Lessons Learned in Money and Banking

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.