Chip Franklin

The Fed met last week to discuss inflation. Wow, to be a fly on the wall of that meeting?

We’re all talking about Ben Bernanke, the Fed chairman, whose job was hanging on a thread last week. The tumultuous week on Wall Street was the result of his uncertain fate. Wall Street is made up of a lot of nervous people. Imagine your grandma on a roller coaster after eating six fish tacos.

See, the Fed meets regularly to discuss whether or not to change interest rates on the money they loan to banks. Created during a financial panic back in 1913, The Fed is the central bank of the United States. And instead of toasters, they give away billions of dollars, or not, depending on whether they want the participating banks to lend money, or not, depending on whether or not they believe inflation is at hand. Or not. Are you with me so far?

Sounds complicated, and to make it worse, they meet in secret. Kinda like I did with that skanky girlfriend my parents hated. (We’ve been married 20 years.)

Back to inflation. See, the Fed feels that when everyone has money, they’ll buy up all the stuff everyone needs, and that’ll make the price go up. On the other hand, if there’s not enough money, the price goes down, and businesses lay off workers. They have become the invisible hand that may or may not have washed leaving the bathroom.

Now, another way to go is to let the market decide how much money should be out there. That’s a free market. It will, in the long run, balance out. But as John Maynard Keynes, a famous economist once said, “in the long run, we’ll all be dead.” And he’s right. Not about the free market necessarily. About being dead. He died in 1946.

There are a lot of conspiracy theorists who believe the Fed is some sort of quasi-underground group of white guys trying to control the world. But they are wrong.

That would be Congress.

This entry was posted on Tuesday, January 26th, 2010 at 6:30 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.