Fiscal Policy Vs. Monetary PolicyEssay Preview: Fiscal Policy Vs. Monetary PolicyReport this essayFiscal Policy vs. Monetary PolicyWith America in recovery from the attacks on our freedom and our economy, many wonder if we will return to phase one (expansion) and how long it will take to reach phase two (recession) again. The Keynesian Theorists of America believe that the government should actively pursue Monetary policies (enacted by the Federal Reserve Bank) and Fiscal policies (enacted by Congress) to reach adjustments to price, employment, and growth levels. In our full market economy, we must use these economic policies to control aggregate demand. When these policies are used to stimulate the economy during a recession, it is said that the government is pursuing expansionary economic policies.
Fiscal Policy is described as changing the taxing and spending of the federal government for purposes of expanding or contracting the level of aggregate demand; these are designed to increase short-run economic growth. In a recession, an expansionary fiscal policy involves lowering taxes and increasing government spending. By cutting taxes, increasing government spending programs, and increasing transfer payments, more money is in the economy, more income, and more spending. This can be done through the federal budget process; however, the problem with fiscal policy is lag time. This process can take so long (as long as a year or more) that Discretionary Fiscal Policy is very rarely used in the federal government; still, the lag between a change in fiscal policy and its effect on output tends to be shorter than the lag for monetary policy. Instead, the government uses Nondiscretionary Fiscal Policy (Automatic Stabilizers). This fiscal policy is built into the structure of federal taxes and spending. Some examples of this are the progressive income tax (the major source of federal revenue) and the welfare systems, which both act to increase AD in recessions.
Monetary policy is under the control of the Federal Reserve System and is completely discretionary. It is the changes in interest rates and money supply to expand or contract aggregate demand. In a recession, the Fed will lower interest rates and increase the money supply. The Federal Reserve Systems control over the money supply is the key Mechanism of monetary policy. They use 3 monetary policy tools- Reserve Requirements, Discount Rates/Interest Rates, and Open Market Operations. The reserve requirement is the percentage of bank deposits a bank must hold in reserves and cannot loan out. By raising or lowering the reserve requirements, the Fed controls the amount of loanable funds. The interest rate is the amount the FED charges private banks, so they can meet the reserve requirements.
Ripple: The Ripple Network was created by the U.S. government in the late 60s with the purpose of improving interoperability with private banks. Banks and issuers, including private banks, rely on the Ripple network to transfer monetary money from one account to another, making the transfer of money easier and with greater efficiency than traditional financial transactions. All funds available for transfer have been linked directly to an issuer. Ripple transactions are the primary means by which a private bank can pay for a purchase of shares or other real goods through its own Ripple account.
XRP: Since 2009, the number of Ripple transactions is increasing at a rapid pace, particularly in the first three months of this year. In the most recent quarter, XRP activity increased by 15 percent in the third quarter of this year as more and more private and government clients began to transfer financial information into their accounts. In the third quarter, which ended on Friday, approximately 1.4 million more people were able to access XRP in 2013 than in 2014, increasing the total number of transactions by 2.2 million.
Bitcoin-based Bitfinex: Bitfinex released its first and first real-world commercial virtual currency in this year’s report and remains an important industry player in the nascent “new” bitcoin virtual asset ecosystem. This virtual currency was created by U.S. startup Bitfinex, which is headquartered in Silicon Valley. Since 2008, that investment technology has allowed investors to exchange virtual currencies at high-frequency, where transactions are conducted using the exchange rate bitcoin. Since its announcement in April 2013, Bitcoin has skyrocketed to around half the price.
As the virtual currency industry matures, it is possible that there will be a large number of Bitcoin exchanges on the market (or being one will be the real thing by 2022 (the most recent data available since the financial crisis). There is no shortage of Bitcoin-based financial products online to facilitate the exchange of money in the event of a financial disaster, including Bitcoin-based payment cards for individuals, businesses, corporations, governments and other private institutions. Bitcoin-based virtual currencies are expected to provide some form of transaction transfer within a few years and, by 2017, there are over 1,000 virtual cryptocurrencies that are available online.
The most promising trend for digital currencies within the financial system is decentralized payments and the spread of services that allow clients to pay and receive money directly without banks or central banks paying for it. Many companies and individuals are considering Bitcoin or other virtual currencies as a possible alternative to conventional fiat bank transactions. While they aren’t new ideas, and as more are developed, we need to be vigilant and use them in a safe and orderly manner that is convenient to all parties. We should be more focused on addressing the problems posed by centralized banking, as they may only become more common during the very moment most companies and individuals fail to act responsibly.
Disclaimer: Bitcoin is in no way intended to replace traditional banking. The value and value of Bitcoin is directly tied to the underlying principles and technology outlined in the Bitcoin Fund Report. It is possible for you to invest using any or all forms of virtual currency, not all currencies or the preferred form of payment in