Economic uncertainty has caused exaggerated criticism of the Federal Reserve. Money and Banking has deepened my understanding of the Federal Reserve and has helped me challenge those criticisms. The U.S. standard of living would drop if people lost faith in the safety of financial institutions. Frederic Mishkin makes the point in the text, The Economics of Money Banking, and Financial Markets (2010) that “Banks and other financial institutions are what make financial markets work. Without them, financial markets would not be able to move funds from people who save to people who have productive investment opportunities.” (p.7). When people lose confidence in the economy this activity freezes or weakens, consequently, asset prices decline, unemployment rises and companies default as was the case of Lehman Brothers in 2008. Money and Banking has taught me that the Federal Reserve is the greatest safeguard to our banking system and therefore, the greatest protector of our wealth. The three most important things I’ve learned in Money and Banking are:
1. The Federal Reserve protects our economy and wealth through its role as “lender of last resort.”
2. The Federal Reserve is unique in both independence and goals. This allows it to pursue policies without bias that both safeguard the economy and promote growth.
3. Economic markets are increasingly becoming more interconnected increasing global systemic risk.
Discussion 1:
The Fed protects our economy and wealth through its role as “Lender of Last resort.”
The text makes the point that “When the Federal Reserve System was created, its most important role was intended to be as the “lender of last resort; to prevent bank failures from spinning out of control, i...
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...cessions in 1980 and 1981-1982." Despite the criticism at the time, history proved that Volcker was right. In 1983 inflation did not rise even though the rate of money growth rose dramatically. Ultimately, Volcker's anti-inflation strategy caused unemployment and inflation to fall. It will be interesting when time passes to reflect on the successes and failures of today's policies. My thought is that history will show that despite current criticism, the Fed has done more right than wrong and is the greatest safeguard to our banking system and therefore, the greatest protector of our wealth.
Works Cited
Mishkin, Frederic S. (2010). The Economics of Money, Banking, and Financial Markets. Pearson Education: New York. (pp. 7, 189, 314, 321, 384-385, 386, 423,639)
Brigham, E., & Houston, J. (2009). Principles of Finance: FIN320. Mason: Cengage Learning.
-2. The background of the financial crisis.—what kind of monetary policy the federal reserve made?
Before we begin our investigation, it is imperative that we understand the historical role of the central bank in the United States. Examining the traditional motives of this institution over time will help the reader observe a direct correlation between it and its ability to manipulate an economy. To start, I will examine one of its central policies...
Mallin, Jay. "Federal Reserve (Fed).” The New York Times, n.d. Web. March 21, 2012. .
Livingston, James. Origins of the Federal Reserve System : money, class, and corporate capitalism. Ithaca, N.Y: Cornell University Press, 1986
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Major banks are cutting back on some of their legally permitted operations, such as- market making, and that has led to liquidity issues in the bond markets. Proprietary trading could become unregulated if more banking activities continue moving towards the shadow banking system. This would essentially defeat one of the main purposes of Volcker Rule. [d] The third major unintended consequence has been the degree by which the Federal Reserve has become the main regulator of the finance industry. In order to discourage future bailouts similar to the ones during the financial crisis, the Dodd-Frank Act limited the Fed’s emergency powers. However the liquidity and capital standards now imposed by Fed has purportedly become one of the most important regulatory developments of the Dodd-Frank Act.
Author Unknown (1994). The Federal Reserve System: Purposes and Functions (5th ed.) Published by Library of Congress
The first major aspect of the monetary policy by the Federal Reserve is its interest rate policy. This interest rate policy is mainly determined by the figure for the federal funds rate, which is the rate at which commercial banks with balances held within the Federal Reserve can borrow from each other overnight in ord...
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