This week the Federal Open Market Committee (FOMC) of the Federal Reserve will meet to consider the next phase of monetary policy. The Fed, through the policy decisions of the FOMC, has been engaged in a policy known as "quantitative easing", or QE. You would not be too far off the mark if you interpret QE as the equivalent of printing money. The Fed has been slowly reducing QE for the past year, and it is expected to finish QE this fall. You may wonder what all the attention on the Fed is about, and how the Fed's actions affect the economy, and possibly your own family?
The Fed controls the money supply; essentially the amount of cash on hand, and in bank accounts. They attempt to maintain the money supply at just the right level; enough to facilitate transactions in the economy, but not so much that prices start to rise out of control. As a rule, the Fed aims to manage the money supply so that prices rise two percent per year. They hope that two percent inflation is just the right level to facilitate necessary price adjustments, but will not distort the economy too much.
Prior to the financial crisis, the Fed controlled the money supply by raising and lowering short-term interest rates. Raising short-term rates would reduce the money supply, while lowering short-term rates would increase the money supply. (It is more intuitive if you think of the causality going in the other direction.) Since 2009, short-term interest rates have been near zero. It is difficult to lower interest rates below zero. (But not impossible-there are negative interest rates afoot in Europe today.) So the Fed has used QE, in the face of zero percent short-term interest rates, as the mechanism to increase the money supply. more >>
While the United States remains the wealthiest nation in the world—first by Gross Domestic Product, seventh by average income—many Americans have been struggling financially in recent years. As The Washington Post reported in April:
Wages for millions of American workers, particularly those without college degrees, have flat-lined. Census figures show the median household income in 2012 was no higher than it was 25 years ago. Men's median wages were lower than in the early 1970s. Meanwhile, many of the expenses associated with a middle-class life have increased beyond inflation.
While politicians continue to bicker about the best way to combat these problems, there are some attitudes that clearly do more harm than good. First, we must keep American problems in perspective. The Post article highlights very real issues like leaky roofs and broken dishwashers as consequences of wage stagnation. But it is important to remember that worrying about money is not the same thing as living in poverty. The United Nations Food and Agriculture Organization estimates that, worldwide, 870 million people suffer from chronic undernourishment, mostly in Asia and Sub-Saharan Africa. Nearly half the world survives on less than $3 a day. It is important to distinguish between real poverty and first world middle class problems because the prosperity we enjoy America is actually quite rare. more >>
America is supposed to be the land of the free and the home of the brave.
But as we become bogged down in our many problems, I see, unfortunately, a mentality in which we are becoming increasingly a nation of the unfree – the victim – and the timid, in how we're approaching these challenges.
Ohio Republican Senator Rob Portman wrote a column this week drawing attention to the latest dire projections from the Congressional Budget Office. more >>
One of the lessons I learned in my first management course is you can't improve something unless you can measure it. Let's apply that to government.
As ambitious government programs go, it's hard to top the "Great Society," which recently marked its 50th anniversary. President Lyndon Johnson, after all, vowed "to give every citizen an escape from the crushing weight of poverty."
That's a tall order. Five decades, nearly $22 trillion and roughly 80 welfare programs later, it's fair to ask how we're doing. The short answer? Not well. more >>
Tomorrow, state officials in California will review a petition to gain a vote in November that would reduce prison sentences for non-violent felonies. Backers claim that there are more than 800,000 signatures already, which exceeds the 504,000 signatures needed. If passed, the law would reduce the long sentences for minor drug possessions, shoplifting, check forgeries, and other such non-violent felonies to misdemeanors.
Allow felons to vote? Watch this clip from Making Money with Charles Payne discussing the issue of allowing convicted felons to vote. Be sure to watch Charles' new show! It is on Fox Business Monday - Friday from 6 - 7 PM ET.
This is a curious turn of events for several reasons: more >>
WASHINGTON – For the conservative movement to succeed it must reach out to "average working Americans," says former United States Senator Rick Santorum.
In a speech at the "Road to Majority 2014" conference on Friday morning, Santorum stressed the need to appeal to what he has in the past called "blue-collar conservatives."
"As a movement we have not been connecting with the people who are hurting in this country and providing them a message and a plan for them to embrace and live the American dream," said Santorum. more >>