The Federal Reserve System discussion response
Business Finance
Respond to the two discussion questions listed below.
PLEASE CITE ALL WORK
Resource attached
DISCUSSION 1:
Anarchy: political and social disorder due to the absence of governmental control (“the definition of anarchy”, 2019). That is what I think we would have if the Fed did not control the nations money supply. The multitude of currency would cause chaos, and there would be no regulation to dampen effects of market forces. While the system may not be perfect it is a solid step towards keeping the nation together.
As our reading states, under a free banking system each bank would be free to create its own currency (Arnold, 2016). I am sure that the values of the different currencies would fluctuate wildly. Would one currency be worth more in a different part of the country? There would be arguments over which currency people should be paid in. Banks would be free to create as much of their own currency as they wished, creating massive inflation (Arnold, 2016). No thanks.
The Fed is also there in times of financial crises. With programs like the term auction facility (TAF), the Fed can help banks in need. The TAF allows banks to receive discounted loans (Arnold, 2016). This keeps more banks from going belly-up. A bank with its own currency going under would create even more turmoil in the economy, and potentially ruin the finances of millions.
I hadn’t really thought about any of this before looking into this week’s discussion. I really think that the Federal Reserve System should control the nation’s money supply. It will be interesting to read what you all think, especially any dissenting opinions, just to see your justifications.
Resource:
Arnold, R. (2016). Economics (12th ed.). Boston, MA: Cengage Learning.
the definition of anarchy. (2019). Retrieved from https://www.dictionary.com/browse/anarchy
DISCUSSION 2:
From watching the video I believe the Federal Reserve should have control of the nations money supply. With the Feds being equal government and private sector and it is an unbiased. The government side of the Feds they have power over controlling the monetary policy. They can control everything from how much money is in circulation, interest rates, and even market operations (Gallant, C. 2018). One aspect how the Feds control funding is by rates. In our book we learned about discount rates and federal fund rates. According to our book if the Feds want to raise the supply they can decrease the discount rate below the federal fund rate. This will make a more incentive for banks to loan from the Feds and will increase the money supply (Arnold, 2016).
Currently Congress controls establishes the rules for banks by banking regulations. The Feds make sure banks follow these regulations inside our country and even United State foreign banks (Public Resource Org, 2009)
I believe if Congress or The House of Representatives controlled the money supply system that it could turn biased or be corrupted in the favor of whoever the majority at the time was. With the Federal Reserve being independent of the United States Government it is their only job to control the monetary policy. If the United States Government took control of the Feds and control over the monetary policy. We would have people tweaking a policy that the probably will not understand. Then in turn could harm the American people or our economy as a whole.
references
Arnold (2016) Economics 12th Edition ch 13-3b retrieved from https://ng.cengage.com/static/nb/ui/evo/index.html…
Gallant, C. (16 Mar 2018) How Central Banks Influence Money Supply retrieved from https://www.investopedia.com/ask/answers/07/central-banks.asp (Links to an external site.)
Public Resource Org (28 Apr 2009) The Fed Today retrieved from
