monetary policy

With all the recent talks of the dollar dying and no longer being a dominant currency in the world, I decided to break down the monetary policy of the government. The Monetary Policy of the United States basically means controlling the rate of growth of the money supply, which can alter credit markets, employment, and rate of inflation. The Federal Reserve is the agency that oversees the money in circulation as well as regulates banking institutions. The Federal Reserve is its own institution, and does not have to listen to the president or Congress. The goal of the Feds is to stabilize economic activity, but as you can see this has become a problem.

Ben Bernanke is the Federal Reserve Chairman, and is being pressured to step down in the midst of the economic crisis among other things. The Federal Reserve has two major monetary policies, they have what is referred to as loose and tight monetary policies. The loose policy means that money is more accessible to people, and the interest rate is substantially lower. Businesses invest in new opportunities and the economy begins to grow. On the other hand a tight policy means money is harder to obtain for individuals, and the interest rate is higher. Businesses don't implement new investment opportunities, and the economic growth slows. So it's make you wonder why they would ever want to have a tight monetary policy in this country.

Well the problem is without adjusting back and forth between tight and loose policies, the inflation would skyrocket. The value of the dollar would drop, because there is a large amount of currency circulating. The problem today is the government is spending so frivolously to help the economy, but they are hurting it at the same time. The value of the dollar is steadily dropping, while gold is at an all time high. The government has began to just rely on the loose monetary policy to dig us out of a hole, without taking into consideration the importance of the dollar. On a side note, it cost the U.S. Mint 1.4 cents to make a penny, and 7.8 cents to make a nickel. It goes to show that the system could use an overhaul!