Dear Jan Connell,
I have two questions.
1) Might we be on the verge of global economic collapse? Markets have tumbled globally in recent weeks. The Nasdaq composite index fell below 1900 and the Dow Jones industrial average dipped below 10,000. The blue chip index saw its worst week in more than eleven years. What does all this mean?
2) What exactly is the Federal Reserve System? Some people refer to Alan Greenspan, Chairman of the Federal Reserve Board as the most important man in the economic world. What is this all about?
— Confused and Concerned
Dear Confused and Concerned,
It is wise and admirable for you to seek information about the global economy. The role of the Federal Reserve System and the announcements of the Chairman of the Federal Reserve Board are significant, especially if you are an investor, a worker, a buyer or a saver, and if you have debt secured by a note and/or a mortgage. Perhaps certain excerpts from my newest book, Paths of Prosperity, Ways of the Healthy, Wealthy and Wise will explain.
In response to Question One about global economic collapse, it is obvious that the world's economy undergoes great shocks. The needles of commerce plunged suddenly. People seek safe havens though no economic certainty is ever guaranteed. Some of those who own the instruments of commerce lose their investments for a while. Market uncertainty presents a global incentive for investors and savers to pray more. Turbulence in the market place is a stimulus to seek God's protection at every moment. God is, after all the Source of wisdom and the Origin of prosperity.
It is the height of wisdom to turn to God more frequently during times of trial and confusion. To pray much is to hear God's Voice. As the world around us begins to tremble in fear, those who hear God's Voice know peace in their hearts and their ways. Prayer allows wisdom to attach to our actions. Wisdom brings prosperity. Prayer helps us to trust God. Prayer makes us aware of God's presence. God's Hand rests upon His little ones, and He never abandons His faithful people.
Do not fear the global market place. We now enter into a time of growth, stability and healing for America and the world. We need only persevere in seeking God's ways. He who was and is and ever shall be seeks us at all times. God calls us to draw ever nearer to His presence in and around us. The Great Provider likes to be noticed. He enjoys our confidence. With God as our Father, what is there to fear?
So do not fret as the unbelievers do. Only peace and prosperity await God's people for God is the Grateful Heart. He rewards and rewards and rewards. Do you deserve to be rewarded? If you keep God's ways, you have nothing to fear. All is well for those who dwell in the depths of God's Mercy. Trust Jesus, the Savior of all our Father's children.
Concerning global economic collapse, do not consider the future. Look to the things of the present moment. The Great Provider makes all things well for those who love and trust His power. Turn to God for solutions to your woes. God speaks in the silence of your heart. More will be made clear to you as you pray and seek God in the silence of your longings. God hears your pleas. Be living faith and trust in God's merciful love.
Do engage a trusted financial advisor who understands and supports your financial goals. Remain in close contact with that professional, especially during times of economic turbulence. As you are a faithful steward of the assets God has allowed in your life, you become loving peace for God, with God and in God.
Blessings,
Jan
P.S. To read my previous column on 401 (k) Plans and Retirement Goals click here.
(If you have a question for Jan, please email her at JaniceTConnell@compuserve.com. Please be aware that not all questions can be answered online.)
Considered a leading authority on Marian Spirituality, Jan Connell is the author of Queen of the Cosmos, The Visions of the Children, Triumph of the Immaculate Heart,Angel Power, Meetings with Mary, Praying with Mary, Prayer Power, and Queen of Angels.
The Federal Reserve System
Regarding Question Two consider the following about the Federal Reserve System. The Federal Reserve System handles the banking business of the United States government. Popularly referred to as “the Fed,” it's job is to keep the economy healthy. Dollars and their current value drive the U.S. economy. The value of the U.S. dollar fluctuates with changing economic conditions. Inflation drives down the value of money. For example, during the American Revolution, one dollar had the buying power of two and one/half pennies. People who still remember the nickel candy bar are aware that the dollar has lost 90% of its value in the last 50 years.
