...the Federal Reserve System is too secretive, too independent, too insensitive to the hopes of small borrowers. A sharecropper's son, he often charges that it is a tool of Wall Street bankers. http://www.time.com/time/magazine/article/0,9171,870767,00.html Banking: Fight over the Federal Reserve Intense criticism among the general public was a major feature of the 2010 midterm elections. Critics reached a wide audience that reacted against the Troubled Asset Relief Program of 2008-9 and the bailout of major banks, insurance and mortgage companies, as well as the industrial companies General Motors and Chrysler. http://en.wikipedia.org/wiki/Criticism_of_the_Federal_Reserve Criticism of the Federal Reserve The fundamental promise of a central bank like the Federal Reserve is economic stability. The theory is that manipulating the value of the currency allows financial booms to go higher, and crashes to be more mild. If growth becomes speculative and unsustainable, the central bank can make the price of money go up and force some deleveraging of risky investments - again, promising to make the crashes more mild. During the Panic of 1907, "Depositors 'run' on the Knickerbocker Bank. J.P. Morgan and James Stillman of First National City Bank (Citibank) act as a "central bank," providing liquidity ... [to stop the bank run] President Theodore Roosevelt provides Morgan with $25 million in government funds ... to control the panic. Morgan, acting as a one-man central bank...
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...A large number of criticisms have been leveled against the United States federal reserve system. Conduct a web search on the criticisms about the system. Do you agree with these views? Why or why not? What changes would you recommend to the system? While conducting a web search on criticisms concerning the federal reserve system, I found that most of the articles and encyclopedias included the same critiques. One criticism is the Fed’s inability to stop inflation, indicating that inflation was going up at a faster rate than wages, thus leaving people with overall lower wages. (“US real wages fall at fastest rate in 14 years” http://www.ft.com/cms/s/f269a8f4-c173-11d9-943f-00000e2511c8.html) Another criticism involves the legality of the federal system. As others have already stated, the constitution granted the Congress the authority to coin money and regulate the value of the currency. It doesn’t, as Congressman Ron Paul states, “give Congress the authority to delegate control over monetary policy to a central bank. Furthermore, the Constitution certainly does not empower the federal government to erode the American standard of living via an inflationary monetary policy.” (“Criticism of the Federal Reserve” http://en.wikipedia.org/wiki/Criticism_of_the_Federal_Reserve) The Fed also stirs up controversy based on the fact that they are owned, through stock issuance, by private member banks, who most likely would not work in the interest of the people. “Charles...
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...A MUST READ on FED RESERVE by AYO-IGE.M A monetary control institution of a Nation is often refer to as the central bank or Nation bank. The Bank of England serve as the central bank of the England, Central bank of Nigeria serve as the monetary control of our great nation Nigeria while the Federal Reserve serve as the central bank of United States of America popularly known as the FED RESERVE . Supervision of money supply, adjustment of interest rate, printing and distribution of currency notes and coins which serve as the nation legal tender, lender of last resort, monitoring commercial banks and other financial institutions activities are monopoly power given to central banks. In most advance countries, central banks are design to operate independently in order to protect the institution from political interference, knavery and irascibility . A nation seeking for a prosperous economy growth must have in mind putting inflation under control, low interest rate is requisite and indispensable. A vibrant monetary policies and other policies related to each bureaucracy is the key to economy growth. The monetary institutions primarily control the amount of money in circulation in order to regulate inflation, failure to bring high interest rate under control tend to reduce consumer spending and this will lead to fall in aggregate demand, reduction in aggregate demand (AD) is the root cause of low economic growth and high unemployment In order to carry every loving citizen reading...
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...“The Federal Reserve Bank, which is the central bank of the United States, is a bank regulator and is responsible for monetary policy and defines money according to it liquidity “(Open Stax College). The Federal Reserve Bank (FED) is responsible for regulating currency within the United States economy to prevent inflation, recession, and the level of prices. The FED uses measures to track the money supple within the economy. Two measures the FED uses, to track money supply, are M1 and M2. “M1 money supply includes those monies that are very liquid such as, cash, checkable (demand) deposits, and travels checks “(Open Stax College). The M1 measures monies the majority of individuals and business use daily to conduct business or purchases. “The...
