Marchand

The Good of the Federal Reserve

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The Fed serves beneficial to today's monetary climate because of its ability to quell inflation and reverse poor economic markets. The Fed has control over interest rates and the amount of money available for the market. It can buy and sell securities to help deflate or inflate the economy as it sees fit. On their website, the Federal Reserve sets out their goals for monetary policy. Accordingly, they are spelled out in the Federal Reserve Act, the act that originally gave them their power, which states that the board of governor's should seek to "promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.

The Fed feels that their job is to keep prices stable for as long as possible because this fosters higher saving rates and investment. When adverse supply shocks and other detrimental acts toward our economy occur, the Fed helps by restraining inflation pressures and attempt to keep unemployment low to prevent high inflation. The Fed must also decide whether to give in to defusing price pressures or "cushioning the loss of employment and output."

Though the Fed may be to blame for the events of the great depression, Volcker's policies to end the stagflation of the late 1970s by limiting money supply were excellent. He successfully abandoned interest rate targeting and used the Feds ability to limit the money supply to quell inflation. Though it did come at a price with a nasty recession in the early 1980s, inflation has been low ever since and his policies were considered a success. Because markets are cyclical and world events have the ability to affect markets so strongly, the Fed is in place to make swings in the economy less intense. Opposed to rapid expansion follower by rapid recession, the Fed makes it possible to keep these highs and lows in check to avoid larger problems. http://www.rpi.edu/web/Campus.News/photos/volcker.jpg

Kevin Dowd's Laissez-Faire Banking

Does Europe Need a Federal Reserve System?

Kevin Dowd discusses his ideas on how a Federal Reserve would affect Europe. Please note that his book was written in 1993 prior to the creation of the European Central bank in 1999, yet his ideas are still very relevant in comparing a country with a Fed as opposed to a group of countries without.

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In April of 1989, the European Community (EC) received a report from Jacques Delores on the most appropriate direction towards economic and monetary union. The result was basically a European Federal Reserve in which national banks would merge together to form a European bank and currency. Dowd feels this may not be beneficial and analyzes the process through a cost-benefit analysis.

From a benefits standpoint, international trade would be easier as a result of a single currency because firms would not have to factor in or worry about fluctuations in different exchange rates. Dowd feels the main benefit of a common currency is ridding the market of currency exchange costs