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Manipulating the Economy

Cynthia Buchanan
23, June 2013
Econ 122
Dr. Kassens

June 19^th 2013, FOMC Statement

June 19^th’s press release from the Federal Open Market Committee addresses the status of the United State Economy, and the measures that must be taken by the Federal Reserve. Since the May meeting, the economy has shown signs of expansion, but there are also areas that need to be addressed such as high unemployment rates and low inflation rates.

The market system allows buyers and sellers to interact, determine prices, and exchange goods and services. To spend the market back to equilibrium an increase in consumption through households and businesses is required. However, when the economy is unstable, consumers are hesitant to invest. To counteract the consumer fear the United States Federal Reserve has continued with quantitative easing to manipulate dynamics of the bond market and therefore pricing.

Their ability to manipulate market dynamics is caused by their ability to buy the securities and retain them. In purchasing these short-term bonds and securities the federal government is able to increase the monetary base though commercial banks. Their method artificially changes the liquidity for the consumer to purchase short-term bonds and securities, through lowered interest rates.

Stimulating the economy through monetary policy measures such as this, allow many positive changes in the market. Unemployment rates will begin to fall, as the firm will be required to hire more laborers to meet the needs of the consumer. Labor market conditions have already been noted as positive due to improvements in conditions for workers. The aforementioned improvements have the power to keep laborers in the work force, with higher pay and benefits. Better pay and benefits is likely to increase the disposable income of the consumer, the final goal to continue spending more money. 

The FOMC considers the importance of successfully meeting both long term and short-term goals. These policy measures are to be maintained as “to support a stronger economic recovery and help ensure that inflation, overtime, is at the rate most consistent with its dual mandate”. Successfully flushing capital into the market entices consumers to spend more. This can have severe effects on currency exchange rates and pushes the natural market forces around manipulating the supply and demand curve’s equilibrium.

United States Federal Reserve. Federal Open Market Committee. FRB: Press Release. FRB: --Federal Reserve Issues FOMC Statement --June 19, 2013. Federal Reserve, 19 June 2013. Web. 23 June 2013.

Response to "Is the Real Estate Market Really Recovering?"

M. Porter

Wednesday June 26, 2013

Macro Econ 122

Professor Kassens

Blog Critique: Is the Real Estate Market Really Recovering?

            After reading my classmates’ blog, “Is the Real Estate Market Really Recovering?” there are several things that I know now about the real estate market, and where it stands now in terms of our economy. I agree with the author, the housing and construction markets have not been the same since the infamous collapse of 2008. However, this being said, it is obvious that our economy has made enormous steps in terms of recovering recently. One point my classmate, Griffin, makes the point in his blog is that he believes two main reasons of the housing market is successfully recovering because of one, interest rates and mortgage rates are both currently very low, making the thought of buying a new home more alluring. In addition to these low rates, the average household income of families has increased, leaving them with more disposable income, making buying a new house even easier.

            Another interesting fact I learned is that banks foreclosing on homes while people are living in them is an extremely costly operation for them. It’s been documented that it can take as long as two and a half years, and cost as much fifty cents to every dollar for the bank to foreclose a home on someone while they’re living in it. As a result, banks have increased their short sales, and issued more loans to homeowners, making it easier and more affordable for them.  This aspect of the article was extremely interesting to me.  Personally, I think this is both a blessing and a curse that banks are doing this. I think that it is great that banks want to make issuing loans easier on those applying for them, especially when the average price of a home has increased 10% annually. However, I feel like this could cause people to over-extend themselves, and indulge in something that they can’t entirely afford. Additionally, with these rock bottom interest rates, it will take even longer for the banks to be paid back and they won’t be paid back as much as they would in the past years.  Another part of the blog I found particularly interesting is how the marketing is doing exceptionally well in both California and Arizona. Due to the strong demand, there have been more homes constructed and sold then anywhere else in the United States. We can only hope that whatever the reason behind this may be, will make its way east across the nation and the other states will reap the benefits these two states are currently enjoying.

            I am in full agreement that the housing market is well on its way on making a full recovery. However, I do not believe that it is entirely back to what it once was. The construction business used to be an extremely enticing profession, allowing those working in the business to earn more then an honest living. I know several people who owned and operated their own housing businesses who were absolutely devastated by the collapse. Seeing first hand what the collapse did to the economy only a few years ago, I truly hope that we will be able to take actions to make sure this does not happen again.

