A very good talk about the independence of the Federal Reserve. In short, making the Fed accountable to short term political objectives at the expense of long term economic problems is a mistake (most economists probably would agree). So too does Tim Geithner.
Right away I agree with Geithner’s statement “It is very important to keep politics out of monetary policy”. I wrote about this in my previous blog, as there should be goals that seek to help the economy that must remain separate from political sway. It seems a bit irrational to me that politicians are even discussing extending tax cuts, when in reality the budget tool from the previous post made it clear that increasing taxes even a little bit will help eliminate some of the nation’s debt. If the government is to extend this tax cut policy, not only would the money not go toward fighting the debt, but it would actually cost (borrowed) money--$700 billion. One thing I don’t understand that was discussed briefly in the article is how bailing out the Irish banks could “mark an end to the continent’s sovereign debt crisis”..? I was not aware that Ireland’s economy had such a great influence over the rest of Europe. It also caught my attention that the article notes that Ireland will have to do some very hard and very difficult things in order to dig themselves out of debt. We talked about how our economy might be heading toward this type of distress, so it doesn’t make sense to me why our politicians wouldn’t be working to make small efforts with each program in order to avoid making drastic decisions in the long run.
ReplyDeleteI think that Geithner is absolutely correct. Mixing politics with the monetary policy is not correct. This will influence the US economy. The Fed was set up to make prices and interest rates stable without any political influences. Thus, the Fed is not completely government instituted. The tax cuts would just harm the economy in the long run and the $700 billion would be a waste. The money is not borrowed to create more debt, but instead ease the market and economy. If politics influence the Fed then it would lead to corruption in the financial institutes. The tax-cuts would create more debt for the country and it shouldn’t be extended at all. It is very important to stable economy with the borrowed money instead of wasting it.
ReplyDeleteMuktak Tripathi
MWF, 2:00-2:50 P.M.
Michael Lam MWF,2-2:50
ReplyDeleteI agree with Geithner in how he claimed that politics should stay out of monetary policy. The Federal Reserve was meant to be a separate entity from the government but politicians have tried to use the Fed as a way to increase their popularity. There is too much corruption and disagreement in politics and if it were to be mixed with monetary policy, could really hurt the economy. The government continue to work on personal interest rather than the interest of the nation, and as a result the economy has not been able to bounce back. If the government is not careful and effective, they will have to face the very hard decisions that Ireland and rest of Europe has been faced with. The government should combat issues now and make some the unpopular decisions now, such as allowing the cuts to expire, rather than waiting until they are stuck with an even tougher decision.
Geithner is correct when he states that politics and monetary policy shouldn't mix. Politics would definately influence monetary policy without acting in the best interest of the country. Also, I think that tax cuts is currently very bad for the economy. It is will not reduce the deficit which will continue to accumulate to the United States current debt. In order to attack this debt, taxes would need to be increased if anything and the government definately cannot be involved with the Fed. That would make the country worse off than it already is.
ReplyDeleteJessica Catanese
TR 8:00