During fall of 2000, and the most hotly contested presidential election of the century, patrons of chic Martins Tavern in Georgetown, an upscale neighborhood in the Nation's Capital, were not surprised to hear the bartender loudly exclaim: “Alan Greenspan is probably the most important man in the world.” Obviously guests agreed with him. The television set high above the gleaming bar showed no baseball playoff game or even information about the impending election. Hushed guests silently gathered around the bar to await an impending announcement by Mr. Greenspan, Chairman of the Federal Reserve Board, and with good reason. The Federal Reserve System essentially creates money in the United States. By regulating the money in circulation, injecting or withdrawing funds as economic conditions require, the economy flourishes. No one knows exactly how or why this system has been so successful recently although there are erudite and convincing theories by esteemed economists that explain facets of the process.
In modern times, the Federal Reserve Board constantly monitors the amount of money in circulation. The Board's action affects the financial well-being of everyone in the nation in some way. By buying and selling government securities in response to present economic indicators, the Federal Reserve maintains the purchasing power of the dollar. The Federal Reserve preserves the purchasing power of the dollar throughout the United States by auditing records of all the banks in its national system, thereby insuring compliance with banking rules and the underlying quality of outstanding member bank loans. This function as monetary regulator allows the Fed to be the main watchdog against inflation.
The Federal Reserve maintains bank accounts for many government and quasi-government agencies, as well as the U.S. Treasury that writes over 80 million Treasury checks each year. The Federal Reserve acts as the national clearing-house for checks and facilitates the transfer of funds with more than 15 billion transactions each year. The Federal Reserve will lend money to member banks. The charge for this service is called the Discount Rate.
The Federal Reserve System is vast in the United States with twelve separate district banks and twenty-five regional branches throughout the country. Approximately half of all the banks in the United States belong to the Federal Reserve System, including all national banks. State chartered banks are eligible for membership only if they comply with the financial standards established by the Federal Reserve.
An increase in the quantity of money in circulation causes prices to go up. Conversely, a decrease in the money supply causes prices to go down. When the Federal Reserve bank buys securities, it places new paper money in circulation. This action tends to stimulate the economy. To expand the supply of money in circulation, the Federal Reserve Bank of New York buys government securities with intrinsic worth from banks and brokerage firms. The money used to pay for these valuable securities is created out of nothing by the Federal Reserve. It is, in effect, newly printed money backed by nothing but the full faith and credit of the United States government. It now has value however, because the securities the Federal Reserve has purchased with the newly created paper money are valuable.
When the Federal Reserve Bank sells securities, it effectively takes money out of circulation that otherwise would be available for lending and back into the government coffers. This action slows down the economy.
The supply of money in circulation is regulated by the Federal Reserve by means of the rate of interest charged for the use of money. By increasing or decreasing the discount rate it charges member banks to borrow from them, the Federal Reserve creates a ripple effect throughout the nation. The Fed can lower or raise rates as it determines. There is no limit on the amount of money that the Federal Reserve can create. In a typical month, the Fed may place as much as $4 billion or as little as $1 billion into the U.S. economy.
In a simplistic example, suppose the Federal Reserve buys one hundred million dollars worth of securities from a brokerage firm. The brokerage firm delivers the securities and deposits the check for one hundred million dollars in its own bank. The bank then lends its customers ninety million of the deposit, while setting aside ten million dollars (10% to comply with the Federal Reserve requirement that all member banks hold 10% of their outstanding loans as reserves). Consumers then borrow from the bank to buy houses, fund businesses, pay for education and consumer products. The consumers, in turn use the funds they have borrowed to support purchasing choices. Loan processes involve a wide range of banks, lending institutions and businesses. The $100 million that the Federal Reserve added to the money supply could, in theory, become almost $900 million in new money.
Investments are means by which consumers put their money to work for them. Some choose supervised, regulated economic structures as investment vehicles. Many invest without adequate knowledge of the risks and inflated expectations about rewards. Dollars can earn interest, be loaned or used to make investments in American and international companies and governments. There probably are as many ways to invest money as grains of sand on the nearest seashore. And there are just as many ways to lose invested money.
Ten thousand tons of gold, more than any other deposit of gold in the world, is stored in the vault of the Federal Reserve Bank in New York. This gold bullion, the property of foreign governments, is used in international business.
Global monetary mechanisms are in place that allow prosperity to grow and spread to every nation and person. Worry and fear are useless. On the cross, Christ proved that nothing conquers believers – not global economic disruptions, not even the grave. The best human posture is on our knees before God. Though we learn slowly, with God's grace we do eventually succeed.
