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Brief Analysis of the History of the Federal Reserve System from 1967 to 1997   Term Paper ID:27294 Click to get this paper

Essay Subject: Discusses the role of the Federal Reserve System in determining US monetary policy. Focuses on the term as Chairman of Alan Greenspan, chair since 1987.... More...

5 Pages / 1125 Words 3 sources, 13 Citations, APA Format $20.00 Return to List of Papers

Paper Abstract: Discusses the role of the Federal Reserve System in determining US monetary policy. Focuses on the term as Chairman of Alan Greenspan, chair since 1987. Paper Introduction: A Brief Analysis of the History of the Federal Reserve System from 1967 to 1997 When the Federal Reserve Act was created just past the turn of the century, the intent was to grant the Fed only one basic tool of monetary policy, the control of discount loans to member banks (Mishkin 1997). These powers were broadened during the Great Depression when the Board of Governors was given the authority to control the Reserve Funds (Mishkin 1997). From 1960 on, the Federal Reserve has assumed even greater powers, and the accrual of these powers is attributed to the man who has directed it for almost 10 years, Allen Greenspan. A Quick Look at the Fed The Federal Reserve Bank is a strange governmental creature Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. There are the arguments created by those who wish to keep the FederalReserve=s independence intact and those who would like to see moregovernmental control, typically from either the Congress or the Presidency.Pressure to Control Independence Those who argue for a greater control for the Fed=s independence citehistory on their side. distribution of national income and wealth(Norton et. Because of thatinteraction, it is necessary to have a referee, and in that respect, thebest referee is one that remains impartial to both sides. It consists of 12 regional Federal Reserve banks, each with apresident, board of directors, officers, and research staff, plus theWashington-based board of governors, with the largest group of researcheconomists. (1996, March 18). There are the gold bugs, who argue that either the nation should return to a gold standard or the Fed's monetary policy should be determined by gold prices. News &World Report, p. But the notion that any growth rate above this level would cause an increase in the rate of inflation through shortages of labor, materials and manufacturing capacity is nonsense (56). In 1989, it sowed the seeds for the recession of 199 -91, then slowed the recovery by not easing up quickly enough. The social costs of the Fed=s attitude of independence andespecially that of Allen Greenspan can be seen, argue those who wish toexert greater control of the Fed, in terms of unemployment and output.This ailment has also contaminated central bankers worldwide. President Ronald Reagan adopted a "supply-side" economicstrategy that had two elements: there was created a high-deficit fiscalpolicy and there was a tight "monetarist" policy at the Federal Reserve.Conclusion The arguments for independence or control of the Federal Reserve Bankare all tied into the economic truism that there is a limit, at any givenpoint, on how fast the economy can grow without causing inflation. The reason for this attitude is likely because "the Federal Reservehas extraordinary independence for a government agency and is one of themost independent central banks in the world. Wake up Mr. Greenspan. In the last decade of the 2 th century, too little, too late seems to be engraved in its institutional seal. In theview of many observers, politicians in a democratic society areshortsighted because they are driven by the need to win their nextelection." Granted, the Fed formulates and carries out its policydirectives without democratic input, accountability, or redress. References Mishkin, F.S. By keeping a close rein on the money supply andits attendant correlation of interest rates and inflation, the FederalReserve's actions during the last several years have generated economicconsequences that are typically considered by proponents of independence tobe at least equal to the potential impact of major tax legislation thatCongress and the White House are still quarreling over. New York: Addison-Wesley. When Greenspan was appointed chairman in 1987 by Ronald Reagan, he was greeted with some suspicion (Norton, Davies, Urresta, Welsh, 1996, 39). al. A Brief Analysis of the History of the Federal Reserve System from 1967 to1997 When the Federal Reserve Act was created just past the turn of thecentury, the intent was to grant the Fed only one basic tool