It's what the yacht captain prays to every morning.
Some people don’t mind wild west economics: giant swings in prices, markets going up and down. Yee and haw. Others, not so much.
Those other economists favor a stabilization policy, which is when a government steps in and purposefully tries to keep economic growth, prices, and inflation slow and steady. The tortoise over the hare. The government-managed over laissez-faire. Hey, that rhymes.
There are things that both a country’s government as well as their central bank can do to stabilize the economy. For instance, the Fed (the U.S.’s central bank) oftentimes keeps interest rates low to encourage borrowing (and thus spending) when times are bad...and the cost of renting money high when times are good. The Fed also can play with the money supply by choosing to add more money to the system, or to restrict it, affecting prices and inflation.
Congress can play with things like taxes and government programs to affect economic growth...for instance, approving stimulus measures during recessions.
In general, the idea of a stabilization policy being the right thing to do is pretty Keynesian, the macroeconomic status quo of today’s major governments. There are other economists who believe a more hands-off government approach would be better, i.e. let market forces correct themselves where they can.
The financial crisis of '07-'09 is a good example. Pro-stabilization policy people were all for bailing out the banks and stimulus packages. Anti-stabilization policy people point out that, because big banks got bailed out for bad behavior, they could do it again. Like...why not? The government will just bail everyone out again if things go wrong, right? They argue that letting market forces take their course, and letting big banks go under for their bad behavior (and their customers along with them), would have been the better move. That way, only trustworthy banks would be patronized later down the road.
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Finance: What is the Federal Open Market...15 Views
finance a la shmoop what is the Federal Open Market Committee... FOMC! come say it
with me FOMC yeah that's the noise of meatball makes when it hits the floor it [Meatball lands on the floor]
also happens to be the acronym for the Federal Open Market Committee and part
of its purpose in life is to manage financial outcomes through monetary
policy all right well the Federal Reserve pulls three levers of monetary [3 Levers appear]
policy discount rates open market operations and bank reserve requirements
those are the big three the big three monetary policies used to try and [Monetary policies appear]
control the economy well the font is responsible for the open market
operations part of that equation it tries to fight the twin evils of [Person pulls open market lever]
unemployment and inflation and among other things if unemployment is high
well in general the FOMC will seek to increase the supply of money by holding
back on sales of government paper like t-bills bonds notes and all that good
stuff leaving more cash sloshing around in the [Dollar bills appear]
marketplace and hopefully encouraging the cost of renting money or interest
rates to decline like encouraging people to borrow because rates are cheap well
when people can borrow more cheaply yes they're incentivized to spend more at [Person picks up stack of cash]
the mall on earrings and rings for other places well it works in the opposite
direction as well with the FOMC fearing inflation while they'll issue
lots of government paper sucking out the excess cash that was previously in the [Money supply meter declines]
marketplace and likely causing interest rates to rise right so cash will be less
available and people want more to rent their precious dollars as interest got
it okay well the key issue remains that the FOMC is making money more expensive
when it does that when an issues paper sucking cash out of the system it's hard
concept for most people including me to understand here
well the FOMC called eight secret very dan Brown like meetings a year to look [Months of year appear on calendar]
through reams of data and decide what policy should be note that they're
applying monetary policy here to do their bidding not fiscal policy the gist
is that the committee is the one sitting atop monetary policy in the US and it's
the committee who makes the decisions on the big three dials they can turn one [Committee standing by 3 dials]
two and three they can sift through data on the economy jobs inflation bang
fear surveys etc and then make decisions about what to do or you know what not to
do I remember that Soup Nazi from Seinfeld no bonds for you [Nazi holding a bond]
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