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...ANTITRUST LAW The Internet Corporation for Assigned Names and Numbers (ICANN) is a nonprofit entity that organizes Internet domain names. It is governed by a board of directors elected by various groups with commercial interests in the Internet. One of ICANN’s functions is to authorize an entity to serve as a registrar for certain “Top Level Domains” (TLDs). ICANN and VeriSign entered into an agreement that authorized VeriSign to provide registry services in accordance with ICANN’s specifications. VeriSign complained that ICANN was restricting the services that it could make available as a registrar and was blocking new services, imposing unnecessary conditions on those services, and setting the prices at which the services were offered. VeriSign claimed that ICANN’s control of the registry services for domain names violated Section 1 of the Sherman Act. Answer the following questions, using the information presented in the chapter. 1. Should ICANN’s actions be judged under the rule of reason or deemed per se violations of Section 1 of the Sherman Act? In a straight forward analysis, ICANN operates in violation of the Sherman Act and thus scrutiny of ICANN’s control registry services precede under the “Rule of Reason”. In the case at hand, however; VeriSign charges that ICANN’s prohibition upon Verisign’s SMARTBROWSER correcting a searcher’s misspelled search request overreached ICANN’s authority. VeriSign complains that ICANN’s action resulted via a conspiracy of...
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...The Current Financial Environment FIS/260-Financial Markets & Institutions: You Can Bank On It Michael Ricks When I first took a look at this assignment I thought it would be easier than it this. I looked for days on the internet trying to find banks or depositories with credit cards with variable interest rates. What I found was many banks with many credits all with annual percentage rates (APR). So to keep my insanity I just looked at three commercial banks. I looked at Bank of America, US Bank, and Regions bank. I looked at all their credit cards student, business, rewards, and secured. Bank of America credit cards Apr varied anywhere from 12.99% to 20.99%. Here is how they get people, 0% introductory APR for the first 12 billing cycles only for purchases. When that cycle ends your rate will depend on your creditworthiness. US Bank does similar and their rates are from 11.99% to 23.99%. Regions is in the same neighborhood starting at 13.99%, 16.99%, or 19.99% based on credit, but can quickly climb to 24.99% or even 29.99%. Every bank I researched, including credit unions, all based the rate that you would receive on your creditworthiness when you open your account. After that, your APR will vary with the market based on the Prime Rate as set out in the Variable-Rate information section of your agreement. The current annual percentage rate (APR) for a new car can vary from bank to bank, amount to amount, and year to year. It is not something that is...
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...“Euro: A common currency used by many European countries. The euro was established in 1999 when 11 European countries adopted a common currency in order to facilitate global trade and encourage the integration of markets across national borders. Euro banknotes and coins began circulating in January 2002.” (The Financial Dictionary) “The euro was introduced in 1999 and became the official currency of participating nations in 2002. It was intended to remove the exchange rate risk of businesses participating in the EU's common market and free trade association. It has become one of the world's most important currencies. Proponents of the euro state that it is more valuable than the former currencies, while opponents say that it has made goods and services in their home countries more expensive. The euro's ISO 4217 code is EUR.” (The Financial Dictionary) According to the European Commission Euro currency, the euro is currently the single form of money shared by 17 of the European Union’s Member States, this makes up the euro area. The euro was introduced in 1999 and was a major leading step in European integration. The euro has many major benefits; some of these are the sharing of a common euro currency which is enabling the less expensive and simpler inter-nation trading. This common currency also allows less fluctuations and a lesser risk. In Global terms the U.S. dollar is the leading currency and now the euro is the second most important with the Sterling British...
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...at a higher rate than they can borrow from the FED. There are 2 reasons. First, the borrowing bank may find it easier with less requirements to borrow from another bank, as long as they can make a profit via their lending. For instance, When a bank borrows from the FED it often has to put forward collateral. Borrowing in an inter-bank market may be accomplished on an unsecured basis thereby requiring a higher rate but without a need for a pledge of collateral. Secondly, the borrowing bank may need the money immediately for an investment or immediate lending and borrowing at a higher rate from another bank could be much more quickly than borrowing from the Fed 2. Commercial loans(3rd) Securities(2nd) Reserves(1st) Physical capital (4th) 3. The answer is depends o other risks that the bank are exposed to. In this case the president is telling us that the bank has a very low liquidity risk that it has never had to call in loans, sell securities, or borrow as a result of a deposit outflow. However, financial institutions are also exposed to other risks such as profitability risk, interest rate risk, capital adequacy risk, credit risks, and foreign exchange risk. We will need to analyze deeper and look at other risks before we decide to buy or not. 4. No. When you turn a customer down, we are forgoing income from loan , which is extremely costly. Instead, we should go out and borrow from other banks, corporations, or the Fed to obtain funds so that you can make the customer...
