Should Computers Run the Federal Reserve?

Posted on March 22, 2009

In arguing for a reigning in of the Federal Reserve, perhaps we should consider that we don’t need humans, or at least economists, running the Federal Reserve and monitoring our nation’s money supply (and whatever else the Fed actually does). Actually, I’m convinced it should be quite easy to program a computer to do the job of the Fed. Surely if a computer can play chess like a grandmaster, it could do the job of the Federal Reserve, which seems much less complex than a game of chess.

How to start: The government could hire a few of the programmers from the famous quant funds, like Renaissance, to create algorithms for controlling the Fed funds rate and the myriad of other actions the Fed currently undertakes. These quant funds are surely are up the task, given their proven ability to already completely game the world stock markets with their algorithms.

By getting a computer to run our monetary system, we’d surely prevent crises like the current one, simply because we would not be making decisions based on cronyism and false emotional fear (i.e. “If we don’t get $750 billion now, the world will fall apart.”). In other words, computers, as long as they are secure, are unlikely to be corrupted or tricked by irrational emotions. And corruption/fraud combined with powerful emotional appeals to basic human fears, are at the root of every financial crisis.

The main people, , of course, who would be against having a computer run the Federal Reserve would be those funds, like Pimco, who by nature of their connections, currently profit enormously from the unpredictable actions of the Fed. If computers ran the Fed, there would, in theory, be more predictability in the economy since presumably the algorithms would be made public. So to the extent that a vast amount of money is still made based on insider information, a computer would be seen as a serious threat. It’s also hard to see how Wall Street would be able to make money under a more stable economic environment. It is the creation of uncertainty that engenders the volatility that Wall Street so desperately needs to profit.

Comments and Discussions

The section below is intended to serve as a forum for intellectual debate about particular investment ideas or theories. Please refer to this section for any updates on a particular investment idea. If you have your own thoughts, please feel free to add them. We appreciate your feedback.

If you would like to make a comment, please fill out the form below. Please note that we only require an email for editing purposes. We will NEVER publish your email or use it in any way.

Subscribe for FREE

Enter your email below to receive free research summaries.

RSS Feeds:

Quick Links

Recent Comments:

Yehuda Hi Thomas, "the obvious way to modify a mortgage is to leave the principal alone, stretch out the... >>Read More

Thomas J. Costagliola Yehuda, Maybe it is just me, but it seems that the obvious way to modify a mortgage... >>Read More

Thanks Appreciate your reply. Perhaps the challenge of estimating the degree to which given expectations... >>Read More

Yehuda Fruchter I agree, "better than expected", which is why it is important to only look at distressed... >>Read More

Thanks Thanks. The quote is a great reminder of Lynch's approach. Should it be qualified somewhat: "If... >>Read More

Disclaimer:
This site may include market analysis and we may own shares in the stocks mentioned in our reports. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.