"Inflation stability" is a nonsense idea. It's an oxymoron. Just call it what it is, inflation.
Commodity-based currencies like the Australian dollar, the Canadian dollar, the New Zealand dollar have proven better holders of value than the US dollar, although paper money is in a state of global devaluation right now vs. real assets when central banks are printing massive amounts of it. Returning to the gold standard, if we were to do so, would be a process of transition. It couldn't happen overnight. What I would suggest as one step in that direction is to nullify Nixon Shock. The US dollar as the world's reserve currency is propped up by nothing but market sentiment. So it's extreme irony that someone who doesn't believe in the power of market sentiment, or the fact that market sentiment is the keeper of real value in the economy, can ride on this wave of fiat currency having value as if the promise of government is what matters. The government can print more money and hand us our nominal dollars back, it's proven itself to be a consummate catastrophe at maintaining the real value of our money.
If it's never been intended to have stable currency, then that really shouldn't be the primary reason for the Fed's existence then should it? It's a charade, as you point out. If the purpose is "stable inflation" then they should lower themselves into the well of truth and admit it. You would need to be able to cite your sources for believing your claim though as you're not an expert and I have no idea where you're getting your information at.
The federal reserve website itself is my source.
From the site:
The Federal Reserve System, often referred to as the Federal Reserve or simply "the Fed," is the central bank of the United States. It was created by the Congress to provide the nation with a safer, more flexible, and more stable monetary and financial system. The Federal Reserve was created on December 23, 1913, when President Woodrow Wilson signed the Federal Reserve Act into law. Today, the Federal Reserve's responsibilities fall into four general areas.
- Conducting the nation's monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices.
- Supervising and regulating banks and other important financial institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers.
- Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets.
- Providing certain financial services to the U.S. government, U.S. financial institutions, and foreign official institutions, and playing a major role in operating and overseeing the nation's payments systems.
- "Price stability is defined as a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2%."
So as you can see, in order to maintain so called 'price stability' a stable rate of inflation is necessary. And by the way. A stable rate of inflation is not an oxymoron. It is simply a stable rate of change. If you cannot grasp this idea imagine a car accelerating. The car can accelerate at a constant rate, but its speed will be increasing. Say its rate of acceleration is 5mph per second. So every second its speed increases by 5mph. The speed represents the value of our currency (in reverse, the faster the car goes, the less our money is worth) and the acceleration represents inflation. I agree that I think that this type of system is unsustainable. Your assertion that our currency is fiat is true, it is not backed by any hard asset. But market sentiment gives value to everything. Gold has value because the market gives it value. If nobody wanted gold, it would have no value. So if the market gives value to our currency, who are we to challenge the market? For as you say, the market is always right and always will dominate. So the market giving value to our currency therefore our currency has value, for as long as the market gives it value.
All I am trying to say is that things are not as simple as you see them to be. But your view is the commonsense view that I think we would all be smart to pay attention to and learn, but common sense and logic are not the things the market or our government follow, sadly.
Edited by Einsteinium, 03 March 2013 - 08:44 PM.