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The more I learn about the US federal reserve, the more disappointed I get in the state of my country..
Federal Reserve 101:
The Federal Reserve is was created in 1913.
The Federal Reserve System's structure is composed of the presidentially appointed Board of Governors (or Federal Reserve Board), the Federal Open Market Committee (FOMC), twelve regional Federal Reserve Banks located in major cities throughout the nation, numerous privately owned U.S. member banks and various advisory councils.
One goal of the federal reserve is to determine the interest rate that is acceptable to lend funds to banking institutions. These banking institutions would then lend money to the consumers (you and I) to do things like buy a home or start a company. The banks would then lend us the money at the initial rate they were loaned the money, plus prime (prime being their revenue, or money made off the loan).
In late 2007, early 2008 before the recession rates were around 5%ish which means if you where a bank, you would borrow at 5% and sell your loan at around 10% which is the interest the consumer paid on said loan. In times when economic stability is in stable growth, the interest rate set by the fed is higher, and in times of instability and needed help, the interest rate by the fed is lower which helps stimulate lending.
The other goal of the Federal reserve is to deploy emergency policies in times of economic crisis' in order to help maintain the stability in the economy.
This is where the real debate starts to take place.
Throughout this economic crisis the Federal Reserve has enacted an economic policy known as Quantitative easing, which they hope will spur the economy.
http://en.wikipedia.org/wiki/Quantitative_easing
Quantitative easing (QE) is an unconventional monetary policy used by some central banks to stimulate their economy when conventional monetary policy has become ineffective. The central bank buys government bonds and other financial assets, with new money that the bank creates electronically[1], in order to increase money supply and the excess reserves of the banking system.
They essentially create trillions of dollars out of thin air and buy toxic assets (debt) from large financial institutions. How much money did we create out of thin air to bail out the large financial institutions that caused this mess in the first place you ask?
The US Federal Reserve held between $700–$800 billion of Treasury notes on its balance sheet even before the recession. In late November 2008, the Fed started buying $600 billion Mortgage-backed securities (MBS).[31] By March 2009, it held $1.75 trillion of bank debt, MBS, and Treasury notes, and reached a peak of $2.1 trillion in June 2010. Further purchases were halted since the economy had started to improve. Holdings started falling naturally as debt matured. In fact, holdings were projected to fall to $1.7 trillion by 2012. However, in August 2010 the Fed decided to renew quantitative easing because the economy wasn't growing robustly. Its goal was to keep holdings at the $2.054 trillion level. To maintain that level, the Fed bought $30 billion in 2-10 year Treasury notes a month. In November 2010, the Fed announced it would increase quantitative easing, buying $600 billion of Treasury securities by the end of the second quarter of 2011.
Around 2.054 trillion dollars. To provide further perspective to the magnitude of that number, our national debt is around 15 trillion.
We're so afraid the of large financial institutions failing and the result of which is a collapse of our economy that we dare not let capitalism play out.
The too big to fail have earned their title as the execs continue to receive some of the largest bonus' in their companies existence. They gotta keep that top talent coming you know?
Also see the lawsuit from Bloomberg and Fox news that required the Fed to release documents that relieved who the major borrowers from Obama's Big bank bailout in the beginning of the recession..
http://leaksource.wordpress.com/2011/04/01/lawsuit-forces-fed-to-release-documents/
Other big foreign borrowers were Norinchukin Bank of Japan, Bank of Scotland, and Germany’s Landesbank Baden-Wurttemberg and France’s Societe Generale.
A full audit of the Federal Reserve along with discussions on the end of big bank subsidies as well as the too big to fail mentality HAVE to take place. Because at a time when the middle and lower class are having to work harder to make ends meat, the fat cats in wall street are receiving the largest benefits in their history. Everybody needs to cut back and work harder.
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Your description of the federal reserve in particular, and central banking in general is a bit off the mark. Their purpose is to regulate growth in the economy, striking a balance between unemployment (low growth) and inflation (high growth). They do this through controlling the interest rate through open market operations, the purchase and sale of financial assets. They just become more dramatic in crisis times. It is the same process, just pushed to the extreme.