of monetarypolicy, the control of discount loans to member banks (Mishkin 1997).These powers were broadened during the Great Depression when the Board ofGovernors was given the authority to control the Reserve Funds (Mishkin1997). budget policy (Mishkin, 1997).Washington's fiscal policy appears to be committed to a deficit-cuttingmode for the foreseeable future, while Congress seems ready to avoiddiscretionary spending, regulatory intervention, or measures to improveequity in the distribution of national income and wealth. Norton, R., Davies, E., Urresta, L., & Welsh, T. U.S. RealGDP growth relies on the interactivity of the amount of labor and capitalavailable and the productivity generated by those two. A recent article in Fortune describes the Fed: The Fed is secretive by nature, suspicious of outsiders, and possessed of an esprit de corps that borders on fanaticism. Centralbankers are becoming ineffective in controlling the financial system, thus,the need for independent central banks. Not only has the Fed's monetary restraint at times deliberately pushedthe economy into deep recession, with the attendant loss of millions ofjobs, but its impact on the structure of interest rates and dollar exchangerates powerfully alters the U.S. The government was determined to preventthe recurrence of the kind of massive unemployment suffered in theDepression of the 193 s. InGreenspan we trust: The powerful fed chairman is headed for four moreyears, to the relief of corporate America. Most of their critiques revolve around simple anticapitalism or populism. (1995, July 1 ). 56 (1997). Its view is that the sustainable level of annual economic growth is 2.5 percent. Thus there is culturecreated where new members experience a sort of testing period to see howthey will react to such pressures.The Type and Nature of those Pressures The pressures on the Fed can be broken down into two broad categories. They see the Federal Reserve as an imperiousmonarch position which has no accountability, democratic input orreparation. This eventually led to the Full Employment andBalanced Growth Act of 1978, which, says Mishkin (1997) places anobligation on the Fed to "explain how these objectives are consistent withthe economic aims of the President of the United States."The Criticism Continues One of the most vocal of the critics of independence, MortimerZuckerman (1995), issued this challenge to Greenspan and the FederalReserve policies: The latest Fed failure underlines its mismanagement of the monetary side of the economy over the past five years. Nevertheless, the Fed is notfree from political pressures" (Mishkin, 1997). Fortune, pp. An independentcentral bank is an institutional concept that complements well thecounterrevolution now underway in U.S. Federal Reserveindependence has a direct impact on the daily lives of most Americans intheir "pursuit of happiness," of which their economic welfare is a majorelement (Mishkin, 1997).A Growing Debate The history of the Fed since 1967 has been one of growing debate amongthe Federal Reserve, the Congress and the President, usually designed towork out strategies and tactics to gain a balance between tolerable ratesof unemployment and inflation. 1996, 41).Pressure to Maintain Independence As Mishkin (1997) explains, "the strongest argument for an independentFederal Reserve rests on the view that subjecting the Fed to more politicalpressures would impart an inflationary bias to monetary policy. The economics of money, banking, and financialmarkets. Is the Fed flying blind? Some "monetarist" economists quibble about the details of monetary policy. From 196 on, the Federal Reserve has assumed even greater powers,and the accrual of these powers is attributed to the man who has directedit for almost 1 years, Allen Greenspan.A Quick Look at the Fed The Federal Reserve Bank is a strange governmental creature (Mishkin,1997). al. You have to wonder. The regulation of the financialindustry needs to be revamped, and the role of Greenspan must becontrolled, say these critics: Most of the other criticisms of Greenspan are less consequential. By the mid-197 s, soaring oil prices fueled a rising consumer priceindex at double-digit rates in 1974 and again in 1979-8 (Mishkin, 1997).The oil price shocks, and the persistence of increasing rates of bothunemployment and inflation resulted in what many economists calledstagflation. Some of them move in even stranger orbits (Norton, et. 1996, 42). 38+ Zuckerman, M.B. Then there are the conspiracy theorists. That is therole the Federal Reserve Bank was given, and that is the role it apparentlywill continue to play. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.