They are: keeping the dollar as good as gold and dealing with financial panics.
But such explanation is wordplay rather than searching analysis as repeated financial panics and crashes regularly confirm.
For an economy vulnerable to financial panics, trade with China has been a boon.
Financial panics destroy consumer spending by eating into everyone's net worth, evenly split today between homes and financial assets.
After all, Hank Paulson has averted two financial panics, but even the U.S. Treasury has its limits of succor.
This induced artificial variability in the real price of gold, especially during the periodic financial panics that attend fractional reserve banking.
Previous terms for these episodes were bank failures, financial panics, runs on currency, debt crises, liquidity runs, national defaults, bubbles, hyperinflation.
The Federal Reserve should have two key tasks--and only two: preserving the integrity of the dollar and dealing vigorously with financial panics to limit unnecessary damage.
Next to keeping its currency stable, the critical mission of a central bank is to stem financial panics, something Walter Bagehot wrote eloquently about more than 130 years ago.
Anyone who has studied or lived through the financial panics of 9-11-2001, the 1998 collapse of Long Term Capital Management, the 1989-1991 savings and loan disaster and the 1994 Mexican peso devaluation can remember that they were similar in magnitude.
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The four decades following America's first Gilded Age in the 1870s were pocked with dislocation: multiple financial panics, the Spanish-American War, the Boer War, the Russo-Japanese War, the fall of the Manchu dynasty, the onset of the Mexican Revolution and Otto von Bismarck's German makeover.
Many investors are breathing a sigh of relief that 2010 is drawing to a close with stocks up 10%, but the year was by no means without financial flubs and mini-panics, often caused by computer trading algorithms gone awry.
Charles Kindleberger set out three preconditions for a mania where prices overshoot the bounds of rational valuation, in his classic, Manias, Panics, and Crashes: A History of Financial Crises.
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