Federal Reserve or a computer?
Name:
Course:
Instructor:
Institution;
Date:
Support of Milton Friedman arguments
In my opinion, I agree with Milton Friedman argument that Federal Reserve should be replaced with a computer. The use of electronics such as computers can reduce the amount of time the banks takes in receiving funds. This is because the banks will no longer wait for other banks to receive paper checks before they send funds. As the use of computers becomes part of everyday life, there is acknowledgment on growing popularity on online banking and commerce. Customers can access account information in form of electronic data instead of going to the bank, an approach which saves a lot of time. Individuals can pay bills in a very short time through the use of the internet instead of spending money on postage to send paper checks and money orders. The risks of bills arriving late are significantly reduced (Friedman, 1998).
Electronic wire transfers such as automatic teller machine (ATM) benefits consumers in such a way that they are able to access their accounts and perform transactions at any time of the day. It saves the customer the time required to go to a bank which in some cases may be a few miles away. In addition, it is possible to access the account during, weekends and public holidays. That apart, it is paramount to understand that, the Federal Reserve System uses resources that could be used elsewhere. Milton Friedman therefore proposed the best approach for monetary rule which implies that, money should be given time to grow at a constant rate in a certain duration of time normally a year. When economic growth is slow, monetary expansion is more rapidly to occur and when economic growth is growing rapidly, there is greater expansion of the Reserve which results to expansion of economy rate (Friedman, 1998).
Does Federal Reserve do more harm than good?
Federal Reserve does more good than bad. Central bank is one of the most powerful economic institutions. Federal Reserve is important for it influences power over money and regulation of its value. These functions are responsible for inflation, management for total spending in country and aggregate demand. Federal Reserve, influences foreign exchange rates along with other financial market prices in banking. In times of financial crisis, it lends loans to banking organization. Different Studies have argued that, Federal Reserve economic policy is the key determinant of inflation that can unfavorably affect savings and distort investment choices (Mishkin, 2003). The knowledge of inflation helps the government in enhancing its tax revenue thus reducing country real debt. In additional, it helps to deform signals of price systems in market economy. Recent researches shows that, higher inflation is usually linked with low economic growth and the only involvement economic policy can ensure long-term economic growth is through promoting price stability (Murdock, 2001). As a result, there is great accord among scholars that price stability being the key purpose of economic policy can only be achieved through use of Federal Reserve. This approach determines and influences interest rates. The key interest affects sectors of economy that include housing, auto along with investment that control interest rates through operating reserves. In additional to this, it is vital to note that, Short-term rates are directly influenced through Federal policy that involves purchases as well as sales of securities for short-term government which influences bank reserves. On the other hand, long-term rates are also influenced by changes in inflationary expectations. However, Federal Reserve can cause harm when increasing supply of money to boost economy for this approach can result to money losing its value leading to high inflations. Federal Reserve has affected economy system in United States by making dollar loose its value (Friedman, 1998).
The role of the federal reserve in USA economy and its importance
One of the main responsibilities of Federal Reserve in United States is to maintain price stability. This has been successful for the past fifteen years which has lead to inflation comprehensive measures becoming lesser. High energy prices have impacted American economy contributing to broad series by increasing prices for products as well as services across economy. In effort of maintaining stability, Federal Reserves a times is usually used to slow the economy when it is too high (Friedman, 1998).
The federal Reserves help in conducting monetary policy. They do this by balancing the current prices of gold and other commodities. Price movement of these products serves as a sign of monetary policy. During financial adversities, it provides a lender-of-last-resort service which stabilizes economic system. Central Bank being the vital supplier system of money in entire world can satisfy liquidity demand of American thus preventing shortage of finances thus making the economic system stable. Federal Reserves helps in management of Aggregate demand in US economy. Most economists argue that, total spending or else total demand is usually determined by monetary policy. This means that, if the Government Issue taxes without operating together with Central Bank can be fully not be accurate in monetary policy varying budget deficits of economic activity. Federal reserves open market committee which helps in opening market opportunities (Murdock, 2001).
. This tool influences short term reserve resulting to economic growth in additional to directing foreign exchange in United States. Federal system helps in determining inflation made by monetary policy. United State government has enhanced tax and revenue leading to payment of debts. The knowledge of Inflation has helped USA Economy to deform signals of price systems in market products. In cases when the country has been in debt it has promoted price stability that has ensured economic growth. There are twelve Federal Reserve banks in United State which perform a number of functions which include operating system of nationwide payment, supervising financial institutions in the country, distributing currency of the country, in addition to serving other commercial banks in U.S. Treasury. Each bank has a President nominated by its board of directors and approved by the Board of Governor. Studies have shown that, New York Bank is the first world’s financial center which serves as the Federal Open Market which conducts operations on open market along with foreign exchange intervention (Mishkin, 2003).
Strength of Milton’s Friedman argument
Friedman was best known for his argument on vitalizing interest in money supply as a determinant of the nominal value of output. Milton’s Friedman argument on replacing federal reserves with computers have a strength on saving time for banks organization in transferring data’s. This argument has its strength on banks in that they will no longer wait for other banks to receive paper checks before they send funds thus saving time. As the use of computers becomes part of every day life, there is acknowledgment on growing popularity on online banking and bill payment. Result of this will save time for Customers that will make them access account information over electronic data instead of going to bank that may7 be miles away. Computers helps to store information needed in Federal Reserve, such as giving loans, knowing clients account information before issuing loans among others. This will help banking organizations keep information on debts thus avoiding to give loans to those that may be in debts. Friedman was also known for his argument that worked on the consumption function.
Conclusion
In conclusion, for congress, the Federal Reserve is important in a country economy. It helps to set price systems, price mechanisms in market economy. The Federal Reserve plays a vital responsibility in United State payments that influences economy. It helps to generate revenues and expenses paid in institutions along with United State government. Over the years, its role in banking has expanded that has helped in managing American economy. However, a federal reserve has disadvantages on bank organizations in that national bank is usually made dependent on government liabilities. The expansion of liabilities may lead to undesirable expansions of circulation in government denying new measures on money circulations privileges (Friedman, 1998).
Implementing Milton’s Friedman argument therefore, will save time in accessing bank information. Information will be saved for future use that can be used in determining how the country is growing economically.
References
Friedman, M (1998). The case for overhauling the Federal Reserve. Retrieved on 11TH February, 2011 from:
Federal Reserve Bank of Kansas City. Introduction to Federal Reserve (n.d.) Fed 101, Retrieved on 11th February, 2011 from: http://www.federalreserveeducation.org/fed101%5Fhtml/
Murdock, D (2001). An interview with Rose and Milton Friedman. National Review Online. Retrieved on August, 2009 from:
Mishkin F. (2003). Structure of central banks and the Federal Reserve system. The Economics of Money, Banking and Financial Markets Windows, 7th Edition, Addison Wesley: New York
Use the order calculator below and get started! Contact our live support team for any assistance or inquiry.
[order_calculator]