Federal Reserve Notes vs. Congressional Scrip

[krazy kaju]

I was recently thinking about how wasteful the Federal Reserve is to our nation's finances. If Congress removed the Fed's money-making power and instead made its own money, how much more would Congress earn from newly printed money?

Think about it like this: most of the time when the Fed controls the money supply, it does so by helping out private interests, not government finances. The Fed often won't monetize government debt, it'll just buy government debt from banks with newly printed money, and then collect money from the federal government on that debt as revenue. The discount window is another way that the Fed creates money without helping government finances. In other words, the new money that the Fed creates often only benefits bankers, not government. We get inflation but no improvement in government finances.

If Congress created its own money and dismantled the Federal Reserve, two positive things would come about:
1. The Congress would be held responsible for inflation, putting more pressure on Congressmen and Senators from their constituents.
2. Congress would earn revenue from money creation, lessening the need for taxes.

Using data from the St. Louis Fed, we can take random time periods and see how much Congress could have earned in additional revenues had it created the money by and for itself. For example, in 2004 about $342 billion was created by the Fed. Had this money been created by Congress, then $342 billion less could have been taken in taxes.

[hugolp]

That would be a disaster. It would be inflation and bubbles for ever.

Giving the printing presses to congress is not the solution.