Complexities of the U.S. Financial System

Complexities of the U.S. Financial System
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Complexities of the U.S. Financial System
Financial markets that operate smoothly and developed well are crucial in promoting the wellbeing and efficiency of the economy in the US. The economic growth in the US can be realized if the regions’ financial markets are developed. Financial markets give different investors the opportunity to operate in specific markets or diversify their risks. Financial markets impact the economy, businesses, and individuals differently.
One-way financial markets impact the economy is by directing the overall flow of investments and savings in the economy in ways that ensure capital accumulation and the provision of goods and services (Mian, 2010). Developed financial markets with different instruments and products are needed by both lenders and borrowers who make up the economy. The financial markets also affect businesses as they are known to be the greatest beneficiaries when it comes to accessing credit facilities.
A smooth economy can finance businesses without problems. When financial markets refuse to offer credit facilities to businesses, they often become irrelevant when there is a need to provide quality and timely services and goods to their customers. Increased interest rates often make it hard for companies to secure loans leading to layoffs. Such a move is considered when corporations desire to reduce costs and avoid failing on their part while providing goods and services.

When people lose jobs they usually spend less and this in turn affects the businesses and the economy at large.
The Federal Reserve which is commonly referred to as the Fed is the central bank with the mandate of lending and advising financial institutions on matters of finance. The Fed’s main role is to ensure stable, safe and flexible monetary system and was created by Congress in the year 1913 (Piazzesi 2005). Other roles of the Fed include taking part in monetary policy with the aim of ensuring credit and money in the economy. It also has a mandate of regulating and supervising financial institutions for purposes of having a sound banking system in the US and taking care of the rights of consumers. Lastly, they ensure the stability of the US financial system and putting under control the systemic risk that may occur in financial markets.
The current chair of the Fed, who is also heading the central banking system, is Janet Yellen. She is the first lady to hold the position, and she was appointed in the year 2014. The vice chairman is Fisher Stanley while the board members include Tarullo Daniel, Powell Jerome, and Brainard Lael. The chair is effective and to make changes as mandated by Congress. The members are also in a position to effect changes that are necessary to contain the economic environment without problems.
Interest rates have both positive and negative impacts to the US economy. When interest rates decrease, consumers tend to have more money for spending, and this can create a ripple effect in the economy. High-interest rates, on the other hand, lead to minimal spending and even banks make few loan disbursements. Such a situation affects both individuals and farmers who are in the economy.
In conclusion, when the Fed decides to raise the levels of interest rates the dollar exchange value usually goes up too. One single way the US has an effect to the global economy is by using its buying power. When gas prices rise, and the dollar goes down most people in the US buy such products at a lower price. Therefore, such an increase will lead to a low demand for countries that export products to the US.
References
Mian, A., Sufi, A., & Trebbi, F. (2010). The political economy of the US mortgage default crisis. American Economic Review, 100(5), 1967-1998.
Piazzesi, M. (2005). Bond Yields and the Federal Reserve. Journal of Political Economy.