The idea of this paper is to describe the Federal Reserve’s role in the monetary policy of the United States and go into further detail about recent policy actions the how they effect the production and employment of our current economy.
The purpose of money is to provide a means of exchange of value between two or more people. Money is usually in the form of bank notes or coins and much more convenient for trade than carrying the tangible objects around. Money also allows us to borrow and save wealth. We find it much easier to save money and buy supplies as they are needed than it is to stock up on supplies as people had to do before we had currency.
To manage this currency in the United States, we established a Central Bank in the year of 1913. The central bank is referred to as the Federal Reserve Bank. The role of this bank is to manage our nation's supply of money and credit and operate at the center of the nation's financial system. It also provides businesses with currency, coin, and payments services, such as electronic funds transfer and check-clearing, and provides financial services for the U.S. Department of the Treasury. Finally, the Federal Reserve Bank directs banking and consumer protection laws.
We have seen a substantial shift in our recent monetary policy. This is in part due to the new Administration that is currently in place, and also due to the serious economic predicament that we find ourselves in. Government has had an increasingly more involved role in our economic system and we have passed financial measures seemingly far from business as usual.
The Government has passed measures to boost our economy from the slumping state that it has been in over the last 18 months or so. Our monetary policy has shifted into a more proactive role as we pass bailouts bills and stimulus plans. The bailout bills were intended to rescue financially unstable firms on the verge of bankruptcy at that time. We also used tax money to assist homeowners that were moving closer and closer to foreclosure.
The stimulus plan was intended to distribute tax money throughout the economy in hopes of reinvigorating it, saving jobs from being lost, and stimulate new economic growth. This stimulus was in addition to the third stimulus that has been attempted in the last two years. The first plan, in the Spring of 2008, was to send a tax rebate check to every taxpayer. The idea was to boost the economy by this influx of cash money. The effects were temporary, if they were even realized at all. The second stimulus plan, approved in late summer of 2008, had similar results.
Skeptics say that no progress has been made by either the stimulus plans or the bailout plan, but some economic forecasters predict that we have just not given it enough time and we will begin to see a rebound in the early part of next year. Meanwhile, investors have not gained their confidence in the market, so it has remained stagnant as a result. Most economists have adopted a “wait and see” approach, but others suggest that the only effective way to stimulate the economy is to aggressively cut tax rates.
The United States productivity has risen by a small margin in the Third Quarter of 2009. The Bureau of Labor Statistics reports that productivity rose from the previous quarter by 9.7%. Production output rose by 4%, and hours worked rose by 5% from the second quarter. These numbers are encouraging because they provide real feedback on economic growth that cannot be seen by simply looking to the stock market for answers.
On to more sobering news: As of October 2009, the nationwide unemployment rate was 10.2%. This is up from 7.6% in January. Those two numbers are significant because the government spent billions of dollars in stimulus and bailout monies in that period. Some commentators are skeptical, saying that one cannot spend their way out of a recession. Others say that there is a lag in the unemployment rate and it will begin to climb over time.
Only time will tell whether the significant policy changes will have a positive effect on our economy or not. I think that the important thing to realize is that it is important to look back on our economic history and analyze it to make future policy decisions as effective as possible.
References
Board of Governors - Federal Reserve System. (2009, July 21). Monetary Policy Report to the Congress. Retrieved November 19, 2009, from FederalReserve.gov: http://www.federalreserve.gov/monetarypolicy/mpr_default.htm
Federal Reserve Bank of San Francisco. (2009). About the Fed. Retrieved November 19, 2009, from Federal Reserve Bank of San Francisco: http://www.frbsf.org/publications/federalreserve/fedinbrief/central.html
Gillman, S. (2009). The Meaning of Money. Retrieved November 19, 2009, from TheMeaningofMoney.com: http://www.themeaningofmoney.com/purpose-function-money.html
Mankiw, G. Principles of Economics, 4e. Cengage Learning.
United States Department of Labor. (2009, November 22). Bureau of Labor Statistics. Retrieved November 22, 2009, from Labor Force Statistics from the Current Population Survey: http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=LNS14000000
United States Department of Labor. (2009, November 2009). Productivity and Costs, Third Quarter 2009, Preliminary. Retrieved November 22, 2009, from Bureau of Labor Statistics: http://www.bls.gov/news.release/prod2.nr0.htm
No comments:
Post a Comment