What is the Federal Reserve (The Fed) ?It is the country's (USA) central banking system.

12 District Banks with 25 branches across the Country.

It is not one bank and it is not a Government Institution. It has nothing to do with the Federal Government !

What does the Federal Reserve board do?

• Sets monetary policy that produces and controls the currency of the entire nation.

• It uses monetary policy to control three fundamental economic tools.

• What are the three tools ?........... Does anybody know ?

The three tools managed by the Fed to control the economy 38

• 1. Interest rates ( The discount rate or Fed funds rate which is the rate that banks trade balances held at the Federal Reserve)

• 2. The money supply (INFLATION or DEFLATION) –(open market operations)

• 3. Reserve requirements – The Federal reserve banking system is a fractional reserve system meaning they are only required to keep a fraction of each deposit in reserves

The Fed manages these tools through……………………….

• OPEN MARKET OPERATIONS or policy meetings called the FOMC.

• The Federal Reserve uses open market operations to influence the supply of money in the U.S economy through the buying and selling of Government securities such as…………………………

Treasury bills and Government Bonds. (are examples of Government securities) • These securities are used to vary the size

of bank reserves and regulates the value of the currency.

• However, the Fed does not simply supply the Government with money. It (The Fed) loans money to the Government at INTEREST.

Then……….by increasing or decreasing the supply of money pg.

44…..

• The fed regulates the value of the currency (US dollar) .

• However, in the long term the entire system can only produce one thing……………..

• Does anybody know what this one thing is ? ……………

If you said or thought DEBT you are correct !

• This is because for every single dollar produced by the bank (through the issuance of treasury bonds) is loaned to the Government at INTEREST.

• Since the Fed has a monopoly over the production and control of the currency for the entire country………….

AND the Fed loans each $dollar

• With immediate debt attached to it in the form of interest we have to ask………

• Where does the money to pay for the debt come from ?..........................

• It comes from the Fed again which means……………………………

That the Fed must always increase

• It’s money supply (M1: M2: and M3:) to cover the outstanding debt created ! New debt is then created in a cycle until it must be paid back.

• To achieve this now interest rates must be lowered.

• Lower Interest rates mean a lower value of money.

What happens to purchasing power?

• A lower value of money means that All the money you have saved and all the money you will earn loses purchasing power.

• The power to regulate money supply is also the power to regulate its value. This power is enough to break down economies and societies.

• Lets listen to what Robert Kiyosaki has to say about the Fed.

Why is the money supply important ? pg 44

• Money supply is divided into three categories - M1, M2 and M3 - according to the type and size of account in which the cash and funds are kept.

• The Money Supply can be defined as the quantity of money issued by a country's monetary authorities. But why is it important -?

• The money supply is important to economists and the public trying to understand how policies will affect interest rates and growth.

Easy money vs Tight Money pg 46

• "Easy" and "tight" money are states or conditions based on the policies of the Federal Reserve Bank.

• “Tight” monetary policy is a course of action undertaken by the Federal Reserve to constrict spending in an economy that is seen to be growing too quickly, or to curb inflation.

When monetary policy is "easy", the Fed is trying to expand the amount of money in the economy. (QE)

• Question: What kind of condition or course of action is the Fed following right now ?

5) Trade andBalance of Trade pg 50.

• Please write your own definition of trade and share it with your partner.

• The trade balance is also referred to as the current account deficit.

• We said last week that Japan maintains a positive trade balance.

• What is the multilateral trade agreement that Japan is currently considering?

The trade agreement Japan is

currently considering (as far as I know) is the TPP.

• It stands for the Trans-Pacific Partnership. Is it a bilateral proposal or a multilateral proposal ?

• Does anybody know what other countries are involved ? Pros vs. Cons ?

A contentious issue

• is likely to cause disagreement or argument <a contentious issue>. adj

• Synonyms include ; controversial problematic, argumentive

• What industry is the TPP mainly concerned with ?

• Why is the TPP such a contentious issue ?

What is the strongest argument for….........

• Japan deciding NOT to enter into a formal TPP agreement………….? or in other words….Why should Japan restrict trade ?

• Please discuss and write down a few points with your partner.

TPP countries which have stated intention

• Declaration of Intention• Australia　　　　　　 Negotiating 　　 　　　 Nov, 2008• Brunei　　　　　　　　 Original Signatory 　 May, 2006 • Chile 　　　　　　　 Original Signatory May, 2006• Japan Negotiating Nov, 2011• Malaysia Negotiating Oct, 2010• New Zealand Original Signatory May, 2006 • Peru Negotiating Nov, 2008• Singapore Original Signatory May, 2006• United States Negotiating Feb, 2008• Vietnam Negotiating Nov, 2008

Japan TPP implications

• A successful conclusion to the TPP negotiations will be economically beneficial to all parties ?

• The most pressing issue is whether Japan will join the TPP in time to participate in the ongoing negotiations.

• In 2010 Naoto Kan had said that Japan was considering joining the TPP and current Prime Minister Noda has recently said that Japan will make a decision whether to join the TPP shortly.

• Many within Japan see the APEC Summit in Hawaii in November 2011 to be the final opportunity to joining the TPP negotiations.

• Can you rephrase the final point into a question ?•

2.) Current Account Deficits

• The current account records trades in both goods and services. It records who we buy from and who we sell to.

• A current account deficit means that a country is importing more than it is exporting and borrowing overseas to pay for the excess of imports.

• What is the word that means the opposite of a deficit ?

Appreciation vs Depreciationpg 54

• The appreciation of a country's currency refers to an increase in the value of that country's currency.

• Currency depreciation is the loss of value of a country's currency compared to one or more foreign reference currencies

Sarbanes Oxley Act pg. 68

• set new or enhanced standards for all U.S. public company boards, management and public accounting firms. It is concerned with governance and compliance within companies.

• It's designed to prevent financial malpractice and accounting scandals such as the Enron situation.

• Has increased regulation across the industry.

• Aimed to eliminate “conflict of Interest”