Aired on January 22, 2020, Bill English and Carmen LeBerge discuss Monetary policy on Mornings with Carmen at My Faith Radio.
Here are the show notes:
Monetary policy: Monetary policy consists of management of money supply and interest rates, aimed at achieving macroeconomic objectives such as controlling inflation, consumption, growth, and liquidity. These are achieved by actions such as modifying the interest rate or increasing/decreasing the money supply. The Federal Reserve implements and manages monetary policy. Monetary policy is made by the Federal Open Market Committee (FOMC), which consists of the members of the Board of Governors of the Federal Reserve System and 5 Reserve Bank presidents. The FOMC holds 8 regularly scheduled meetings during the year and other meetings as needed.
Monetary policy is about as exciting as watching paint dry.
Fiscal policy: Fiscal policy refers to the use of government spending and tax policies to influence economic conditions, including demand for goods and services, employment, inflation, and economic growth.
Examples: The amount of money we have in our economy is determined by monetary policy by the Fed Reserve. The amount of debt our Fed government has is determined by fiscal policy by Congress and the President.
In August of 2007, there was $856M on the Federal Balance Sheet – this is how much money was in our economy. It peaked in January of 2015 at $4.5T. It held steady in the $4.5T range until November of 2017. Since then, the Feds have been withdrawing money and got the amount down to $3.7T in Sept of 2019. They have pumped more back into the economy and we stand at $4.1T right now.
By comparison, in 2007, our Real GDP was $15.6T. In 2019, it will likely be over $21T.
The interest rates we are charged for credit cards, mortgages and so forth are directly related to the prime interest rate, which is determined, in part, by the Federal Funds rate – the rate the Feds allow banks to charge each other to borrow money from each other overnight so that their deposits with the Federal Reserve banks meet their balance requirements – requirements which ensure each bank can meet borrower and withdrawl demands.
The Feds try to reach a 2% inflation rate each year.
The Feds must keep the big banks stable or our entire banking system and economy will collapse.
Some of our problems are caused by bad fiscal policy – and Americans have come to expect the Feds to fix our economics problems.
Example; the more debt we have, the more future taxes will be needed to pay the interest on that debt. When interest rates rise, even more money will be required to pay the interest bill, crowding out money for other budget priorities, such as social security, medicare and Medicaid, which is 70% of all Federal spending.
Biblically, the better policies would focus on fiscal, not monetary:
- Stop the bleeding – do not go into any more debt
- Do not have any financial support for abortions
Future – chances are good that our next recession will be a difficult one. To prepare:
- Get out of debt as much as possible –
- Try to save enough money to last a few months –
- Plan on how you can minister to others – churches and individuals will have ripe opportunities to serve others during a significant economic downturn