UT GOV 312L - A Puzzle (6 pages)

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A Puzzle

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A Puzzle


Lecture number:
Lecture Note
University of Texas at Austin
Gov 312l - Issues and Policies in American Government
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GOV 312L 1st Edition Lecture 20 Outline of Current Lecture I TMFPQ II A Puzzle III Money fundamentals IV Monetary policy in the US V The US and the international monetary system VI Exchange rates and global capital markets VII The Bretton Woods system Current Lecture TMFPQ Aftermath of democratic loss o people expected obama to reassess and lay low Presidents usually lay low and concerning on foreign policy o trade and climate control reduce deportations of illegals in US issued public support of net neutrality These are his moves Obama s move on immigration o plans to use executive power and discretion o millions of undocumented people will be allowed to remain and get work permits Is he being undemocratic o critics say he is abusing executive powers o he should be upholding the land of law but is making decrees o obama effectively lost an election his actions on immigration go against the will of the voters as expressed in the last election Institutions o We have a president and not a parliament and president has a fixed term o in parliament the prime minister changes with the majority of congress o Seeing as he is a lame duck president he can carry out policies based on other reasons rather than following congress o It is freeing as he can use executive actions but these are temporary The next president can undo them Good or bad o Some say that this will put back the immigration topic he is overreaching o Some say that the republicans will overreact and come out as racist it s a trap Keystone Pipeline o On agenda for senate vote These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute o 1200 miles of pipeline carrying 830 000 barrels a day of crude from canada s oil sand o This is dirty oil takes more carbon emissions to extract it tree huggers pissed off o Defenders say oil will be used for export Environmental and job impacts o These are generally overblown o environmental impact is minimal o impact on jobs is also minimal o so the issue is a symbolic issue it s easier to go against a single issue like a pipeline rather than go against the changing consumer s Obama has threatened to veto but he s muted He has no real stake in this Power of finance why Bill You mean to tell me that the success of my program and my re election hinges on the Federal Reserve and a bunch of f ing bond traders Carvill I used to think if there was reincarnation I wanted to come back as the president or the pope or a 400 baseball hitter But now I want to come back as the bond market You can intimidate everybody US dollar is the backup currency of the world The world needs the US to be in debt so it can sell bonds and allow other to get influence in the US How does debt in the US strengthen the US influence around the world Money Fundamentals Money has three important functions o Medium of exchange facilitates trade and specialization o If we bartered it would be hard Whew Rob doesn t have to trade lectures on the Cold War to his banker to pay his mortgage o Unit of account means to measure value of things and compare different goods and services o Store of value allows wealth value to be held over time Money and Interest Rates Price of money reflected in interest rates set by interaction of supply and demand o Cost of borrowing o As costs down economic activity tends to go up easier to borrow and buy o As costs up economic activity tends to slow GDP growth slows or negative o Policy implication governments can stimulate economic activity by pushing interest rates down Interest Rates Set by interaction of demand o Price level As prices up need more money to make same quantity of purchases o Aggregate economic activity GDP as increase more goods and services sold need more money to facilitate transactions o Risk Can government maintain sound economic policies Control inflation Will it repay its debts o Dollar unique role as reserve currency because the US pays its debts and can collect a lot of taxes And supply o Fractional reserve banking Banks as intermediaries generate profits by lending money e g mortgages at higher rates than they borrow deposits Have to hold some deposits as reserves willingness to lend deposits shapes rate at which money supply expands Banks can create currency by loaning it out This s a function of demand for money o Gov t issues currency Key role for central bank the national bank of banks Regulate money supply through interest rates open market operations and reserve requirements for banks banks adjust their reserve ratios higher ratio lower supply open market operations are transaction where the central bank buys and sells bonds quantitative easing making new deposits by buying their holdings in US federal interest bonds government can always just print money instead of taxing Risk of inflation or hyper inflation Policy challenge gov issue new currency to pay debts Monetary Policy and Inflation Inflation is just rising prices o Measured by CPI consumer price index and PPI producer price index which track price movements over time in bundle of goods Bad because erodes value of o Savings as reduces its purchasing power of money income stays the same but prices increase 25 cents bought a candy bar in 1979 but not in 2014 o Creditors assets loans erodes the value of loans their key assets Financial sector strong interests in low inflation But deflation bad too o If people think prices falling e g houses in 2008 11 then wait to buy if everyone waits then economic activity collapses and firms go bankrupt and or lay people off Optimum moderate price growth of around 2 How choke off inflation Slow economic activity by raising interest rates And surrender responsibility for monetary policy to unelected officials Federal Reserve Central bank of the United States Regulates banking sector Lender of last resort to banks Banks bank but different bank because not tasked with earning profits Policy goals of employment and limit inflation Last three leaders Greenspan Bernanke Yellen Influence short term interest rates loans with terms in days and months through discount lending rate Influence long term interest rates with open market operations o Quantitative easing Fed purchase of US Treasury Bonds Fed Gov IOUs and mortgage backed securities bundles of loans backed by home mortgages to push down long term interest rates e g 30 year mortgage o Key role in responding to 2008 financial crisis

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