William_T._Bianco,_David_T._Canon]_American_Polit

550550 Chapter 15 | Economic Policy

more than $3.6 trillion into the economy. Late in 2017, the Fed announced it would end

this policy and start selling its assets. By July 2018, the Fed had reduced its holdings by

about $277 billion.^36

Despite the broad success of the financial rescue, it remained a political liability.

The rescue was widely perceived as a bailout of Wall Street. Many citizens were

outraged over corporate salaries and bonuses, the government bailouts, and the

perception that not enough was being done to help average Americans. The economy

lost 8.4 million jobs in 2008–2009, millions of Americans were losing their homes,

and unemployment remained stuck around 9.5 percent through 2010. Discontent

with the bailout contributed to the crushing defeat for Democrats in the 2010 midterm

elections, despite the fact that it was a bipartisan plan passed at the end of the Bush

administration. The issue continued to play a role in the 2018 midterms, with President

Trump and some Republicans calling for less regulation of the financial sector and

Democrats wanting to continue or strengthen the Obama-era reforms.

FIGURE

15.3

$0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

$1

$2

$3

$4

Trillions of$5

dollars Sept. 2008

Financial

crisis begins

$4.4 trillion

All Other

Nominal Notes

and Bonds

Mortgage-

Backed Securities

$870

billion

The Fed Balance Sheet

The amount of assets held by the Fed in mortgage-backed securities expanded after the 2008 financial crisis. What effect does

increasing the balance sheet have on the circulation of the dollar?

Source: Norbert Michel, “The Crisis Is Over: It Is Time to End Experimental Monetary Policy,” The Heritage Foundation, November 9, 2017,

http://www.heritage.org/monetary-policy/report/the-crisis-over-it-time-end-experimental-monetary-policy (accessed 9/18/14).

“Why

Should

I Care?”

The president, Congress, and the Fed all play an important role in making economic policy.

As a citizen and voter, you have a strong interest in wanting to have our elected leaders

be responsive to our preferences. Yet in the area of economic policy, one of the central

players—the Fed—is largely independent from political influence. The Fed is designed

this way to make sure that it can make unpopular decisions that may be important for the

health of the economy, such as helping to bail out Wall Street during an economic crisis.

Political goals and economic goals may not always align, so is the Fed necessary to save us

from ourselves, or should there be more democratic control of monetary policy?

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