From the section above, the European Exchange Rate Mechanism was created in 1979. But, up until October of 1990, Britain had refused to join the ERM. The two officials at the time John Major and Douglas Hurd convinced the government to sign up for the ERM, introducing the pound sterling to the ERM for the first time. By joining the ERM, the exchange rate between Britain's pound sterling and other member’s currency would not fluctuate more than 6%. The British Government followed economic and monetary policies to ensure that the fluctuation rate was maintained (Black Wednesday - The Prelude - Encyclopedia II).
Chancellor Geoffrey Howe and his successor Nigel Lawson were both advocates of a fixed exchange rate, both admiring the record of low inflation that Germany maintained and their management of the Bundesbank and the strength of the Deutsche Mark. The Britain treasury had a policy to shadow the Deutsche Mark.
There was huge controversy for the government officials involved in this potential adoption in the ERM with the debate between Margaret Thatcher's economic advisor, Alan Walters, and Lawson, had come to a presuppose like state, when Walters stated that the Exchange Rate Mechanism was "half baked" (Kaletsky). All this partisan bickering and endless debate led to Lawson resigning as chancellor to be replaced by John Major (Kaletsky).
The two government officials John Major and Douglas Hurd had been able to force Margaret Thatcher to sign up Britain to the ERM in October of 1990, effectively ensuring that the British Government would follow an economic and monetary policy that would prevent the exchange rate between the pound and other member currencies from fluctuating by more than 6%. The pound entered the mechanism at 2...
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...banks amassed huge sums of money in an incredible short period of time. After all this turmoil and intense speculator betting , Norman Lamont, Chancellor at the time of the crisis, announced at seven pm GST that Britain would leave the ERM and lower rate back down to its normal 10%.
Other ERM countries such as Italy, whose currencies had hit their lower bounds during the day, had remained in the ERM and instead had made a deal with the EMS to just broaden their bands temporarily until the turmoil from Black Wednesday had blown over. Despite this, the ERM was incredible vulnerable to more speculator attacks to economies on the brink, it was open season on the central banks of the Eurozone, and ten months later the rules were relaxed even further to the point of really an ineffective set of bands that were useless to keep the member countries in check with the ECU.
Some economists blame the Federal Reserve’s inaccurate monetary policy. The easy-monetary policy since 2001 was deviating from the Taylor rule. (Alex, 2013)
In 1913, the Federal Reserve system was created. The majority of Americans banks were small but, individual institutions that had to rely on their own resources. When there was a panic, depositors rushed to take their money out of their banks. The Reserve System wasn’t capable of giving the money because there wasn’t enough on the reserve. On account of this, world trade fame to a halt. Germany had to fork out 33 billion dollars in reparations pay without borrowing money from American banks. In addition to
Keynes’ work: The Means to Prosperity, and The General Theory of Employment, Interest and Money created modern macroeconomics and influenced countries during the 1930s and 1940s towards interventionist policy and economic nationalism (Yergin, 1998.) His ideology and work led him to orchestrate the Bretton Woods conference in 1944 which, “contributed greatly to the golden age of controlled capitalism (where) even the most conservative political parties in Europe and the United States embraced some version of state interventionism” (Steger, 2003.) The Bretton Woods regime fell during the early 1970’s but Keynes economic ideology would not be abandoned until the adoption of Reagan’s Neoliberalism and the fall of the Soviet Union in the early 1990s (Steger, 2003.) Keynesian economic ideology was the predominating economic theory during Gilpin’s life and would contribute greatly to his claim of world economic nationalism.
...rall due to the level of consensus there is relatively little difference between the way the economy has panned out between the conservatives period in charge end the dominance that the Labour party currently are enjoying. On the whole the economy has become relatively depoliticised since the Thatcher years as politicians have less control over this increasingly globalised and privatised aspect of the agenda. Now with Brown’s decision to give the Bank of England the power to set the level of interest rates the economy has become less prone to state intervention then ever especially with a clear end to the grip that Trade Unions once had over the Labour party. Overall state intervention over this period has decreased and barring a crisis it is likely that this will remain the case unless the Liberal Democrats manage to gain power, even through a coalition government.
The inflation problem actually began at the beginning of World War I. It was then that the German Government started to accumulate debt and to increase the money supply. Because they thought they would win the war and intended to force the...
On January 11, 1923 the Ruhr Valley was occupied and in response to this, the Weimar government ordered passive resistance. The occupation meant all work in the Ruhr was to be stopped, and since the Ruhr was Germany’s major industrial region, it further ruined the economy. By the end of November 1923, the mark was completely worthless, with 4.2 trillion marks equivalent to 1 dollar. Overall, the economy and the occupation of the Ruhr caused chaos and discontent. What further worsened in Germany was social resentment between classes, since some lived quite well compared to others. On August 1923, Gustav Stresemann was appointed the new Chancellor and would eventually revive the Germany economy. He did this by introducing a new currency and working with the terms of the Treaty of Versailles, which would lead to plans that would reduce the reparations burden.
