Townhall...
Money,
Money, Money
By Jackie Gingrich Cushman
6/23/2011
Dr.
Carl J. Arnold taught the money
and banking class at Presbyterian College when I was a student there. I
can
still picture him in 1986: dark, crewcut hair; pressed khaki pants;
white,
short-sleeved, buttoned-down shirt; dark, plastic-framed glasses; and a
pocket
protector. Ok, maybe he didn’t wear a pocket protector. In any event,
he should
have worn one if he didn’t.
Dr.
Arnold was known for being tough.
Before taking his class, I had thought that multiple-choice questions
were easy
-- rule out the ones that were wrong, and you were left with the
correct
answer. But Dr. Arnold raised multiple-choice questions to a fine art
form. His
answers were long and convoluted, filled with multiple qualifications
and
possibilities. The answer E seemed to always be “A but not B unless it
is
Wednesday and it rains, then it’s A, B and sometimes C but never D,
unless it’s
cloudy with a chance of rain.”
I
would read the question and
potential answers again and again to make sure that I understood the
premise.
It was challenging, but I loved it. Dr. Arnold was a great teacher.
Hard, but
good.
Economics
and money and banking were
particularly interesting to me because they represented the overlap
between
money and people. What would drive people and business to act
(microeconomics);
what would economies do under different circumstances (macroeconomics);
what
could the Federal Reserve do; and how would it affect the economy,
businesses
and people (money and banking)?
Memorizing
the theories and providing
answers on tests was easy. You started at point A and traced the impact
from
point to point until you came to the company, person or part of the
economy in
question. It made logical sense to me.
The
problem becomes more difficult
when you move from theory to reality.
Basic
theory assumes that one item
moves at a time, and the impact cascades like a waterfall. Real life is
much
messier. A million things are happening at one time, and its not just
policy,
but what people say about the policy, write about the policy and
believe about
the policy that affect what people do in reaction to the policy.
Life’s
complicated. We’ve heard that
before.
Let’s
shed a little bit of light on
the Federal Reserve. After all, in a bad economy, it’s all about the
money.
The
Federal Reserve is one of the
least-understood entities in our government. A seven-member Board of
Governors
controls it. They are presidential appointees, confirmed by the Senate,
each
serving 14 years with staggered, even-year starts.
According
to the Federal Reserve’s
“Purposes and Functions” publication, the Fed’s duties include:
--
“conducting the nation’s monetary
policy by influencing the monetary and credit conditions in the economy
in pursuit
of maximum employment, stable prices, and moderate, long-term interest
rates;
--
“supervising and regulating banking
institutions to ensure the safety and soundness of the nation’s banking
and
financial system and to protect the credit rights of consumers;
--
“maintaining the stability of the
financial system and containing systemic risk that may arise in
financial
markets;
--
“providing financial services to
depository institutions, the U.S. government, and foreign official
institutions, including playing a major role in operating the nation’s
payments
system.
Wow,
that’s a lot.
The
Fed also makes sure that the
United States has enough money for the approved budget. In the case of
deficit
spending (spending more than we take in during a given year, which is
what we
are doing), the Fed borrows the money from investors on behalf of our
government.
It can then buy back the securities with money that it prints (don’t
you wish
you could do this).
“Thirty
percent of government deficits
for 2008, 2009 and 2010 were financed by the expansion of the monetary
base of
the country’s money supply (currency, coin and bank reserves),” wrote
Robert
Auerbach, professor of public affairs at the University of Texas at
Austin, in
his June 21 column for The Huffington Post titled, “Does the Stimulus
Stimulate?”
Remember,
the Fed is independent,
subject only to oversight by Congress, which is the group that approves
the
deficit spending.
Makes
you worry a bit.
Makes
me wish Dr. Arnold would go to
Washington and explain to those currently in charge how the money and
banking
system work, and administer a few tests with those tough multiple
choice
questions.
Read
it at Townhall
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