The critical role that the banking system plays in the U.S. economy is particularly important to understand. Isn’t the FED a government agency? Not really. It
is independent of the mainstream government organization, in that it
makes its own decisions independent of the president, and of the
congress. It has often been said that the chairman of the FED is the single most powerful individual in all the world. This is not to say that the FED is not influenced by what the congress or the president want. It is certainly influenced by them, but it does not need approval to implement its policies.
You can think of it this way. We wouldn’t want to leave all important decisions in the hands of the government, would we? In particular, would we want the government to be able to print money whenever it wants to? We can see what’s going on in Brazil and Argentina right as we speak at least in part due to the printing of too much money. The decision to create more money is a FED decision in our economy.
Monetary Policy and Fiscal Policy work toward the same goals, but in different ways. The basic goal of both is to encourage stable, non-inflationary growth of our economy, which then creates more jobs and produces goods and services that we all want at reasonable prices. Sometimes though Monetary and Fiscal Policies can be in conflict with each other. We do not do a very good job of coordinating Fiscal and Monetary Policies in this country. This is one area where substantial improvement needs to be made.
You can think of it this way. We wouldn’t want to leave all important decisions in the hands of the government, would we? In particular, would we want the government to be able to print money whenever it wants to? We can see what’s going on in Brazil and Argentina right as we speak at least in part due to the printing of too much money. The decision to create more money is a FED decision in our economy.
Monetary Policy and Fiscal Policy work toward the same goals, but in different ways. The basic goal of both is to encourage stable, non-inflationary growth of our economy, which then creates more jobs and produces goods and services that we all want at reasonable prices. Sometimes though Monetary and Fiscal Policies can be in conflict with each other. We do not do a very good job of coordinating Fiscal and Monetary Policies in this country. This is one area where substantial improvement needs to be made.
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