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This is a guest post by Heather Johnson, a freelance finance and economics writer, as well as a regular contributor for CurrencyTrading.net, a site for currency trading and forex trading information. Heather welcomes comments and freelancing job inquiries through email.
The Federal Reserve makes big news when it calls a press conference to make an adjustment to the interest rate, as it has recently done to help assuage fears of a recession caused by the subprime mortgage crisis. Most minimally aware people also know that the Fed plays a role in lending money to banks and clearing checks. What few but the most financially savvy realize, however, is that our nation’s bank has a host of subtler ways that it affects both our overall economy and the relative strength of the Dollar in forex markets. If you can stay apprised of the developments in these lesser-known arenas, you will gain an insider’s view of our economy. Learn to read how the Fed is functioning in the following four areas and you’ll be a step ahead of the pack: from taming the bulls and bears of Wall Street, to mastering the intricacies of the forex markets, to planning for your early retirement.
- Academic research: The Fed far exceeds its minimum public mandate to collect current economic information in order to make important decisions regarding fiscal policies. The research continually being conducted by the Federal Reserve consists of inquiries into a variety of economic arenas and includes an accumulation and careful parsing of historic information. The goal of this advanced research is to enhance the general public’s knowledge of our economy and to ensure that every level of the banking system has access to the most current data and theory. This wealth of useful information is readily available to the general public in a variety of formats and should be one of the first resources that you consult when making any decision that could affect your long-term financial health.
- Promotion of education in economics: One of the main causes of the subprime mortgage disaster has been identified as the overwhelming financial illiteracy of the American public. A lack of fiscal sophistication can leave even the most conscientious consumer vulnerable to insurmountable debt caused by poor money management skills and augmented by predatory lending practices. The Fed is combating this at its source, providing instructional workshops for teachers and promoting the “Fed Challenge,” a program that teaches economics to high school students in an engaging and interactive way.
- Supervision and support at the community level: The Federal Reserve is a national institution and must therefore take a broad view of the US economy. But to formulate these broad conclusions, the Fed monitors local communities for signs of health and weakness. This narrow oversight is done on an even more finite level, as each local institution keeps tabs on hiring practices, investment trends, developments in new construction, and any significant shifts in the housing market. Furthermore, the Fed hosts local events that assemble community developers, government agencies, and potential lenders to help provide more credit and capital to members of the local district.
- Preparation for traumatic times: Do you want to know what will happen if the Chinese dump their US securities and the Dollar goes down the toilet? What if the market falters and we have a repeat of Black Tuesday? Fortunately for you, the Federal Reserve has already asked these questions through a procedure that they call stress testing. Not only have they asked the questions, but they’ve also come up with ways to avoid ever having to test the validity of their answers. Learn from the Fed’s example by expecting the unexpected so that you’ll be able to survive the next financial crisis, and live to earn another day.
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I agree with you that lack of knowledge and money management can lead to too much debt. It is the common problem of those people who knows how to borrow but forgets to pay.