Monetary and Fiscal policy
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Question"
Please listen to this comment by Mr. Keene from Bloomberg on Mr. Bernanke, the Fed chairman:
http://www.bloomberg.com/video/keene-on-bernanke-never-seen-this-type-of-hatred-0icjz0saSJ64uNDQ62_~Vw.html
Sorry, the link does not seem to work, but go to the bloomberg.com website and you should be able to find it.
What do you think about Mr. Keene's comment?
As you might know, Congress left town (Washington DC), not to return until after the election, in order to campaign for their reelection, in spite of the fact that much work needs to be taken care of, including finding a solution for the "fiscal cliff" before the end of the year (and then there will be the election itself, the thanksgiving break and the Christmas holidays). Only the unelected members of the Fed remain in town to handle the economy, even though most economists tend to think that fiscal policy would be more effective at this time than monetary policy.
If you were a
benevolent
dictator/king (assuming that there is such a thing), how would you conduct monetary and fiscal policy in the U.S.?
Comment classmate A:Personally, I would support Mr. Bernanke’s quantitative easing programs in order to have more money circulating. However, I would strongly watch the impact that this program would have on inflation. If the Federal Reserve keeps printing money, the US dollar would be devalued more than it already is. However, since the US is primarily an importer country, the imports become more expensive for the countries, causing the prices to rise. Then, the United States would have to incur into free trade agreements to avoid tariffs or to lower them.
Comment Prof:
Author:
James Clooney
Date:
Thursday, September 20, 2012 12:46:36 PM CDT
Subject:
RE: Overall economic conditions
While the U.S. economy is very slowly recovering, if there is not a faster rate of job creation and people and business don’t start to spend more money, then this recovery could potentially take a decade.
So what needs to happen for faster economic recovery to occur? Well, the QE3 will help, but jobs need to be created, people need to be put back to work, the U.S. Congress needs to provide a little help, fixing the roads, bridges and other decaying infrastructure, more people need to pay tax. With added job growth and more people spending money, the economy should be repaired faster than at its current rate.
You would generally be correct; however the US being a large economy, it is also fairly closed compared to small countries. Thus a depreciation of the dollar would not cause the inflation rate to rise much.
My classmate A:I agree, but wouldn't US dollar devaluation increase exports? wouldn't that be an opportunity to export? if so, what would the US export different than technology?? The wine industry (california) could have a nice shot trying to penetrate other markets...What do you guys think?
Comment classmate :
I agree that exports would increase a little some to many other large developed countries but they would not effect the smaller countries much at all. I only say that because unless wage and other aspects drop more in respect to the remainder of the world then that devaluation may not be enough. The U.S. could export education more than they do now. It would be like opening a Harvard, a University of Texas, or even University of Phoenix in Germany, South Africa, China. I think as far as exports, the U.S. is out of the price range of most nations due to the high worker wage and other factors.