5/20 Journal

This morning’s topics covered monetary policy. Along with fiscal policy, trade policy,
etc., taxes and government spending, money supply and interest rate, tariffs, subsidies, exchange
rates, quotas and VER, etc. just to name a few are examples of macroeconomic policies. Some of
the origins of the Federal Reserve System are the resistance to the establishment of a central
bank, no lender of last resort, and the Federal Reserve Act of 1913. The resistance to the
establishment of a central bank came from the fear of a centralized power, and distrust of
moneyed interests. When it comes to no lender of last resort, there was nationwide bank panics
on a regular basis which led to bank runs. For example, the panic of 1907 was so severe that the
public was convinced that a central bank was needed. The Federal Reserve Act of 1913 led to an
elaborate system of checks and balances and was decentralized. The board of governors appoints
three directors to each of the 12 Federal Reserve Banks (FRBs). The 12 FRBs have 9 directors 6
of which appoint the President and other officers of the FRB. The 12 FRBs then elect 6 directors
to each FRB. The member banks have around 2,000-member commercial banks. The 12 FRBs
then select the Federal Advisory Council where 12 of the members are bankers—one from each
district. The Board of Governors sets (within limits) the reserve requirements. The Board of
Governors also sets the interest paid on reserves. In addition, the discount rate is reviewed and
determined by the Board of Governors. The FOMC directs open market operations, advises
reserve requirements, advises interest paid on reserves, and advises the discount rate. The 12
FRBs establish the discount rate. The next topic within monetary supply that was discusses was
the money supply process. The three players in the money supply process are the central bank,
otherwise known as the Federal Reserve System (Fed), Banks, and depositors. The monetary
base is made up of currency in circulation and reserves. Within monetary policy there are both
open market purchases and open market sales. When the Fed conducts open-market purchases, it
buys Treasury securities, which increases the money supply. When the Fed conducts open-
market sales, it sells Treasury securities, which decreases the money supply.
The Federal Reserve System is made up of three sections: the Board of Governors, the
twelve FRBs, and the FOMC. The Federal Reserve System is also referred to as the Bankers’
bank. Board of Governors deals with the centralized National Authority aspect of the Federal
Reserve System. The reserve banks are responsible for regional independence. Lastly, the FOMC
is responsible for setting the nation’s monetary policy. The goals of the federal reserve system is
to help banks acquire emergency cash reserves and improve the efficiency of the national
payment system. The Board of Governors is made up of 7 members who are appointed by the
President of the U.S. and confirmed by the Senate. They are responsible for supervising and
regulating certain financial institutions and activities. In addition, they oversee the 12 FRBs
operations and participate in the FOMC. The 12 FRBs are comprised by the 12 districts within
the Federal Reserve System. Each of the FRBs is served by the Federal Reserve President and is
responsible for one or more banks. The FRB members meet eight times per year. The FRBs are
responsible for providing financial services, contributing to monetary policy, and supervising
commercial banks. Lastly, the FOMC is considered to be the monetary policymaking body of the
Federal Reserve System. The voting members are the only members who are allowed to vote.
Voting members are the 7 board governors, the President of New York FRB, and 4 other FRB
presidents who serve on a rotating basis. The FOMC oversees open market operations, which is
the main tool used by the Federal Reserve to execute monetary policy.
