Transcript powerpoint files for units 4,5, and 6 of IFEL text 1

What is the Federal
Reserve (The Fed) ?
It is the country's (USA) central banking system.
12 District Banks with 25 branches across the
Country.
It is not one bank and it is not a Government
Institution. It has nothing to do with the Federal
Government !
What does the Federal Reserve
board do?
• Sets monetary policy that
produces and controls the
currency of the entire
nation.
• It uses monetary policy to
control three fundamental
economic tools.
• What are the three
tools ?........... Does
anybody know ?
The three tools managed by the
Fed to control the economy
38
• 1. Interest rates ( The discount rate or Fed funds rate
which is the rate that banks trade balances held at the
Federal Reserve)
• 2. The money supply (INFLATION or DEFLATION) –
(open market operations)
• 3. Reserve requirements – The Federal reserve banking
system is a fractional reserve system meaning they are
only required to keep a fraction of each deposit in
reserves
The Fed manages these tools
through……………………….
• OPEN MARKET OPERATIONS or policy
meetings called the FOMC.
• The Federal Reserve uses open market
operations to influence the supply of
money in the U.S economy through the
buying and selling of Government
securities such as…………………………
Treasury bills and Government
Bonds. (are examples of Government securities)
• These securities are used to vary the size
of bank reserves and regulates the value
of the currency.
• However, the Fed does not simply supply
the Government with money. It (The Fed)
loans money to the Government at
INTEREST.
Then……….by increasing or
decreasing the supply of money pg.
44…..
• The fed regulates the value of the
currency (US dollar) .
• However, in the long term the
entire system can only produce
one thing……………..
• Does anybody know what this
one thing is ? ……………
If you said or thought DEBT you
are correct !
• This is because for every single dollar
produced by the bank (through the
issuance of treasury bonds) is loaned to
the Government at INTEREST.
• Since the Fed has a monopoly over the
production and control of the currency for
the entire country………….
AND the Fed loans each $dollar
• With immediate debt attached to it in the
form of interest we have to ask………
• Where does the money to pay for the debt
come from ?..........................
• It comes from the Fed again which
means……………………………
That the Fed must always increase
• It’s money supply (M1: M2: and M3:) to cover
the outstanding debt created ! New debt is then
created in a cycle until it must be paid back.
• To achieve this now interest rates must be
lowered.
• Lower Interest rates mean a lower value of
money.
What happens to purchasing
power?
• A lower value of money means that All the
money you have saved and all the money you
will earn loses purchasing power.
• The power to regulate money supply is also the
power to regulate its value. This power is
enough to break down economies and societies.
• Lets listen to what Robert Kiyosaki has to say
about the Fed.
Why is the money supply
important ? pg 44
• Money supply is divided into three categories - M1, M2
and M3 - according to the type and size of account in
which the cash and funds are kept.
• The Money Supply can be defined as the quantity of
money issued by a country's monetary authorities. But
why is it important -?
• The money supply is important to economists and the
public trying to understand how policies will affect
interest rates and growth.
Easy money vs Tight Money pg 46
• "Easy" and "tight" money are states or conditions based
on the policies of the Federal Reserve Bank.
• “Tight” monetary policy is a course of action undertaken
by the Federal Reserve to constrict spending in an
economy that is seen to be growing too quickly, or to
curb inflation.
When monetary policy is "easy", the Fed is trying to
expand the amount of money in the economy. (QE)
• Question: What kind of condition or course of action is
the Fed following right now ?
5) Trade and
Balance of Trade pg 50.
• Please write your own definition of trade and share it
with your partner.
• The trade balance is also referred to as the current
account deficit.
• We said last week that Japan maintains a positive trade
balance.
• What is the multilateral trade agreement that Japan is
currently considering?
The trade agreement Japan is
currently considering (as far as I know) is
the TPP.
• It stands for the Trans-Pacific Partnership.
Is it a bilateral proposal or a multilateral
proposal ?
• Does anybody know what other countries
are involved ? Pros vs. Cons ?
A contentious issue
• is likely to cause disagreement or
argument <a contentious issue>. adj
• Synonyms include ; controversial
problematic, argumentive
• What industry is the TPP mainly
concerned with ?
• Why is the TPP such a contentious issue ?
What is the strongest argument
for….........
• Japan deciding NOT to enter into a
formal TPP agreement………….? or
in other words….Why should Japan
restrict trade ?
• Please discuss and write down a few
points with your partner.
TPP countries which have stated
intention
•
•
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•
•
•
•
•
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•
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Australia
Brunei
Chile
Japan
Malaysia
New Zealand
Peru
Singapore
United States
Vietnam
Declaration of Intention
Negotiating
Nov, 2008
Original Signatory May, 2006
Original Signatory May, 2006
Negotiating
Nov, 2011
Negotiating
Oct, 2010
Original Signatory May, 2006
Negotiating
Nov, 2008
Original Signatory May, 2006
Negotiating
Feb, 2008
Negotiating
Nov, 2008
Japan TPP implications
• A successful conclusion to the TPP negotiations
will be economically beneficial to all parties ?
•
The most pressing issue is whether Japan will join the TPP in time to participate in the ongoing negotiations.
• In 2010 Naoto Kan had said that Japan was considering
joining the TPP and current Prime Minister Noda has
recently said that Japan will make a decision whether to
join the TPP shortly.
• Many within Japan see the APEC Summit in Hawaii in November
2011 to be the final opportunity to joining the TPP negotiations.
• Can you rephrase the final point into a question ?
•
2.) Current Account Deficits
• The current account records trades in both
goods and services. It records who we buy from
and who we sell to.
• A current account deficit means that a country is
importing more than it is exporting and
borrowing overseas to pay for the excess of
imports.
• What is the word that means the opposite of a
deficit ?
Appreciation vs Depreciationpg 54
• The appreciation of a country's
currency refers to an increase in the
value of that country's currency.
• Currency depreciation is the loss of
value of a country's currency compared to
one or more foreign reference currencies
Sarbanes Oxley Act pg. 68
• set new or enhanced standards for all U.S.
public company boards, management and public
accounting firms. It is concerned with
governance and compliance within companies.
• It's designed to prevent financial malpractice and
accounting scandals such as the Enron situation.
• Has increased regulation across the industry.
• Aimed to eliminate “conflict of Interest”