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...EXORBITANT PRIVILEGE EXORBITANT PRIVILEGE The Rise and Fall of the Dollar and the Future of the International Monetary System Barry Eichengreen Oxford University Press, Inc., publishes works that further Oxford University’s objective of excellence in research, scholarship, and education. Oxford New York Auckland Cape Town Dar es Salaam Hong Kong Karachi Kuala Lumpur Madrid Melbourne Mexico City Nairobi New Delhi Shanghai Taipei Toronto With offices in Argentina Austria Brazil Chile Czech Republic France Greece Guatemala Hungary Italy Japan Poland Portugal Singapore South Korea Switzerland Thailand Turkey Ukraine Vietnam Copyright © 2011 by Barry Eichengreen Published by Oxford University Press, Inc. 198 Madison Avenue, New York, NY 10016 www.oup.com Oxford is a registered trademark of Oxford University Press All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of Oxford University Press. Library of Congress Cataloging-in-Publication Data Eichengreen, Barry J. Exorbitant privilege : The Rise and Fall of the Dollar and the Future of the International Monetary System / Barry Eichengreen. p. cm. Includes bibliographical references and index. ISBN 978-0-19-975378-9 1. Money—United States—History—20th century. 2. Devaluation of currency—United States—History—21st century. 3. United States—Economic...
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...financial crisis. So, who is to be blame for creating the housing bubble? According to John Taylor’s article, “How Government Created the Financial Crisis,” lax policies implemented by the Federal Reserve (Fed) caused the financial crisis. As a response to John Taylor’s opinion, Alan Greenspan’s article, “The Fed Didn’t Cause the Housing Bubble”, defends the Fed’s policies and places the fault on mortgage rates, such as long-term or fixed mortgages, as the real cause that triggered the Housing bubble. Even though John Taylor’s, a professor of Economics at Stanford, and Alan Greenspan’s, a former chairman of the Federal reserve, opinions are strongly supported by facts, I’m truly fed up of hearing excuses and finger pointing about the current financial crisis. The fact is that both the Fed’s policies and the rates on mortgages initiated the housing bubble, and I can’t reject either explanation. However I believe that it is time to start thinking about the future, thus, we should worry about how the Fed’s policies should be managed to stimulate the domestic and international US economy for the future. According to John Taylor, it’s the Government’s fault for maintaining interest rates lower than normal during 2003-2005. Even though he is right, one should remember that the Fed lowered the interest rates as a...
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...Principles of Business Credit Chapter 1 - Credit: must involve exchange of values - 5 C’s of credit: character, capacity, capital, collateral, conditions - credit ( can be private or public - Credit Process: o First goes through a buyer who wants to buy a service or product o operating cycle: activities company goes through to produce and sell its goods and services o production stage: when material is converted into goods o manufacturer then sells finished goods to customers and customer pays for goods that were purchased on credit (collection stage) - Types of Credit o Public credit: government credit o Private credit: extended or used by individuals or businesses to carry on exchange of goods and services in private sector Private credit: - Investment credit - Consumer credit - Agricultural credit - Business credit - Bank credit Investment Credit: long-term borrowing of large amounts of money to finance productive assets. Primarily loans made to governments or businesses to raise money to pay for expansion modernization or public projects. - Bonds of fixed income securities (generally 10+ years) - Asset backed bond (backed by specific holdings for ex. Real estate) - Debentures (backed by financial standing, not assets) most common. - Secured bonds o Mortgage bonds o Equipment trust certificates (bonds issued to buy new...
