by Tom Karlin

Created on: May 01, 2008

Anyone who believes the present economy is in good shape, must be defending policies of a failing government. That almost sounded like I knew what I was talking about didn't it? Truthfully, I really don't have any idea what the Federal Reserve is, so that's why I took a quick peak at the Wikipedia definition. After reading a few lines, and finding it incredibly boring, I can tell you, I still have no idea what it is. However, I figure it's important, otherwise no one would be discussing it. If I had to guess, I'd say it has something to do with influencing the amount of money flowing between banks and borrowers. Now that I've confessed my ignorance, I'll say that I doubt the Federal Reserve has much affect on the overall economy of the United States. Here's why. Whenever I hear the name Federal Reserve used, it's usually related to a rise or decrease in the prime lending rate. I have no idea how the prime lending rate is determined, but people seem to make a lot of fuss when it goes up, or down.

The Federal Reserve only appears to react to the state of the economy, and not control it. When the economy gets sluggish, which it appears to be right now, people don't like to borrow money, or can't afford to. So along comes the Federal Reserve and it's current chairman, Ben Bernanke (I've heard of him, but had to find the spelling of his name on Wikipedia again), and decides to lower interest rates intent on stimulating the economy. The thinking, of course, is that more people will decide to borrow money for cars, homes, new shoes, etc. if it is less expensive to pay back a loan. This is a formula that has probably worked time and time again, but my personal feeling is, that it's a band aid fix and over used as a stimulus for the economy. But what do I know? I'm struggling to keep my head above the poverty level.

Here's my view on the economy, for what it's worth. The economy is influenced or, 'controlled' by a number of factors. One significant factor is the impact that high fuel prices have on the cost of consumer goods. There's been a increasing rise in food prices recently, because of the higher cost to transport goods. Higher costs mean the average consumer is is less likely to purchase high priced items or make vacation travel plans. This translates into a slowing economy with consumers concerned more with savings than spending. Does anyone really think that the Federal Reserve can reverse this trend? Although the Federal Reserve may have a short term impact, I personally doubt it can sustain growth for the long run.

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