In economics money refers to any type of financial instrument that is accepted as payment for goods, services or debt repayment. There are various financial instruments and collectively they make up the money supply. The liquidity of the market describes how quickly trading can be done within the economy. Money is therefore the asset that is most liquid because of its universal acceptance.
By macro-economics is meant jumbo economics and is a stream of study in economics that focuses on structure and activities of the entire economy. The other important field of study in microeconomics. In macro-economy is studied the connection between GDP, unemployment as well as price indices. Microeconomics focuses on individual firms and individuals as well as consumers – how their movements affect certain zones in the economy.
The dollar is till now the most accepted currency in the world and this dollar fluctuation that has been caused by the worst recession in American history since the time of the Great Depression is telling on the macro economy of not only USA but the world. At the heart of the dollar is the Federal Reserve – the central bank of America.
The government and some sections of the media and experts are talking about the economy recovering and the recession being over; statistics confirm that there is a weak recovery with housing prices stabilizing but the real economy continues to be plagued with double-digit unemployment and persisting foreclosures. The foreclosure crisis has worsened by moving on to swallow commercial buildings. Innumerable small and medium banks continue to collapse. Various steps taken by the Federal Reserve following the policies of the administration have been able to stop the crisis from becoming worse.
The unemployment stands currently at 10% whereas in March 2007 it was 4%. The immediate cause of the crisis was when millions of sub-prime mortgage holders started to default. This led to the banks running dry. Megabanks began to collapse on Wall Street. The government bailed them out so that they could start lending again. Meanwhile, the housing industry creaked to a halt leading to developers becoming ruined. It meant massive job losses with one section of the economy being linked to another and ultimately being chained to the world.
To contain the crisis the government undertook various programs. Apart from bailouts, the stimulus programs poured dollars into spending for various projects to generate employment. It is the money in the pocket of the consumers that ultimately set the ball rolling (BGFRS 2009).
To encourage lending to consumers and business houses the Federal Reserve reduced the interest rate to almost 0%. But this led to carry-trade practices. Instead of lending the banks availed of this cheap credit to invest overseas in markets with higher rates of interest. This resulted in the banks recording huge profits in 2009 without any impact on the general economy. American investors have been shying away from investing in manufacturing in the country and assigning jobs overseas.
The Federal Reserve is coming under severe criticism for waiving banking regulations, for having allowed the peddling of sub-prime mortgages to those ill-suited for it, for turning a blind eye to flipping during the years of the housing boom and to have allowed appraisers to collude with the mortgage industry to falsely hike the value of houses to facilitate quick mortgages and sales. The boom led to the burst and the crisis. The Federal Reserve is now thinking of bringing to a close the zero rate of interest but it is no easy matter.
Reference
BGFRS. (2009). Federal Open Market Committee. Web.