The Role America's Federal Reserve Played in Contributing to the Essay

The Role America's Federal Reserve Played in Contributing to the Actions Leading to the 2008 Financial Crises - Essay Example While the Federal Reserve is a cornerstone institution of the United States, critics have argued that in the long-term the Fed is actually bad for the economy. This research evaluates the extent that the Federal Reserve contributed to the actions leading to the 2008 financial crises. Analysis One of the most prominent critics of the Federal Reserve has been former Republican Presidential candidate Ron Paul. Paul’s perspective follows a line of logic that is directly related to the way the Fed functions. Paul indicates that when the American economy is lagging the Federal Reserve infuses new currency into the system. This new currency results in lowered interest rates. The lowered interest rates correspondingly result in capitalist expansion, as business and individuals increasingly engage in borrowing practices. The problem, as Paul indicates, is that such practices are artificial and don’t reflect the economies’ true and proper functioning. Paul has seminally no ted, â€Å"When central banks like the Fed manage money they are engaging in price fixing, which leads not to prosperity but to disaster† (Paul 2011). ... Kibbe (2011) argues that many Austrian economists predicted the 2008 financial crisis. Kibbe contrasts the Keynesian school of economics, which attempts to implement mathematical models in predicting future economic movements, with the Austrian school that argues later economic shifts can only be understood by examining human behavior. Similar to Ron Paul, Kibbe makes a number of sensational statements regarding the impact the Federal Reserve had on the financial crisis. In both perspectives their criticism is less about specific policy measures the Fed took, but rather with the entire existence of the Fed; as such, they believe that any actions this institution makes is ultimately bad for the economy. Just like Paul, Kibbe (2011) notes, â€Å"we would not experience such dramatic economic swings were it not for monetary policies that distort real prices and encourage improper investment decisions. Boom and bust cycles are inevitable when government interventions confuse market part icipants.† When one couples Kibbe’s perspective regarding boom and busts with statements made by the United States government leading up to the financial meltdown startling consideration emerges. For instance, he notes that Treasury Secretary Paulson said in 2007 that the global economy was at the strongest he had seen it in his career. Additionally, he states â€Å"Between 2001 and 2004, the Federal Reserve injected new credit into the economy, pushing interest rates to their lowest level since the late 1970s. As a result, the economy was booming just a few short years ago† (Kibbe 2011). Still, one recognizes that Kibbe provides little empirical evidence for the predictions of the Austrian economists against the failure of the Keynesian predictive models.