Monetary Policy
Monetary policy involves manipulating the available money supply in the country. In the United States, monetary policy is conducted by theFederal Reserve System, commonly calledthe Fed. The Fed is the nation's central banking institution; it is the bank for the government itself, as well as for national commercialbanks. The Fed is also in charge of issuingcurrency, and it is the main regulating body that oversees bank operations.
The Fed mandates that all national banks keep a certain percentage of their assets in one of the Federal Reserve banks, where those assets will earn nointerest. This money is known asreserves, and the set percentage is called thereserve ratio.
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A bank's assets constantly fluctuate, so they need to quickly adjust their reserves on a regular basis. Banks are not allowed to have too little in reserves, and they don't want to have anexcessin reserves (this money isn't earning any interest, after all). In order to keep things balanced, a bank that suddenly has too little reserves can get an immediate, short-term loan from a bank that has an excess. The lending banks charge interest on these loans, at a set rate called thefederal funds rate. (Check outHow the Fed Worksfor more information.)
The Fed has several tools at its disposal for manipulating the economy. There are four major things the Fed can do to curb a recession:
- Reduce the reserve ratio- If banks don't have to keep as high a percentage of their assets in reserves, they have more accessible money. This might lead them to offer more attractive loans to their customers, which can help boost economic growth.
- Lower the federal funds rate- This frees up more money for banks, allowing them to offer more attractive loans.
- Lower the discount rate(联邦贷款的利率)——这使钱for banks that are borrowing money from the Fed. Again, these savings may be passed on to the bank's customers.
- Use its own reserve money to buy government bonds- Buyingbondstranslates to income for the U.S. government, which puts more money into the economy.
The Fed's power is a double-edged sword. While it can be used to nudge the economy out of recession (or otherwise influence its course), it can also make things a lot worse. The Fed has to be extremely careful in its actions in order to avoid economic catastrophe.
In the end, the course of a nation's recession is controlled by the actions of everybody living in the country. Anything influenced by so many people is beyond the control of any one person or group -- it seems to have a mind of its own. But in the United States, time has proven that attitudes and economic factors shift, and every recession is a temporary recession. Eventually, things turn around and an upward spiral is reestablished.
For lots more information about recessions, the Federal Reserve System and the world of economics, check out the links that follow.