Pat Gunning wrote:

>It seems to me that what "we" have NOT learned is that we cannot 
>depend on the government to remove the uncertainty of lending (FDIC) 
>and that we cannot depend on the FED to control the quantity of 
>money by means of a fractional reserve system and financial 
>institution regulation.



I don't think the FDIC was set up to remove the uncertainty of lending.
Rather it was set up to remove the public's uncertainty over keeping 
their deposits in the banking system.  The existence of the FDIC and 
NCUA (National Credit Union Administration) has enabled most 
depositors to feel secure about their deposits and not rush to 
withdraw them as did happen during the early 1930s.  That rush to 
withdraw deposits led to the failure of 2000 banks each year between 
1930 and 1933.  And whereas M2 contracted during that period -- 
Friedman's (in)famous claim about the Fed having contracted the money 
supply by one-third -- M2 has continued to grow over the last year.

Some textbook authors may continue to write that the Fed controls the 
quantity of money, measured as M1 or M2.  That is when they forget 
that there is such a thing called the money supply multiplier that 
includes the public's currency to deposit ratio and bank's reserve to 
deposit ratio, neither of which can be controlled by the Fed (or any 
central bank).  Thus, the Fed can control only the quantity of 
currency it prints, not the aggregate of such currency and the 
public's deposits (savings) included in the modern definition of 
money.  Those textbook writers who recognize this fact explain that 
the Fed influences the quantity of money, but does not control it.

Contrary to Pat's unhappy conclusion, we are all not lost.

James Ahiakpor