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...the Doors of the Federal Reserve by James L. Rowe Jr. explains what is money and how it works? James explores about The Federal Reserve’s role and analysis the monetary policy. James discloses the values of different market products therein chicken, cattle, pigs, wampum, tobacco and beer. James mentions that the money comes in the US in three forms there in coins, currency and deposits by accounts. The article is very interesting and thought provoking which examines the economy and challenges for the business and employment. The consumers involve indirectly with the Fed and monetary policy implies through banks. The policy can vary because policy makers make changes regarding the time’s requirements. James does not suggest inflation strikes on fixed incomes because it influences badly on fixed deposits. James considers that demand for goods and services are very important because it directly connects with supply chain. He discusses monetary policy and compares to business, prices, jobs and loans’ ratio because policy cannot force to banks. According to James, moving the market depends on monetary policy as well the bank involves because a bank has ability to increase funds and controlling lend by borrow. Reserve requirements also very important term which is used on a percentage of checking deposits. Reserve requirements works with commercial banks usually and require a reserve balance. On the other hand, a bank cannot lend require reserve because Fed bring on controlling the...
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...As a consequence, equity risk premium reflects both investor hopes and fears about stocks, rising as the fear factor increases. As a measure the equity risk premium can be an individual stock or the overall stock market provides over a risk-free rate. And the size of the premium will be a standard to compensate with a higher premium in the stock market. Thus, a portfolio manager when the equity risk premium increases in the future， the investors will sell out stock market because the stocks are over priced. So the legislators and pension administrators decide how much to set aside to meet future pension obligations, based upon assessments of equity risk premiums. However the history data of ERP (Equity Risk Premium) from Federal Reserve System shows it keeps low and stable state but increases suddenly since 2006. At the same time the Federal Funds Effective Rate goes down and keeps low state. We know that interest rate is a way to control inflation. Inflation is a factor causes too much money chasing too few goods. “Changes in the federal funds rate affect the behavior of consumers and businesses, but the stock market is also affected,” Said by Jim Mueller (2013), PhD Finance in Washington State University. “As the risk-free rate goes up, the total return required for investing in stocks also increases.” In other words, the "risk-free" rate of return goes up, making these investments more desirable. But is the low interest rate push the equity risk premium...
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...FEDERAL RESERVE • In 1913 the Federal Reserve Act was passed, establishing reserve requirements for those commercial banks that chose to become members. • There are 12 Districts across America • It earns most of its income in the form of interest on its holding on US. Government securities as well as providing services to financial institutions. • The income earned is transferred to the Treasury • It regulates commercial banks and conducts monetary policy, adjusting the money supply to achieve full employment and price stability ( low inflation) • Has five major components o Federal Reserve District Banks o Member Banks o Board of Governors o Federal Open Market Committee o Advisory Committees Federal Reserve District Banks • Federal Reserve District Cities: o 1. Boston, Massachusetts o 2. New York, New York (Most important District City) o 3. Philadelphia. Pennsylvania o 4. Cleveland, Ohio o 5. Richmond, Virginia o 6. Atlanta, Georgia o 7. Chicago, Illinois o 8.St. Louis, Missouri o 9. Minneapolis, Minnesota o 10. Kansas City, Kansas o 11. Dallas, Texas o 12. San Francisco, California • Commercial banks that become members must purchase stock in the FED • Each District has 9 members o 6 are elected by member banks in which 3 are professional bankers and 3 are engaged in business o The remaining 3 are appointed by the Board of Governors o All nine directors appoint their Fed district bank president • District banks facilitate...
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...deposit, and borrow funds. I can invest funds in various forms in the stock market or otherwise. In doing this, financial systems and markets have allowed me to gain and lose funds. Overall these systems and markets allow the ease and transfer of funds, whether it be between persons, institutions, governments, or otherwise. Determine at least one (1) course of action the Federal Reserve can take to minimize the negative impact that a financial crisis could potentially have on the U.S. economy. Provide support for your response. One course of action the Federal Reserve can take to minimize the negative impact that a financial crisis could have on the economy is to be innovative. The Fed must leave room for it self to be more “fluid” and be able to adapt to changes as they come. Following strict guidelines and procedures that have been in place for years does not lend it self well to unprecedented circumstances. The Fed must be able to make changes and adapt to circumstances and being rigid does not allow for this. I think that this course of action is supported by history. The Fed was very innovative in dealing with the financial crisis of 2008 and it is one of the main reasons our economy was able to recover, not to mention why we did not slip into an even greater...
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