Monetary+or+fiscal+policy

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= = = Brief History = In October 1929, the stock market crashed, sending thousands of Americans into lower standards of living. The Great Depression quickly ensued after the crash of 1929 as many faced unemployment and fiscal problems. Herbert Hoover did interfere with the situation, but rather relied on the laissez-fair principle that government should not meddle in the economy. However, the next election presented some hope for change as Franklin D. Roosevelt was elected. FDR created the New Deal programs which help reset the economy and provide jobs for thousands. Since then, many have tried to control the American economy through new policies and programs.
 * Monetary/Fiscal Policy **



The Federal Reserve System was created by Congress in 1913 to regulate the lending practices of banks and the money supply. It is the main instrument for making monetary policy, or the manipulation of the supply of money in private hands by which the government can control the economy. The Federal Reserve also has a seven member Board of Governors. Each member is appointed by the president and confirmed by the Senate; in addition, each member has a 14-year term.  The Federal Open Market Committee is the policy making body that meets in Washington sets the “federal funds rate.” This rate is the “interest rate banks can charge each other for overnight loans.”

**Interactive Website about the Federal Reserve**

= Policy throughout Presidencies = __Franklin D. Roosevelt (1933-1945)__ FDR created the Social Security system and many programs under his New Deal to aid the poor and the elderly. After his term, many Americans prospered in the new economy, a much needed change from the Great Depression. FDR employed the Keynesian economic theory that emphasizes government spending and deficits can help the economy in any situation and advocate the use of government power to stimulate the economy in bad conditions.

__Ronald Reagan (1981-1989)...and George W. Bush__ Reagan began his presidential career with “The Speech” where he told his aides that government involvement hinders independence and personal prosperity. Reagan changed economic policy by relying on the principle that to stimulate the economy, one must stimulate the supply of goods. He portrayed the supply-side economics theory that “too much income goes to taxes so that too little money is available for purchasing and that the solution is to cut taxes and return purchasing power to consumers.” President Reagan, as well as President George W. Bush proposed to cut taxes under this new economic policy.



The Three Branches of Government
**// Policymaking actions/interrelated activity //** __Legislative Branch__ A main power of Congress is to create and establish the annual budget for the government. This includes allotting money and establishing guidelines for taxes, tariffs, and money for policy works. The Budget Committees in the House and the Senate discuss and hold hearings on the requested budget from the OMB, or the Office of Management and Budget (executive branch). In addition, the Congressional Budget Office (CBO) gives the Budget Committees in the House and Senate informative and analytical reports on the economy and budget. Members of Congress can make amendments in the budget, but with much debate. The House and Senate Appropriations Committees, as well as the corresponding subcommittees allocate resources for their appropriate areas of government. The budget must cover mandatory spending, such as social security or veterans’ benefits. Moreover, Congress can “earmark” money for specific activities and projects within the government. Also, the General Accounting Office founded in 1921audits budgets by the the Secretary of the Treasury and the Director of the Office of Management and Budget. This Office audits all parts of government.

__Executive Branch__ Due to the Budget and Accounting Act of 1921, the president must prepare the budget. The Bureau of the Budget transformed into the Office of Management and Budget (OMB) which now works on the budget, reviews funding requests submitted by agencies, and creates the Budget of the US – as a request. The president must send an annual Economic Report to Congress. Created by the Council of Economic Advisers, the Report includes information about jobs, inflation rates, and other economic issues. The President can also issue an executive order to implement new policy. Recently, the President has issued executive orders and called on congressional leaders to improve the economy. In addition, the Department of Treasury within the Executive Branch oversees a budget of approximately $13 billion. In addition, the Department of Treasury creates and manages systems such as the production of coin and currency, and tax collection.

__Judicial Branch__ The courts interpret the law, make statements on the constitutionality of the law, and then apply these conclusions to cases. Various cases include issues on monetary policy.

