits at the height of a bull run.

Every theory, plan, ideology when meets with real life humans gets transformed. Socialism (state socialism, gulags, holodomor), buddhism (genocie in Myanmar), christianity (from megachurches and westboro baptist church to serious "internal" affairs like sexual abuse), islam (ISIL/ISIS), and the list is probably endless.

There are a lot of people working on solving the fiscal policy issue. And apparently just as many trying to stick to their guns and boneheaded over-simplistic arguments.

> Central banking - especially in the US - tries to keep inflation and unemployment low.

Fiat money (central banking) is the cause of endemic inflation, not the cure. There was no net inflation in the US money from 1800-1914, and pretty much continual inflation since.

The whole point of central banking is to inflate the currency to provide money for the government to spend without needing to raise taxes.

What's the problem with inflation? It seems to me that it is a very effective wealth tax. Almost trivial to collect, and it greatly benefits those with debt including governments.

> it greatly benefits those with debt

Since the interest rate is increased to account for inflation, it doesn't benefit debtors who can't just print more money to cover it (like the government does).

Who cares? Real economic growth is much higher in the continual inflation era than it was before. Inflation is a nothing problem, especially now that inflation is only about 2% a year.

> Real economic growth is much higher in the continual inflation era than it was before

Is it? I'm not so sure.

> The whole point of central banking is to inflate the currency to provide money for the government to spend without needing to raise taxes.

Bullshit.

The whole point of central banking is to provide price stability (which is predictable, stable, low ~2% inflation), that is to manage the money supply to follow the growth (or shrinking) of the economy.

An interesting book right on the subject:

https://www.bridgewater.com/big-debt-crises/Principles-For-N...

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