The stock market crash, October 29, 1929 this is also known as Black Tuesday. The Great Depression was an economic slump in North America and Europe. The industrialized Western world had experienced the most ruthless and prolonged depression. Cinderella Man is only one example of how families struggle and overcame the great depression. You will see how this effective many Americans.
During this essay I shall look first broadly at monetary and fiscal policy and subsequently examine the position within and attitudes towards Europe, an issue which, by its very nature, must have a profound effect on the direction of a nation's macroeconomic policy. Their styles of leadership of course diverge greatly which is a significant factor in the differing culture of the times. Finally I shall examine the how the attitudes of the two Prime Ministers differed towards industrial policy. I shall attempt to demonstrate that macroeconomic policy remained largely consistent through over the Conservative time in office, however Major took much greater interest in the microeconomic policy which had been largely ignored under Thatcher.
The main cause for the demise of Bretton Woods is associated with the inflationary pressures brought about by the expansionary fiscal policies in the United States and the propagation of these inflationary pressures through the international system. Inflation can be an extremely unpleasant phenomenon, it distorts consumption and investment decisions, and erodes faith in markets and government. The increasingly expansionary fiscal policies of the 1960’s resulting from both the Vietnam War and the Great Society experiment of the Kennedy-Johnson administrations led to growing balance of payments deficits. The accumulation of idle dollar balances started to put pressure on the money supply of the rest of the world, causing said inflation. Due to the balance-of-payments deficits and an increase in domestic inflation, the dollar value plummeted. Bretton Woods failed and the trade discrimination against the US was accepted. The ending result was the weakening of the international economic system due to the inability of the United States to counteract the damaging imbalances it was causing itself. Paul Volcker, Chairman of the United States Federal Reserve, raised interest rates for a prolonged period of time in order to restore a balance and end inflation. This was famously known as the Volcker Shock, and it was
Smith, David. "EconoMonitor : EconoMonitor » Margaret Thatcher’s Four Ages of Monetary Policy." EconoMonitor RSS 092. N.p., 10 Apr. 2013. Web. 10 Apr. 2014.
The Labour party had not only changed nuclear policies in 1984, but also introduced a monetarist economic policy in a major effort to reduce the government budget deficit and inflation that resulted largely from an attempt in the 1970s to diversify New Zealand’s production. This new plan was executed through seven major alterations:
Monetary policy in the UK aim to achieve monetary stability , and this target usually operates during the price at which money is lent or invests and the interest rate.
One of the most problematic issue in economy is refers to ’’ İmpossible Trinity’ ’,which means that only two out of three choices can be applicable. This options are called : a fixed exchange rate, free capital mobility and an independent monetary policy as we show above figure . That is; It is less likely to possible to have 3 options at the same time. A country can apply a fixed exchange rate which enables capital flows automatically because of running open economy and so a country cannot maintain an independent monetary policy.
The 1980’s saw some major changes for New Zealand, but none as significant as the deregulation of the financial institutions and economic policy undertaken by the Labour government. The trigger for these changes occurred in 1984 whilst the country was still under the National party control. The economy was in a bad way, with inflation high, foreign debt through the roof, and the subsequent lack of equity left in the country. The National, ruled under Robert Muldoon, called a snap election, which lead to the Labour party taking control of the country. The new Prime Minister, David Lange, immediately froze the foreign exchange market due to the major flow of currency out of the country, caused by speculation of the New Zealand dollar being devalued. Five later the exchange was reopened with the New Zealand dollar being devalued by 20 cents. This first major reform conducted by the newly elected government was to be just one of many carried out during the deregulation of the next eight months. By March 1985 a number of reforms had been passed by government to help save the economy and bring it in line with other modern economies and financial systems throughout the world. These reforms included the removal of interest rate controls, removal of the limit on interest paid to savings accounts (previously 3%), removal of the 30-day rule (a rule for trading banks, halting them from paying interest on money deposited for less than 30 days), removal of the special position given to a number of dealers on the short term money market, removal of the limitations placed interest rates and maturity for off shore borrowings, reduction in boarder controls, and the floating of the New Zealand dollar on the exchange market. Perhaps the most important changes made, however, were the reforms of the Reserve Banks monetary policies (Spencer, 1990)(Spencer & Carey, 1988)(Peare, 1999).
He clearly showed that the monetary policy becomes futile when the exchange rate is fixed. The central bank must intervene on the currency market in order to satisfy the public's demand for foreign currency under a fixed exchange rate. As a result, the central bank loses control of the money supply, which then passively adjusts to the demand for money (domestic liquidity); neither interest rate nor exchange rate can be affected. The central bank cannot print too much of money because it will cause the inflation happen in the country. However, government may increase the government expenditures or cut the taxes to raise national income an...