Bond Fundamentals – Monetary Policy and Fiscal Policy

It’s the Federal Reserve Bank that influences the money supply. Three tools are used to implement monetary policy:

  1. Open Market Operations
  2. Discount Rates
  3. Reserve Requirements

Since open market operations is the tool used most, we will cover it. Here’s how it works: When the economy is growing too fast and the Fed is worried about the inflation rate, it will sell government securities from its portfolio to the open market. This decreases bank reserves, which means the money supply decreases. When there are less bank and businesses have to pay the bank more in order to borrow. This discourages consumers and businesses from borrowing. Less borrowing means less spending, which slows the economy and eventually can reduce price pressures.

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Scheduling Your College Application Tasks

Here’s a list of application tasks that college-bound high school students should pencil into their calendars for the spring semester of their junior year and the fall semester of their senior year:

The SAT and ACT: The spring of your junior year is an excellent time to take the SAT Reasoning Test or the ACT. You’ll get your scores in plenty of time to use them in your college selection. If your scores match those of students who were recently admitted to your target schools, you can rest easy and turn your attention to other application tasks. If your scores fall below that mark, you’ve left yourself plenty of time to take the test a second time.

SAT Subject Tests: A number of selective schools either require or encourage applicants to submit scores from 2 or 3 SAT Subject Tests (formerly known as SAT IIs) in addition to their SAT or ACT score. Look into the requirements for your target schools now, so you’ll know what tests you need to take, and then visit the College Board website to find out what dates you can take the tests on. SAT Subject Tests are given on most, but not all, of the same test dates that the SAT Reasoning Test is given on. Not all Subject Tests are available on all test dates.

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Thinking Positively About Monetary Policy – How “Quantitative Easing” Can Serve The Public Good

Nervous pundits are predicting the end of American life as we know it, after Fed Chairman Ben Bernanke announced on March 18 that he would be dropping yet another trillion dollars in helicopter money – up to $300 billion to buy long-term government bonds and an additional $750 billion to buy private debt, with the Term Asset-backed Securities Loan Facility (TALF) to be opened up for the sake of consumers and small businesses. The dollar immediately experienced its worst drop in 25 years, amid worries that the Fed’s intervention would spur hyperinflation. Typical of the concerned commentators expressing these sentiments was Mark Larson, who wrote in “Money and Markets” on March 20:

“This is Banana Republic-type stuff! And I’m not talking about the clothing store. Printing money out of thin air at the central bank, only to turn around and buy debt securities issued by your Treasury, is the kind of practice you typically see in emerging market regimes. We’re essentially monetizing our country’s debt and deliberately devaluing our country’s currency.”

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