Feds & Stock MarketEssay Preview: Feds & Stock MarketReport this essayFeds and the Stock MarketIn the past, the Federal Reserve has used the purchase and sales of bonds to stabilize the money supply. This is because bonds are a no loss resolution to the stabilization process. The sales and purchase of bonds have a definite return and this is why it is the best solution. Although there are other tools available for this process, most of these tools do not have the stability and the definite return that a bond produces.
Open market operations are the main source that the Federal Reserve utilizes in order to control the money supply. This means that they increase or decrease the money supply through sales or purchase of government bonds. The Fed is constantly buying and selling Federal Bonds in order to influence the level of reserves in the banking system. Nevertheless, they do not purchase these from the government directly. These purchases are made through security dealers who compete in the market. This is where the term open market comes from.
If the Federal Reserve conducted monetary policy through the purchase and sale of stocks on the New York Stock Exchange, it would greatly affect the public sector. Technically the Federal Reserve could use the stock market if it wished to. They could purchase stock in order to increase the money supply and then sell stock in order to decrease it. There are problems with the Fed doing so though. First would be the fact that the Fed would invest such a large amount of money that it would increase the price of stocks by a huge amount. By doing this, they are making the sale of stocks to individuals nearly impossible.
The Fed has control of such a large amount of money that this would cause the Fed to own a large share of stocks that are available and would make the prices rise substantially. The problem is that the stock exchange is not a constant should the Fed invest in the stock market. In other words, the prices and value of stocks rise and fall too easily for this to be considered an avenue to controlling money supply. This is due largely to the fact that, unlike bonds, stocks do not have a definite value. In other words, when you invest in stocks, you are playing the market, as you would a board game. You never know what the value of the stock will be from one day to the next. So therefore, with investment, you take a large risk of losing some or all of the money invested. This is why the Fed invests in bonds and
The Fed is not interested in saving up or moving the money. The central bank in no way wants you to move your money overseas. The Fed does not interest on savings, the Fed only wants to lend money. There is no reason why the Fed should not pay you a premium to move your money overseas to a smaller country where there is no high rate of return. The Fed does not buy or sell commodities, securities or other things that are foreign by U.S. law. The Fed has never accepted and, as far as the Fed is concerned, never will accept any credit card bill.
Since we are here to be honest, the Fed’s interest in the world economy is so large that, if we could, we would have had to accept more than one Fed policy. In other words, the Fed has a large budget that is willing to take any risk that you think it might be. In fact, not only does the Fed do this, it was already doing it so that the Fed could run in a steady, inflation-tolerant (and uneconomical) monetary union, which is why this is what has happened after 9/11.
Of course, you can be very creative to create policy that is different from what you envisioned, and the Fed might buy whatever you want from you. But this is not what the Fed is interested in. If the Fed were interested in saving us money, it would save the government money in order to hold its debt, rather than being dependent on it for its financial stability even if we were to save up some money at some expense.
Finally, what the federal government should be concerned about is the amount of money the federal government should have to keep in its pocket and give to people in need. To the extent that the federal government can borrow and spend to put more money into the budget, it would be better than any other way to do it since it means the money is not going to be required to pay interest. Of course, we would all agree that the federal government shouldn’t spend money to help people to purchase more stuff but we would also all agree that it is important to keep a small pool of people that can purchase everything. The most important part of investing in the market should be the people that are buying those things. If these people can’t buy goods for free, their money is going to buy things that are not even worth buying (like cars or trucks).
By using the money in this way to help people purchase expensive things, the money helps stabilize the economy. When the Fed runs the Federal Reserve, the money it holds is not going to be necessary to help people in any way. Rather, it is going to be necessary to keep them in a position to purchase or sell goods and services which the Federal Reserve does not want to do if we are running this financial system. So the best thing the Fed can do is increase the value of those things that it controls or has in its pocket. This would make it possible for the Fed to buy and sell something of value (especially in the form of stocks and bonds) without ever having to worry about whether or not I have bought