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Mych14b - Chapter 14(Continued The American institutions...

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Chapter 14 (Continued) The American institutions for monetary control Rules versus Discretion 1
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American institutions for monetary control ( Who gets the act) Presently the American monetary institutions is in a flux, very soon after Bernanke won a Rose Garden reappointment. The Democrats are in control of the White House & both houses, yet the Fed’s independence they favor is seriously questioned. This issue is actually old, started right after the founding of the Union. A central bank was favored by Morris and Hamilton, but opposed by Jefferson and Jackson - among the cherished heroes in American history. 2
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So, what was the case of Jefferson and Jackson? They felt at the center of the financial institution should not be a secret, powerful body favoring foreign (European) investors and ignoring the needs of the common people. What is the theme of the recent Congressional audit report on TARP? In the rescue of A. I. G., tax payers put in billions, Goldman-Sachs and 2 French banks got paid 100 %; with the Fed vainly tried not to disclose the list of creditors of A. I. G. who got the break. 3
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4 What is being proposed now? The deliberations of the Fed (what to be done and why) should be under the oversight of the elected (The Congress), and not left to the unelected . What is the complaint? Those enjoyed bail outs are TOO BIG to fail, what left to fail are the SMEs doing most of the hiring. This seems against both fairness and effective anti – recession. So, why should not monetary policy itself be deliberated and voted on by representatives of the PEOPLE or better still, decided by PLEBISCITE ?
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5 These are issues critical to the future of the economy, and are closely related to questions to be discussed today: The desirability of an independent Fed. The reason behind Friedman’s Proposition 2. The issue of the ‘credibility’ of the Fed in anti-inflation. The ‘rule versus discretion’ debate. The working of the ‘credit channel’. First, let‘s review from the Fed to inflation/unemployment
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                           The FED               Announcements Res. Req. Disc, rate Open mkt.
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