Rethinking fed's role

RETHINKING FED‘S ROLEMinh Duyen TranLeanh PhanLu Jiongming

AGENDA

Brief history oF FED

Why do we need FED

FED in the Finance crisis and response

Cancel FED? Definitely not

BRIEF HISTORY OF FEDERAL RESERVE

1913: The Federal Reserve System is Born

The Banking Act of 1935 called for further changes in the Fed’s structure

1970s-1980s: Inflation and Deflation

1980: Setting the Stage for Financial Modernization

1990s: The Longest Economic Expansion

2006 and Beyond: Financial Crisis and Response

Source: http://www.federalreserveeducation.org/about-the-fed/history/

http://www.federalreserveeducation.org/about-the-fed/history/

WHY DO WE NEED THE FED?

Before the Federal Reserve was created in 1913, there were over 30,000 different currencies floating around in the United States. Currency could be issued by almost anyone -- even drug stores issued their own notes.

Before the Fed was created, banks were collapsing and the economy swung wildly from one extreme to the next. The faith Americans had in the banking system was not very strong. This is why the Fed was created.

The Fed's original job was to organize, standardize and stabilize the monetary system in the United States. It had to set up a method that could create "liquidity" in the money supply

FED’S ROLE

The Government's Bank

The Fed as Regulator

The Fed's Role in Monetary Policy

THE GOVERNMENT'S BANK The Federal Reserve acts as the banker for the U.S. government.

The Fed processes a wide range of electronic payments for the government, such as Social Security and payroll checks. The Fed also issues, transfers, and redeems U.S. Treasury securities and conducts Treasury securities auctions.

The Fed has two divisions: One group, the Board of Governors, is responsible for setting monetary policy and managing the nation's money; the other group, the 12 regional Reserve Banks, acts as the service division that carries out the policy and oversees financial institutions. The regional Reserve Banks represent the private sector. Both of these groups have the same goals.

THE GOVERNMENT'S BANK

In its role as money manager, the Fed has two primary goals:

Maintain stable prices (control inflation)

Ensure maximum employment and production output

It achieves these goals indirectly by raising or lowering short-term interest rates. Although these are two separate goals, the outcome of each is the same -- a stable economy.

THE FED AS FINANCIAL INSTITUTION REGULATOR

As a regulator for financial institutions, the Fed establishes the rules of conduct that these institutions must follow.

The Federal Reserve also watches out for the public interest by monitoring banks that are seeking to merge with other banks or holding companies. The Fed rules on these requests according to the impact the merger will have on the local community and general public interest.

Fed Tasks:

A Bank's Bank Just as banks serve their customers, the Fed acts as a bank for banks. The Fed keeps the pipeline of transactions flowing. It processes and clears one-third of all the checks processed in the country -- that's about 20 billion checks per year.

THE FED'S ROLE IN MONETARY POLICY

The Federal Reserve's most critical role is to keep the economy healthy through the proper application of monetary policy.

Monetary policy refers to the actions the Fed takes to influence financial conditions in order to achieve its goals.

The Fed's primary control is in the raising and lowering of short-term interest rates. In doing this, the Fed can indirectly influence demand, which then influences the economy.

The country's economic performance is influenced by many factors--economic performance abroad, fiscal policy determined by the legislative and executive branches of government, and monetary policy carried out by the Federal Reserve.

FINANCIAL CRISIS AND RESPONSE

low mortgage rates

homeownership possible for more people

increasing the demand for housing

driving up house prices


Riskier mortgages expanded rapidly

Subprime mortgages made to borrowers with poor credit records

House prices faltered in early 2006

homeowners fell behind on their payments

residential mortgages were not nearly as safe as once believed

the mortgage meltdown intensified

losses spread across the globe


The situation reached a crisis point in 2007

rates on short-term loans rose sharply

2008, two large financial institutions failed


The extensive web of connections among major financial institutions the failure of one could start a cascade of losses throughout the financial system

Domino effect


Federal Reserve provided non-recourse loans to the bank JP Morgan Chase to facilitate its purchase of certain Bear Stearns assets.

Following the collapse of the investment bank Lehman Brothers, financial panic threatened to spread to several other key financial institutions, potentially leading to a cascade of failures and a meltdown of the global financial system.

Federal Reserve provided secured loans to the giant insurance company American International Group (AIG) because of its central role guaranteeing financial instruments.


federal funds rate

Nearly 0%

December 2008 lowest level

for federal funds in over

50 years


purchased $300 billion in longer-term Treasury securities

purchase of $1.25 trillion in mortgage-backed securities: Freddie Mac and Fannie Mae

Purchased of $ 175 billion of mortgage agency longer-term debt.

reduced mortgage interest rates, making home purchases more affordable

CANCEL FED ?

CANCEL FED ?

End the Fed—Written by Ron Paul in 2009

“In the post-meltdown world, it is irresponsible, ineffective, and ultimately useless to have a serious economic debate without considering and challenging the role of the Federal Reserve”

CANCEL FED ?

1. the Federal Reserve is a privately owned agency

CANCEL FED ?

2. Federal reserve has no reserve.

CANCEL FED ?

3. The Federal Reserve has never been audited, ever!

4.Return to Gold Standard

CANCEL FED ?

2011-03 Utah House Passes Bill Recognizing Gold, Silver as Legal Tender

Resources: http://www.foxnews.com/politics/2011/03/04/utah-house-passes-recognizing-gold-silver-legal-tender/

CANCEL FED ?

GDP Recovery

In the fourth quarter of 2010, real GDP increased 3.1 percent.

source: http://www.bea.gov/index.htm

CANCEL FED ?

Source: http://www.bls.gov/cps/

CANCEL FED ?

Robert McTeer: 14 years as president of the Federal Reserve Bank of Dallas

“We do not know what situation would be without Quantitative-easing program, but it works , at least for stock market. My conclusion is QE2 works , but it is time to end ”

Source: http://www.djindexes.com/

CANCEL FED ?

QE3 ?

Interest

rate ?

Next step ?

CANCEL FED ?

Our conclusion is :

1. End the Fed is kind of bonus for politician , but it release some critical questions about Fed.

2. Fed should acting more transparent towards people.

3. Data released by US government show positive about economic. Fed really works.

4. Fed acting positive while it stands for America, not for international.

5. End the Fed ? No!!!

Rethinking fed's role

Education

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