Ben Bernanke's Power Over Your Money

                                                                                                                                                   M. Porter

Sunday June 23, 2013

Macro Economics

Professor Kassens

Ben Bernanke’s Power Over Your Money Response

            After reading CNN Money’s article Ben Bernanke’s Power Over Your Money, I truly developed an understand for just how much power the Federal Reserve system, and, more importantly, chairman Ben Bernanke has over our economy. However, it is comforting to know that although they may control out economic system all together, they only have the best intentions in whatever decision they make.

            This particular article focused on the impact of the economy lowering the stimulus plans that are currently put in place in our nation. Consumer’s, however, are fearful that with decreasing the amount of stimulus our nation’s borrowing rates (which have been historically low the past years) will unavoidably raise back to what they once were. As a matter of fact, 30-year mortgage rates have actually already risen from 3.35% to 3.98%.  However, while this is occurring other rates such as auto and student loans have decreased over the past years, they show no signs of increasing. What’s also very concerning about this decrease in stimulus is how it’s affecting those who are retired in the United States. Retirees save their money, and really depend on CD’s, bonds, etc. What is concerning about this is now retiree’s are now receiving less returns on these CD’s because of this, which is just less money for them to live off.

            I truly think this is a big deal for our economy and our nation as a whole. By decreasing the amount of money the Federal Reserve puts into the economy, it will only cause savers, and consumers alike, confidence to consumer or spend money to decrease, which is something you never want to occur in a nation. If people become hesitant to spend their money, it means less profits exist for others. This may not seem like a big deal but when people are consistently loosing profits, the economy essentially contracts. What’s interesting about this fact also is according to Keynes; the best way to pull the economy out of a slump is to increase government intervention and government spending (stimulus). There’s no doubt that different rates in our nation will also rise and fall, I just find it interesting why Bernanke would want this to happen if our economy has been doing so well as of late.

            Overall, this is a very interesting and important matter. By decreasing the stimulus in our nation today, we will only increase rates that have been historically low over the past few years. I understand that not everyone agrees with how much or little the government spends, but I would think that almost everyone does not want the economy to contract, potentially falling into another recession all together. I just hope that consumers still have the confidence to spend the money they earn to generate profits for those around them.

Work Cited:

            Hicken, Melanie. "Ben Bernanke's Power over Your Money." CNN Money. CNN Money, 20 June 2013. Web.

Higher Education Critique

Deanna Miller

 

I have decided to do my critique on Josh Mowles’ blog post on higher education.  As a college student and future teacher, I am very interested in what this article had to say.  I feel that Josh summarized the article fairly well.  He took a lot of the important information and simplified it in his blog, which made for easy reading.  I really enjoyed this article and the blog post.  There were some important statistics and numbers that I felt should have been added, but overall, the blog post was very informative.

Josh also did a good job of tying in things we learned in class into his discussion of the article. He mentioned interest rates and what exactly they are and what that means for students who take out loans.  Josh also mentioned the two different fiscal policies the government can use when they are trying to lower GDP, in which he highlighted lowering expenditures.  I also agree with Josh in his critique of the article when he said that “if the government would control the tuition costs and keep the interest rates of the loans they offer at a lower level then the completion rates will fix themselves” (Mowles, 2013).

I really like the emphasis that Josh and the author of the article placed on the importance of education, even though student loan interest rates and interest rates are rising.  I thought it was important that Josh also mentioned how having a college degree can help you. “[T]he increase in lifetime earning associated with a college degree is now 75 percent higher,” though completion rates are at an all-time low (Tyson, 2013)).  This fact alone should encourage students to apply to college and get that degree because it will definitely benefit them in the long run.  That 75 percent higher in lifetime earnings will help take the sting off of student loan interest rates because you should be able to pay it back eventually.  One thing the article didn’t mention, though it doesn’t really tie into the them of her article is that students can also apply for scholarships, which will also help reduce the amount of the loan a student takes out.  There are also alternatives, like community college, even if it is just for two years, it definitely cuts down the overall cost of your education. 

 

Works Cited

Mowles, J. (2013, June 20). Getting More Bang for the Buck in Higher Education. Retrieved June 25, 2013, from Kassens ECON 122: http://kassensecon122.blogspot.com/2013/06/normal-0-false-false-false-en-us-x-none.html

Tyson, L. D. (2013, June 14). Getting More Bang for the Buck in Higher Education. Retrieved June 25, 2013, from The New York Times: Economix: http://economix.blogs.nytimes.com/2013/06/14/getting-more-bang-for-the-buck-in-higher-education/?ref=economy&_r=0