Compare And Contrast The Monetary Policy And The Federal Reserve System

Monetary Policy and the Federal Reserve System Monetary policy is the Federal Reserves’ way of influencing the amount of currency and credit that is in circulation in the United States economy. When the currency and credit rates are altered, the interest rates and performance of the U.S. economy are affected. There are three goals of monetary policy; promote maximum employment, stable prices, and moderate long-term interest rates. The Federal Reserves’ goal is to implement effective monetary policies to achieve these three goals. Since the financial crisis in 2008 that was caused by the housing market crash of 2007, many monetary and fiscal policies have been implemented in an attempt to correct and improve the economy. During a recession
The stock market crash in 2000 lead people and investors to lose their confidence in the market, which then prompted them to put their money into the housing market. The federal reserve and banks thought that the housing market was creating wealth. People were buying and flipping houses left and right. They noticed the prices of houses increasing, it became easier to get a loan from banks because of the lower standards for loans. When people applied for their loans at the banks, the banks would approve them, securitize the loan, and then pass the risk of the loan off to some other bank or agency. As the bank approved more and more loans, their reserve holdings grew smaller and
At that time, they had a total of 1.5 trillion dollars’ worth of loans. On March 16th Bear Stearns merges with J.P. Morgan, selling itself for $2 a share, only a fraction of their current trading price. Then on September 6th, the treasury announced the takeover of Freddie Mac and Fannie Mae, along with their five trillion dollars in mortgages. Later in September Bank of America acquired Merrill Lynch, Lehman Brothers filed for bankruptcy, and Down dropped 400 points. The federal reserve lends out $85 billion to the American International Group. On September 18th, The Chairman of the federal reserve and the Treasury Secretary met with Congress to propose a $700 billion bailout. On the 26th, Federal regulators seized Washington Mutual, and have a deal to see the majority of J.P. Morgan for $1.9 billion, representing the largest bank failure in the history of the United States. On September 29th, Congress chooses to not pass the $700 billion bailout. Citigroup acquired Wachovia. On October 1st, the Senate passed the $700 billion bailout bill. On the 3rd of October the House of Representatives passed the bailout plan and George W. Bush signs it into a