Also, I do not believe that the federal reserve bought toxic assets. They bought mortgage backed securities, rather than treasuries, but these are not necessarily toxic assets.
Where you are spot on is that they are responding to a problem caused in part by keeping interest rates too low for an extended period of time, by keeping interest rates low for an extended period of time.
Long term quantative easing is bad for the economy. Zimbabwe also printed money to solve their problems (albeit different problems). How that work out for them? The US dollar has depreciated significantly in the last few years. This is (in part) because of quantative easing.
When the interest rate is effectively 0, and you have embarked on the biggest money printing program in your nation,s history, and unemployment is still too high, maybe the problems in the economy are deeper than a short term output gap.
I'm no expert, but that is my understanding of the federal reserve.
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On May 10 2011 07:13 ControlMonkey wrote:
Your description of the federal reserve in particular, and central banking in general is a bit off the mark. Their purpose is to regulate growth in the economy, striking a balance between unemployment (low growth) and inflation (high growth). They do this through controlling the interest rate through open market operations, the purchase and sale of financial assets. They just become more dramatic in crisis times. It is the same process, just pushed to the extreme.
Thats exactly what I said it was. They do two things, 1.) set the interest rates which depend on the strength of the market and 2.) Roll out policies to help stabilize / jump start the economy in serious recessions.
On May 10 2011 07:13 ControlMonkey wrote:
Also, I do not believe that the federal reserve bought toxic assets. They bought mortgage backed securities, rather than treasuries, but these are not necessarily toxic assets.
Quite frankly what they purchased shouldn't matter as much as the fact that instead of having the financial industry tighten its belt, they where bailed out. Their CEO's and top execs still receiving huge bonuses.
![[image loading]](http://i1190.photobucket.com/albums/z443/joeshmoe762/6a010536583aff970b014e5fee717c970c.jpg)
I Wonder why the value of the dollar has been sinking so dramatically..
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Is it really the Fed's fault that CEO's get huge bonuses?
The Fed's job is monetary policy, and by extension, the stability of our economy.
Bailing out industries like the banking industry was necessary to avert an even worse financial meltdown. Yes, it still caused job loss, corporate greed, and other problems, but many economists will agree that the bailouts helped to prevent a greater catastrophe.
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It's one of those threads, isn't it -.-
...Actually, I don't know where to begin. Maybe QE or depreciation.
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Bernanke learned from what happened in the 20s and 30s.
Saying we needed to "let capitalism play out" is an opinion that would have made everything much, much worse.
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On May 10 2011 08:01 Zergneedsfood wrote:
Is it really the Fed's fault that CEO's get huge bonuses?
The Fed's job is monetary policy, and by extension, the stability of our economy.
Bailing out industries like the banking industry was necessary to avert an even worse financial meltdown. Yes, it still caused job loss, corporate greed, and other problems, but many economists will agree that the bailouts helped to prevent a greater catastrophe.
Why does everybody else need to tighten their belt, yet literally, the people that caused the crisis in the first place get free money.
I find it incredibly hard to believe that Bank of America would have gone by the wayside if they weren't given the $20 billion they were given by the US Government under the TARP bailout. They would have had to tighten their belts just like all the rest of America who. They would have had to close branches, let people off and reduced worker pay. Instead we continue to feed the machine while we deflate the dollar.
You dont need to be an economist to understand when you create trillions of dollars out of thin air you run the risk of inflation. Were a bunch of enablers, because of fear. Whether it be our economic policy, or our foreign policy, to our social policy.
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On May 10 2011 08:16 LaLLsc2 wrote:
You dont need to be an economist to understand when you create trillions of dollars out of thin air you run the risk of inflation. Were a bunch of enablers, because of fear. Whether it be our economic policy, or our foreign policy, to our social policy.
1: Actually, yeah, you do need to be an economist to figure out when this does and does not happen.
2: This is not how LM policy works. And LM is the crude approximation.
On May 10 2011 08:16 LaLLsc2 wrote:
Why does everybody else need to tighten their belt, yet literally, the people that caused the crisis in the first place get free money.