The U.S. experienced an unusual economic downturn in the middle of 2020. The three
reasons this economic downturn was unusual are as follows: The cause of the downturn in 2020
is considered to be an unusual feature. In other words, the novel Coronavirus was impacting the
whole world. Large portions of the economy, such as movie theaters, sporting events, concerts,
and restaurants (except for take-out) were ordered to be closed by either the state governors or
the city mayors. During that time air travel fell by more than 95%. The exceptional speed and
depth of the 2020 economic downturn was another unusual feature. Employment fell from 61.1
% of the adult population in February 2020 to 51.3% in April 2020. This is by far considered the
largest two-month drop ever recorded. The rate of unemployment was the highest since the Great
Depression in April 2020 it sat at 14.7%. The third unusual feature of the 2020 economic
downturn was the fact that it was intentional. The economic downturn of 2020 was not viewed as
an accident like most recessions usually are, in contrast, it was considered to be a recession by
design. In order to curb the Covid-19 pandemic, policymakers compelled changes in behavior
that in turn reduced production and employment. In March 2020, many places were people go to
buy things, such as restaurants and retail stores, were shut down due to government mandates. In
order to reduce the risk of infection, people avoided the business that were open; therefore, the
velocity of money was reduced by the behaviors of people beginning that same month. In this
instance the aggregate demand curve shifted to the left. The short-run aggregate supply (SRAS)
curve represented the prices that the firms are willing to sell their products; therefore, since the
pandemic did not have an immediate effect on price, therefore, the SRAS curve remained the
same. On the other hand, the long-run aggregate supply (LRAS) curve is used to represent the
natural level of output—the production of goods and services when unemployment is at its
natural rate. The economy’s potential for producing goods and services ended up shifting the
LRAS curve to the left. The Coronavirus Aid, Relief, and Economic Security (CARES) Act was
signed into law on March 27, 2020 which is worth about $ 2 trillion and considered to be the
largest fiscal response to a recession in history. Policy response included social insurance,
disaster relief, unemployment insurance eligibility expansion where benefits were temporarily
increased by $600 per week. Small businesses were offered loans that could be forgiven and
turned into grants if they did not layoff any workers for the next two months. The CARES Act
had several provisions that were used to promote continuity. It was part of the motivation behind
the forgivable loans to small businesses. In addition, the CARES act also provided funds that
enabled the Federal Reserve to lend to larger businesses, states, and municipalities; therefore,
expanding the Fed’s role as lender of last resort. It also increased the authority of the Treasury
Secretary to make loans and loan guarantees to eligible businesses, state, and municipalities.
Critics pointed out that these policy moves also had flaws. Additionally, the CARES Act
significantly widened the Federal government’s budget deficit to $3.7 trillion.
This afternoon, with Dr. Ngamassi, we covered the topic of cybersecurity. Two of the
other participants in this program, Sean Johnson and Maria Okomo gave presentations on the
topics of cybersecurity threats, vulnerabilities, and exploits, and cybersecurity breaches and
threat mitigations, respectively. According to the National Institute of Standards and Technology
(NIST), a cybersecurity threat is an event or condition that has the potential for causing asset loss
and the undesirable consequences or impact from such loss. When referring to assets—they
include information, software, and hardware. The specific causes of assets loss arise from a
variety of situations and events related to adversity, which are typically referred to as disruptions,
hazards, or threats. Asset loss constitutes all forms of intentional, unintentional, accidental,
incidental, misuse, abuse, error, weakness, defect, fault, and/or failure events and associated
conditions. Cybersecurity threats should be assessed and remediated to prevent ongoing or future
impacts. Weaknesses or flaws in system security procedures, design, implementation and control
that could be compromised accidentally or intentionally. Next, is a cybersecurity exploit which
follows the identification of a system vulnerability. An exploit is the means through which a
system vulnerability can be used by a hacker to execute a malicious attack. A cybersecurity
breach occurs when a hacker gains unauthorized access to an organization’s systems, data and
information. Security breaches are early-stage intrusions that can lead to system damage, data
loss, and network downtime. Security breaches occur in a variety of ways which includes:
spyware, impersonation, viruses, and distributed denial of service (DDoS) attacks. Cybersecurity
threat mitigation includes the policies and procedures that are put in place by an organization to
help prevent against security incidents, data breaches, and unauthorized network access.
Mitigation also includes policies and procedures to mitigate damage if and when a security attack
occurs. The three main components of threat mitigation are: prevention, identification, and cures.
Threat prevention includes the policies and procedures an organization has designed and
implemented to protect systems and data. Threat identification includes the security tools and
oversight designed to identify specific and active security threats. Threat cures are the policies,
tools, and strategies used to lessen the impact of active security threats.