= Diagram of Monetary Policy throughout the Branches = ==

= Role of Non-Governmental Groups = Of all the non-governmental groups associated with monetary policy, lobbyist's have the most influential role. Lobbyist for investment banks and mortgage companies put immense pressure on fiscal policy year end and year out. Since interest rates are the driving force behind finance companies, these companies spend millions upon millions of dollars in an effort gain influence over Congress, the Federal Reserve and even the President. One such investment company is Goldman Sachs. In the 2008 election, Goldman Sachs donated over $995,000 to the Obama campaign alone in an effort to further extend its influence on the government's monetary policy. Such large donations are not uncommon, as many interest groups target fiscal policy as it is one of the nations most powerful policies. During the height of the recession, Goldman Sachs was on the receiving end of one of the largest bailouts from President Obama's entire stimulus plan. The bank in total got over $10 billion federal dollars. This just goes to show the immense influence in which lobbying groups actually do possess in Washington. The "revolving door" of Washington is also visibly evident in the field of monetary policy. Lobbyist's from large investment companies move in and out of high ranking U.S. government jobs as well as the Federal Reserve itself. Most recently, President Obama appointed former top Goldman Sachs lobbyist, Mark Patterson, to the position of Treasury Department Chief of Staff.



=Impact of policy-making on the American public = The Monetary policy of the U.S. Government affects ever single person in the country. The Federal Reserve alone controls the amount of money available at any given time, the amount of inflation, the availability of jobs and most importantly it controls and sets interest rates. By definition, __Interest Rates__ are the price a borrower pays for the use of money that they borrow from a lender. The more money the banks have to lend out, the cheaper borrowing becomes. If banks have less to lend out, the loans become more expensive as interest rates rise. Interest rates directly influence how much people pay to borrow money to buy a house, a car, or even start a business. While the Fed is responsible for the monetary policies which influence the American people, Congress and the president are the ones who influence the country's fiscal policy. They have direct control over federal taxes, federal spending and federal borrowing. It is often the president's economic policy which has a direct affect on the public. As previously mentioned in Section II, the President has immense power in the ways of the economy and is often known as the "Chief Economist." FDR's federal work projects and regulatory agencies of the 1930s represented a time where the president encouraged liberal spending and a larger scope of government. On the opposite end of that spectrum, Ronald Reagan lead a time of tax cuts and shrinking government during the 1980s.

= = = Current Status of Policy =

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The current status of the fiscal policy in the United States is very Keynesian-esque. The Obama administration has taken to "priming the pump," so to speak, as a means of jumpstarting the lagging economy. This means they are pouring money into the market in an effort to increase consumer spending. The American Recovery and Reinvestment Act (i.e. the Stimulus Package) gave away in excess of $180 billion dollars to help save failing companies and corporations as well as offer aid to industries that were in danger of collapsing. This stimulus bill was a prime example of Keynesian economics, as Obama believed that during the economic weathering, government spending was the answer to restart the market up again. The Obama administration has also worked with Ben Bernanke and the Federal Reserve to set interest and mortgage levels at record lows as to encourage spending. By setting mortgage and interest rates so low, the government is offering a huge incentive to re-invest in the economy and the economy is slowing beginning to regain its footing.


 * Here is a [|Link] to an interactive website to see to whom and where the federal money went per the Stimulus Package**



= Recommendation for Change = While America is certainly in a serious recession, pouring money into the "bottomless pit" of the defecit is actually counterproductive. We believe that the government needs to stop throwing money at the problem and rather face it head on. The true way to pull out of a recession of this magnitude relies upon rejuvenating business so they begin producing goods and services and ultimately start hiring again. This could be accomplished in any multitude of ways. One such way could be to take the classic "Reaganomics" approach. The last major recession was in about 1981-1982. Reagan was facing a double digit unemployment rate and inflation was out of control. Reagan instituted a massive tax reduction, which turned out to be the driving force behind the resurgence of the economy. Tax cuts, especially at the corporate level are essential to the growth of business and the economy. Reducing tax rates also encourages people to work, thus helping deal with the rising unemployment. Overall, we believe that flooding the economy with money is not the answer, but rather specifically aiding businesses via tax incentives is the way to get the gears of the economy slowly going in the right direction.