Disclaimer first: Don’t want to scare anyone, this is purely for theoretical purposes, the chances of happening are close to zero. As the following link suggests, Fed is a quasi-public (government entity with private components) banking system. http://en.wikipedia.org/wiki/Federal_Reserve After Fannie and Freddie story it is simply not clear what it means to be Quasi. Do you think it is theoretically possible that US govt can pull the carpet under Fed’s feet? Is US Treasury more important to the Govt than the Fed? Is it possible to declare Fed as a bad bank with $T of exposure and create a brand new Reserve Bank of USA? How is current Fed different to First and Second Bank of USA?
“Is it possible to declare Fed as a bad bank with $T of exposure and create a brand new Reserve Bank of USA?” That would be the dooms day scenario where they wipe everything off and start from a new currency base.
According to the same link above … ------------ “After Jackson, who was opposed to the central bank, was reelected, he pulled the government’s funds out of the bank. Nicholas Biddle, President of the Second Bank of the United States, responded by contracting the money supply to pressure Jackson to renew the bank’s charter. The country entered into a recession, and the bank blamed Jackson’s policies. The bank’s charter was not renewed in 1836. From 1837 to 1862, in the Free Banking Era there was no formal central bank.” ------------ Ending the second bank did not result in a dooms day. It resulted in a recession. So it appears that US had no Fed for 25 years between 1837 and 1862.
i’d go with impossible. a difference between fred and fran and the fed is that fred and fran has public equity. thus, all information had to be public and the public knows when the equity is worth zero. as the area banks are the investors in their local fed, it doesn’t matter if the equity goes to zero. fran and fred are still around right? so will the fed should they end up with negative equity as the US govies back it indefinitiely and if the fed goes, the US will back it until the US goes… all 3 will be kept alive indefinitely and thats all that matters… whether the equity gets smashed is of little concern compared to how much of the debt gets smashed. the federal reserve keeps the us banking system alive. if it goes, no bank will survive. http://mises.org/tradcycl/econdepr.asp
cfa_mba_caia Wrote: ------------------------------------------------------- > According to the same link above … > ------------ > “After Jackson, who was opposed to the central > bank, was reelected, he pulled the government’s > funds out of the bank. > > Nicholas Biddle, President of the Second Bank of > the United States, responded by contracting the > money supply to pressure Jackson to renew the > bank’s charter. The country entered into a > recession, and the bank blamed Jackson’s policies. > > > The bank’s charter was not renewed in 1836. > > From 1837 to 1862, in the Free Banking Era there > was no formal central bank.” > ------------ > > Ending the second bank did not result in a dooms > day. It resulted in a recession. > So it appears that US had no Fed for 25 years > between 1837 and 1862. http://en.wikipedia.org/wiki/Panic_of_1837 yeah, no big deal, just a “recession”. try a 5 year depression actually i’ll lay it out: depression from 1837-1843, in 1857, from 1869-1871 and from 1873 to 1896. All i know is that using evidence from the 1800s is not very useful compared to today. Saying that the fed doesn’t have a major impact on our world is ignorant. Fed comes in the early 1900s and we only have one 10-year depression in 90 years, opposed to 32 years of depression in 60 years. i’d have to say that monetary policies weren’t as refined as they are now and i’d also have to say that the fed is much more intertwined into society now than it was 150 years ago.