Adventures in Federal Regulation of Money, Credit, and Finance

Stoa debaters have a wide world to explore with the federal banking, finance, and monetary policy topic. Finance and banking, along with health care, are the most highly regulated sectors of the U.S. economy. Over a century of adding and revising layers of state and federal regulations have created complex regulatory landscapes for both health and financial sectors.

Here are some banking and finance regulations ripe for reform, with some critics calling for tighter regulations, others for looser, and others for no regulations at all.

Credit card interest rate regulations. Todd Zywicki in Sanders-Ocasio-Cortez plan to cap credit card interest rates will backfire on consumers (USA Today, June 21, 2019) explains the history of how retailers have evaded restrictions on credit card fees and rates and low-credit consumers locked out by interest rate regulations turns to higher-cost alternatives:

History warns, however, that abolishing the supply of credit does not eliminate the demand. In states where usury ceilings eliminated alternative lenders, generations of desperate working-class families turned to illegal loan sharks that preyed on the urban working class for most of the Twentieth Century. 

Economist Art Carden in Should We Cap Credit Card Interest Rates at 15%? (Forbes, May 10, 2019), explains:

Real decency requires us to think through the intended and unintended consequences of the policies we are proposing. In a competitive market for loanable funds, price ceilings–and since the interest rate is the price of borrowing a dollar, a cap on interest rates is a price ceiling–create shortages and induce people to waste resources competing for artificially-scarce loanable funds.

Also of interest to those to no credit or bad credit is How Secured Credit Cards Can Build, or Rebuild, Your Credit (New York Times, June 14, 2019).

Sound Money Articles, Posts, and Documentary. On the history and economics of money, AIER’s Sound Money post recommends the documentary: In Money We Trust (Documentary by Steve Forbes)

The origin of money, the history of central banks, the operation and destruction of the gold standard, the rise of inflation and massive government debt, the disastrous bailouts of 2008 – it’s all covered in an outstanding hour-long documentary appearing on PBS stations around the country. It is called In Money We Trust. It features interviews with some of the best economic thinkers in the United States, and it has has a strong focus on sound money themes…

Also from AIER is Central Banks Contribute to Inequality (June 19, 2019), outlines the many disruptions from misguided money and credit creation by central banks:

Even worse, when it comes to inequality, central banks – regardless of whether it is the Federal Reserve, the European Central Bank (ECB), or the Bank of England – have contributed to the problem. These behemoths, in charge of monetary policy, have been on a spending spree ever since the financial crisis of 2008 with so-far unconventional monetary tools, with bond purchasing programs and one round of Quantitative Easing after another.

More posts on the AIER Sound Money Project page here.

Judy Shelton in the Spring/Summer 2018 Cato Journal makes The Case for a New International Monetary System:

The current monetary regime permits governments to knowingly distort exchange rates under the guise of national monetary autonomy while paying lip service to avoiding trade protectionism. It empowers central banks to channel the benefits of monetary policy decisions to some people at the expense of others, pitting wealthy investors against average savers. It facilitates cheap government borrowing. The shift toward increasing government influence over economic outcomes is anathema to the free market doctrines propounded by Friedman.

Larry White on Alt-M post, Fear of a Gold Planet, writes on the response to proposals for Judy Shelton to join the Federal Reserve Board, notes additional arguments for some kind of gold standard:

There are at least three additional arguments for a gold standard that others have made since the Great Recession. First, in contrast to the status quo system, a gold standard combined with free banking would have restrained the boom and the bust. Second, in contrast to fiat standards, gold standards historically have exhibited lower price level uncertainty at medium to long horizons, which means lower yield premia and thicker markets for 20+ year bonds, reducing an important obstacle to financing long-range real investment projects. What the dollar will be worth twenty years from now remains far less certain than it was under the classical gold standard. And third, as Alan Greenspan has noted in the light of recent sovereign debt problems, a gold standard without bailouts provides greater fiscal discipline, restraining government over-indebtedness.[1]

AEI Banking Regulation posts. The American Enterprise Institute page on banking regulation offers a range of reform ideas, including The dangers of giving excessive discretionary authority to administrative agencies, So what exactly did Dodd-Frank really accomplish?, What dismantling Dodd-Frank can do, and a broader regulatory overview in Decentralization, deference, and the administrative state.

Earlier Economic Thinking posts on the banking, finance, monetary policy topic here.