* Federal Reserve Chairman Ben Bernanke spoke to Congress on Tuesday about the still troubled U.S. economy, and what lawmakers can do to ease the pain. Giving his semiannual address to the House Banking Committee, he failed to provide any concrete information about actions the Fed will take to do its part in aiding recovery. One possible option the Fed has is another round of quantitative easing, a process in which the government purchases assets from banks and private companies in order to add a set amount of money into the economy.
* Often confused with printing money, quantitative easing uses the new electronically-created cash to purchase government bonds and other assets, rather than using newly minted money to pay off government debt. The U.S. government began its first round of easing in November of 2008, followed by a second round in November of 2010. For the past several years the Federal Reserve has also maintained interest rates near zero, in attempt to boost economic recovery after the 2008 recession and housing market collapse.
* A third round of quantitative easing could be a possibility, although Bernanke was not sure on the Fed's plans. He told Congress Tuesday he considers the first two rounds to be successful, and the Fed is "prepared to take further action as appropriate." It is possible the Fed would see diminishing returns on a third round, or QE3.
* Easing can boost the economy by increasing the amount of available liquid assets and ability of banks to lend, but can fail if banks still remain hesitant to lend. Banks can also use their new purchasing power to increase investment, but don't necessarily lend to the local businesses that are in need of loans. It can also cause too much inflation if not monitored carefully.
* Should there be more quantitative easing? And Whether the Government should be involved in the market or not?
* It has been one the most debatable issue. There are number of reasons like greed, self interest, elitism etc. to object free market and private sector which caused government to involve and control the market. But on the other hand with government involvement there are issues like corruption, waste, low productivity and inefficiency etc.
* Natural flow of the economy or free market economy sometime produces unacceptable / undesirable results.
Example: High unemployment, inflation or deflation
* In these types of circumstances where unwanted situations arise, government intervene the market and involve actively with the purpose of changing the economy and try to correct the situations in different ways to overcome the situations like unemployment, inflation or deflation.
* By modifying & changing some important areas of the economy, government tries in different ways like, by changing and adjusting fiscal policies & monetary policies, by increasing & controlling government spending, by managing tax rates and managing currency rate & money supply, government tries to make market work better and keep the economic growth steady.
* In my opinion government should not be involved in the market because free market economic system and capitalism are the main reasons on which USA economy was founded and which allows everyone to achieve financial growth & success and achieve American dream.
* Free market economic system creates competitive market, encourages entrepreneurship, maintain the balance of supply and demand and help to keep natural prices of goods & services. Free market gives an opportunity of financial freedom to own a business and make growth.
* Recently we have seen the government tries to control the market through bail outs but it has failed and still no significant growth in economy has been noticed and still we have a high ratio of unemployment, high gas prices and inflation. Free money to banks has not helped small business and still there is a big threat of recession. Also most of the time governments don’t understand the actual problems in the economy like current state of the economy and the time lags. (Example: Recognition Time Lag, Action Time Lag, Effect Time Lag), some time government not able to manage the spending properly and it increases the federal deficit heavily. If the states and local governments not match with the federal strategies than it will hurts the overall economy. Also the government expenditures are not substitute of personal expenditure which maintains the growth of the country. Also many times this policy affects particular sectors only and its effects are not same for everyone. So, main purpose of this policy to benefit maximum people of the country not served.
* Free economic market encourages achieving better things and new inventions which drive economy. History has also proven that economies grow and work better in free economic market system. Government should not be involved in the market system but should tries to correct the loop holes and failures of free market system by creating necessary rules and regulation and should allow the market to act freely. Government should balance the approach to actively involve and change the economy according to the situations and economic conditions. There are some areas where government intervention is necessary change the situations like to control and change the rate of interest and public spending according economy, but same time government should also make sure that their access involvements don’t hurt the overall economy. For example: extra government benefits, big size government, extra payments and expenditure increase the debt of the country and trade deficit. So, it is very important for government to take cautious approach according to the economy and get involve and overcome the situations like unemployment, inflation or deflation successfully without hurting the growth.