Bob asked in Social ScienceEconomics · 1 year ago

What would happen if we eliminated the Federal Reserve and had the Treasury just create the money?

Prior to 1913 there was no income taxes yet somehow the government paid for everything. The government could get rid of the federal reserve and just print and put money into circulation thru government spending. Kennedy created money that was made thru the treasury so we should do that now. We could decrease the amounts created out of thin air (thru loans and fractional reserves) by banks and just let the government do it. The money created would be limited by the growth of the economy and to a certain percent of GDP. The deficit could be paid off and all of us would have a lot more cash to spend. The money could be backed by gold, silver, oil or even pure fresh water. One dollar could be worth four gallons of water. We could also eliminate the income tax and have lots of fresh clean water.

4 Answers

  • Ray
    Lv 6
    1 year ago

    Several issues here.

    1. gov. can't just print money with the purpose of clearing out its debt, when it does this freely it leads to hyperinflation and puts no accountability to gov. expenditure.

    2. not good to peg your currency against a commodity. USD was once pegged to gold, which is a precious metal with an extremely stable supply amount, however, even then the inflation and deflation of the USD was unpredictable. When markets don't perform well people are scared and put money on gold, leading to its value going up, thus in the past it would lead to deflation which in turn leads to people spending less, leading to a vicious cycle which was not healthy for the economy.

    Since we got rid of the gold standard the USD has been the most stable currency in modern history, with a steady inflationary rate of around 3%. A little inflation is healthy, when you have deflation people save, thus there is less spending, thus less circulation and this leads to a lot of businesses not selling, thus many people loose their job.

    Hyperinflation is worse [too much inflation].

    What makes the USD the #1 reserve currency in the world is its track record in predictability. A steady inflationary rate which has not changed much in a century is a solid foundation to peg your oil/currency against, much steadier then any commodity.

    I think your suggestion is based off of misconceptions people have on the economy.

    How much money people get does not determine how healthy an economy is. Venezuela currency right now is everywhere, people have so much of it that they use it for toilet paper, yet their economy is no good.

    Currency is simply a means of exchange.

    A healthy economy is where many people keep themselves busy creating/offering goods or services in a way that is valuable to the market, when this happens people trade more and there are more good/services in the market which the market deems valuable [like iphones].

    The issue of trying to have the government control these factors is that you end up with societies that only have essentials in circulation [like food, clothes, etc].

  • 1 year ago

    Sounds like a recipe for lots of inflation. The government was born to spend.

    We're 21 trillion in debt, and adding another 1 trillion each & every year. This is the governments doing. And NOT the Federal Reserve.

    Why would anyone be stupid enough to put the government in charge of the money supply?? Can you say hyperinflation??

  • Zirp
    Lv 7
    1 year ago

    the banks would make less profit.

    Any money backed by anything would cause economic shrinkage. Money created and then * distributed* to the people could get rid of the worst poverty, but would still trickle-up to the rich

  • Anonymous
    1 year ago

    Once Congress got a hold of income, they decided "They" knew how better to spend it. Until then they had to depend on Tariffs, and Customs Duties for their income. (thus the ATF was their source)

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