Summary of Ben S. Bernanke's 21st Century Monetary Policy

By IRB Media

Please note: This is a companion version & not the original book. Book Preview:

#1 The United States had a populist tradition that was hostile to concentrations of power in finance and government, and this was reflected in the country’s lack of a well-established central bank until the Federal Reserve was established in 1913.

#2 The Federal Reserve System was created in 1913, and is made up of a Board of Governors in Washington with general oversight powers and up to twelve regional Federal Reserve Banks, each with considerable autonomy.

#3 The Great Depression was caused by the international gold standard, which was reinstated following World War I. As countries returned to the gold standard, it became clear that there was not enough gold to support the prices of goods and services at their new, higher levels.

#4 The Federal Reserve’s role in the Great Depression was both positive and negative. Its interest-rate increases in the 1920s, aimed at cooling speculation in the stock market, contributed to the 1929 stock crash and the initial global downturn.

• Language: English
• Publisher: IRB Media
• Release date: Jun 10, 2022
• ISBN: 9798822538368

IRB Media

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Insights on Ben S. Bernanke's 21st Century Monetary Policy

Contents

Insights from Chapter 1

Insights from Chapter 2

Insights from Chapter 3

Insights from Chapter 4

Insights from Chapter 1

#1

The United States had a populist tradition that was hostile to concentrations of power in finance and government, and this was reflected in the country’s lack of a well-established central bank until the Federal Reserve was established in 1913.

#2

The Federal Reserve System was created in 1913, and is made up of a Board of Governors in Washington with general oversight powers and up to twelve regional Federal Reserve Banks, each with considerable autonomy.

#3

The Great Depression was caused by the international gold standard, which was reinstated following World War I. As countries returned to the gold standard, it became clear that there was not enough gold to support the prices of goods and services at their new, higher levels.

#4

The Federal Reserve’s role in the Great Depression was both positive and negative. Its interest-rate increases in the 1920s, aimed at cooling speculation in the stock market, contributed to the 1929 stock crash and the initial global downturn.

#5

The reforms of the Fed were largely led by Marriner Eccles, who was chair from 1934 to 1948. They increased the Fed’s independence from the executive branch by removing the Treasury secretary and the Comptroller of the Currency from the Fed Board.

#6

The Federal Reserve System today is made up of a Board of Governors in Washington and twelve Reserve Banks. The seven members of the Board are nominated by the president and confirmed by the Senate to fourteen-year, staggered terms. The Board chair and vice chair are also nominated by the president and confirmed by the Senate to four-year terms.

#7

The Fed’s voting rules are complicated. Only twelve governors and presidents vote at any given meeting, while the seven Board members and the president of the Federal Reserve Bank of New York vote every meeting.

#8

The Federal Reserve, like any bank, has a balance sheet with assets and liabilities. The Fed’s principal assets are U. S. Treasury securities and mortgage-backed securities. The Fed’s principal liabilities are bank reserves and currency.

#9

The Fed influences the funds rate by changing two administered rates, the interest rate it pays banks on the reserves they hold at the Fed. To reduce the supply of bank reserves, the Fed sells Treasury securities to private investors, using a designated set of private financial firms as its agents.

#10

The first development is the ongoing change in the behavior of inflation, which has been influenced by economists’ and policymakers’ views about the relationship between inflation and the labor market. The second development is the long-term decline in the normal level of interest rates, which has reduced the scope of central banks to cut interest rates to support the economy during downturns.

#11

The Fed was founded to keep the financial system stable, but it failed to do so during the Great Depression. It was not until the 2007–2009 global financial crisis that the Fed realized just how dangerous financial instability can be.

#12

The United States had three types of banks in 1933: national banks, state-chartered banks that were members of the Federal Reserve System, and state nonmember banks, each with a different mix of regulators.

#13

The Great Inflation, which lasted from the mid-1960s until the mid-1980s, inflicted less economic distress than the other two great episodes. However, it eroded Americans’ confidence in their economy and their government.

#14

In the 1960s, inflation began to rise in the United States. The Phillips curve, a paper written in 1958 by A. W. Phillips, a New Zealander who spent most of his career at the London School of Economics, explained how low unemployment rates were accompanied by faster wage growth.

#15

The economy grew rapidly during the 1960s, and this was largely due to fiscal policy. The tax cut Kennedy proposed in 1961 helped bring down unemployment, which had peaked at 7. 1 percent in mid-1961, to 4. 0 percent by the end of 1965.

#16

As the economy heated up and unemployment fell, wages and prices began to accelerate. The Fed did not tighten monetary policy enough to offset the building inflationary forces. Nixon, Johnson’s successor in 1968, understood the growing inflation problem and used authority provided by Congress in