> What do you think the Fed was attempting to do? The Fed was attempting to save a system from complete collapse.
> it sounds like you are advocating there be no way for an agency of a democratic government to dynamically adjust money supply (or interest rates)
This is the crux of the problem. Modern societies need currency and yet the management of the supply of that currency that is equitable to all participants remains illusive.
> Say north korea suddenly waged total was on US, or a massive natural disaster happens, but the government didnt have huge reserves of money to pay for defense or aid?
The government would use its existing resources, any reserves they put aside for this type of contingency or they could borrow (e.g. bonds) the necessary funds.
The interests of participants are mutually exclusive: debtors want high inflation, lenders want deflation.
You are misinterpreting me. To be more explicit : cryptocurrencies suck for the exact reason you explained (if you look around in this discussion, that's exactly the point I'm making against any cryptocurrency fan) yet saying that current system is working properly is foolish. The recent history (since the 80s) is a good illustration that interest rate isn't a good enough tool for money supply control. And actually it should have been predicted: you have two independent things you want to control (consumer price inflation and asset price inflation) then you can't control them with only one variable. The fed's policy ignored the asset price, and it had the bad consequences I was talking about, but if you chose to control the asset price you'll probably cause deflation and kill economic growth. My take: because it's a system with 2 degrees of freedom, we should have at least two variables to adjust. If the first one is the interest rate, what should the second one be ? I don't know, but probably taxes (On savings ? On capital held maybe ?).
In reality the state has basically unlimited power to affect the economy, but it chooses to limit what levers are allowed to be used in order to provide stability and confidence. And also out of morality-driven ideology of the same sort the that gave rise to Bitcoin.
This is an honest question: Say north korea suddenly waged total was on US, or a massive natural disaster happens, but the government didnt have huge reserves of money to pay for defense or aid? Should they suddenly issue a tax on their citizens to raise capital, and hope they pay in a timely manner?