Well...yeah, I think this is partly right. But punishing execs would've meant letting banks fail, screwing everyone over, or nationalizing banks...which was impossible to get through Congress and hard to implement, and questionable. And Bernanke literally had less than 48-hours leeway for most of the crisis, I think.
Once again, recipe for Great Depression.
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On May 10 2011 08:18 acker wrote:Show nested quote +On May 10 2011 08:16 LaLLsc2 wrote:
You dont need to be an economist to understand when you create trillions of dollars out of thin air you run the risk of inflation. Were a bunch of enablers, because of fear. Whether it be our economic policy, or our foreign policy, to our social policy.
1: Actually, yeah, you do need to be an economist to figure out when this does and does not happen. 2: This is not how LM policy works. And LM is the crude approximation.
You forgot substance in your post. I can do that too, watch, "You're wrong".
I suppose we have set ourselves up for disaster. Thanks to a supreme court ruling last year, weve adopted a policy that allows for limitless campaign donations by corporations.
http://en.wikipedia.org/wiki/Citizens_United_v._Federal_Election_Commission
Citizens United v. Federal Election Commission, 558 U.S. 50 (2010), was a landmark decision by the United States Supreme Court holding that corporate funding of independent political broadcasts in candidate elections cannot be limited
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On May 10 2011 08:22 LaLLsc2 wrote:
You forgot substance in your post. I can do that too, watch, "You're wrong".
I'm not an economist. I know enough about economics to know you're not an economist. But that's pretty much it.
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I see my post in the failing middle class thread sparked something, nice. 
The system is designed to keep money circulating, among the upper 1%. This happens because the other 99% are too ignorant to understand this.
"Trust the elite" - The American motto.
Fuck that. Question everything.
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i'm sorry, didn't the conspiracy theory thread get closed? or is this a different thread?
all i see here is the equivalent of people going on web MD to try and diagnose themselves with a medical condition. Sure, it's nice, but you're not an expert and your efforts, if not careful, will result in more damage than less.
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On May 10 2011 08:23 acker wrote:Show nested quote +On May 10 2011 08:22 LaLLsc2 wrote:
You forgot substance in your post. I can do that too, watch, "You're wrong". I'm not an economist. I know enough about economics to know you're not an economist. But that's pretty much it.
Funnily enough the more you learn about economics the less prone you become to have an opinion about things like the role of the FED in the financial crisis ^^
As a 1st year Master's student in Macroeconomics I know only enough to know I don't know nearly enough.
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On May 10 2011 08:28 Popss wrote:
Funnily enough the more you learn about economics the less prone you become to have an opinion about things like the role of the FED in the financial crisis ^^
As a 1st year Master's student in Macroeconomics I know only enough to know I don't know nearly enough.
It's so complicated 
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On May 10 2011 08:28 Popss wrote:Show nested quote +On May 10 2011 08:23 acker wrote:On May 10 2011 08:22 LaLLsc2 wrote:
You forgot substance in your post. I can do that too, watch, "You're wrong". I'm not an economist. I know enough about economics to know you're not an economist. But that's pretty much it. Funnily enough the more you learn about economics the less prone you become to have an opinion about things like the role of the FED in the financial crisis ^^ As a 1st year Master's student in Macroeconomics I know only enough to know I don't know nearly enough.
its funny how economics works doesn't it lol
walk into it thinking shits easy, walk out of it realizing you don't know jack
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5003 Posts
On May 10 2011 08:30 Caller wrote:Show nested quote +On May 10 2011 08:28 Popss wrote:On May 10 2011 08:23 acker wrote:On May 10 2011 08:22 LaLLsc2 wrote:
You forgot substance in your post. I can do that too, watch, "You're wrong". I'm not an economist. I know enough about economics to know you're not an economist. But that's pretty much it. Funnily enough the more you learn about economics the less prone you become to have an opinion about things like the role of the FED in the financial crisis ^^ As a 1st year Master's student in Macroeconomics I know only enough to know I don't know nearly enough. its funny how economics works doesn't it lol walk into it thinking shits easy, walk out of it realizing you don't know jack
that's why you gotta micro and not macro
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EPT
