Fiscal Policy The U.S. government manages the overall economic activity of the country in order to maintain high levels of employment and stable prices. It does this through fiscal and monetary policies. Fiscal policy is the manipulation of the government budget in order to affect the output of goods and services. Much of the budget automatically stabilizes the economy, but manipulating the economy through the discretionary budget is problematic. Therefore, managing the economy through monetary policy is considered to be more effective.
Glass-Steagall Act & the Financial Crisis In response to the stock market crash of 1929, two laws were passed that are collectively known as the Glass-Steagall Act. It has been modified over the years. Since the 1980s, intensive lobbying caused many restrictions to be lowered by the Federal Reserve Bank and, in 1999, Congress completely repealed it. Many believe the repeal of this act was a direct cause of the current financial crisis.
Inflation and the CPI We all know what inflation is, but how does the U.S. calculate it? It’s based on the calculation of the Consumer Price Index (CPI) which is being manipulated to keep the reported inflation rates down. If the manipulations were not being used, the recent inflation rates would probably be closer to 10% rather than the 2%-3% that has been reported.
Monetary Policy The U.S. government manages the overall economic activity of the country through its Monetary and Fiscal Policies. The goal of Monetary Policy is “to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.” Monetary policy refers to the actions of government in which it controls, directly or indirectly, the nation’s money supply and interest rates. Monetary policy is administered by the Federal Reserve System, known as “The Fed,” which has three (3) main tools for maintaining control over the supply of money and credit in the economy: the Open Market Operations (buying and selling government securities), controlling the money supply, and controlling the interest rate. There are factors, however, which complicate the ability of the Fed to use monetary policy to control the economy and these factors may or may not have an effect on the economy.
Office of the Comptroller of the Currency The Office of the Comptroller of the Currency, in the Treasury Department, is charged with overseeing the nation’s banks. By virtue of the Comptroller’s position as director of the Federal Financial Institutions Examination Council, the Comptroller also oversees savings and loan organizations, credit unions, and all financial institutions. A little-noticed directive in 2001, in effect an end-run around Congress, became de facto de-regulation of the mortgage industry and may have contributed to the current financial crisis.
Reaganomics Reaganomics refers to the economy policies of President Ronald Reagan. Reagan ran for office primarily on 2 promises: to lower taxes and create a smaller federal government. He achieved one; he failed to achieve the other. His achievement has led to many of the problems we are experiencing today.
The Federal Reserve System The Federal Reserve System, known as the “Fed,” is the central bank of the United States. Its primary purpose is to provide the U.S. with a flexible and stable monetary and financial system. It is made up of a Board of Governors and 12 regional Federal Reserve Banks and is subject to oversight by Congress. The Board is responsible for forming and implementing monetary policy and shares responsibility with the Federal Reserve Banks for various services and regulations. The Fed uses three (3) tools to conduct monetary policy: Open Market Operations, Controlling the Money Supply, and The Discount Rate. It gets its money primarily from the interest in the U.S. government securities that it has acquired and, after paying its expenses, turns the rest of its earnings over to the U.S. Treasury.
The Gross Domestic Product The Gross Domestic Product (GDP) is the market value of final goods and services produced within a country. ItttĂ?s measured by adding sales, wages, and salaries in domestic production. Only products that are consumed by the final user are included. In Federal Fiscal Year (FFY) 2009 the United States real GDP was $14,258,200,000,000.
The President's Working Group The President’s Working Group on the State of the Markets was formed by President Ronald Reagan in 1988 by Executive Order 12631. Known as the “Plunge Protection Team,” it’s primary directive is to manipulate the financial markets so that investor confidence is maintained. The government’s interference in the “free market” is criticized by some.
