Yousif Nasr 11 /7/ 2023 Fall 2023 Midterm Examination Part One: Key Principles Semiotics of Money: The design, images, and text on currency, as well as the physical attributes of money, are not just practical features but powerful communicators. They convey cultural, historical, and political meanings. Wennerlind's exploration of the Semiotics of Money delves into this aspect. For example, in the article "Money Talks But What Is It Saying: Semiotics of Money, Wennerlind (2001)" states "Money has the capacity to communicate a multiplicity of meanings depending on how the symbol is structured in reality." The choice of symbols on a currency can represent national pride, historical achievements, or political ideologies, Also how a country might depict its leaders, landmarks, or cultural symbols on banknotes. The design itself becomes a visual narrative, telling a story about the values and priorities of that society. Symbolic Value : Different currencies and monetary symbols act as mirrors reflecting the essence of a society. These symbols carry historical baggage, political ideologies, and cultural values. For instance, in "Money Talks But What Is It Saying: Semiotics of Money, Wennerlind (2001)" states " The participants in the symbolic system now make promises to society in general to accept the symbol as a universal equivalent in trade. To the extent that the symbol is successful in communicating the confidence necessary to forge large trading networks, the penalty of expulsion for not honoring promises symbolized by the use of money becomes all the greater". The choice of national heroes or historical events on a currency can reinforce a sense of identity and shared history. In The TED Talk, "Harnessing the Power of Money," Pitt-Watson touches upon the historical significance of money, emphasizing how it represents the collective decisions and priorities of a society. Money, in this context, becomes a tangible representation of a society's narrative. Social Control: Moving on to how monetary systems shape social hierarchies and control, Wennerlind's exploration of Social Control in the Semiotics of Money becomes crucial. Money is not only a medium of exchange but a tool for shaping and maintaining social order. Governments and institutions use monetary policies to influence individual and collective behaviors. For example, in "Money Talks But What Is It Saying: Semiotics of Money, Wennerlind (2001)" states " The social power acquired through the imposition of social control over one set of people is no longer limited to those directly exploited. Money allows the social power attained in one industry or region to be transferred and applied to any other sector or sphere ruled by the economic trinity. Factors such as the distribution of wealth, taxation policies, and access to credit play pivotal roles in contributing to social categorization. Pitt-Watson's TED Talk emphasizes how governments and institutions wield this power knowingly or unknowingly, affecting the daily lives of individuals. The constant pursuit of wealth, as discussed in the TED Talk, has profound implications on individual identity and social interactions. The relentless chase for financial success can lead to a focus on material possessions. In the context of Wennerlind's discussion on Consumerism and Materialism, money becomes a driving force behind personal identity. The possession of certain goods can signal success or status in society, shaping how individuals perceive themselves and how others perceive them. Part Two: Key Concepts Monetary Trends (Historical Context): In The Role of Money: Monetary Trends in the United States and United Kingdom article, the historical context of monetary trends is exemplified by the transition from the gold standard to fiat currency. The abandonment of the gold standard during the Great Depression allowed policymakers to implement monetary policies that could address economic challenges more flexibly. For example, the article states "The Great Depression in the United States and the stagnation in the United Kingdom from the mid-1920s until World War II in both countries produced a temporary upward shift in the quantity of money demanded for given values of the other variables—a shift we interpret as reflecting a widespread perception that there was greater economic uncertainty to which a high desired level of liquidity was one response." This shows the gold standard led to new monetary policies put in place to address these challenges. The TED Talk “What is Economic Value, and Who Creates It” also explains how historical monetary trends, such as moving away from fixed exchange rates, have influenced the contemporary understanding of economic value. For instance, the flexibility provided by fiat currency allows central banks to adjust interest rates and money supply to stabilize economies during crises. The concept of "Monetary Trends" has evolved from a historical context to remain relevant in contemporary settings. While the specific monetary policies and systems have changed, the fundamental importance of monetary stability for economic prosperity has endured. Lessons from historical trends in money supply, interest rates, and inflation continue to inform modern central banking practices. Digital Currency (Contemporary Context): In the article "The Digitization of Money", the key concept of "Digital Currency" is examined in a contemporary context. This concept pertains to the ongoing transition from physical cash to digital forms of currency, including cryptocurrencies and digital payment systems. In the contemporary context, digital currency has become increasingly relevant as technological advancements have transformed the way we conduct financial transactions. For instance, "The Digitization of Money" states " Modern e-money and cryptocurrencies are also token money. For example, to transact currency on Alipay’s network, all that is needed is a password linked to a particular digital “wallet.” No one is required to verify that the person who presented the password is the wallet’s true owner". This shows how the rise of cryptocurrencies like Bitcoin and the development of central bank digital currencies (CBDCs) represent significant changes in how money is created, stored, and transferred. These developments have implications for financial systems, privacy, and the role of central banks in managing money supply. In contrast to the concept of "Monetary Trends", the concept of "Digital Currency" has emerged as a significant development in the contemporary context, reflecting the evolution of technology and the changing preferences of consumers. As digital currencies gain prominence, they challenge traditional banking and payment systems. The digitization of money has the potential to increase financial inclusion, facilitate cross-border transactions, and provide greater access to financial services for underserved populations. In the TED Talk “What is Economic Value, and Who Creates It” Mazzucato emphasizes the role of the public sector in driving innovation. In the context of digital currency, we can consider projects like central bank digital currencies (CBDCs). Countries exploring or implementing CBDCs, often driven by central banks, exemplify how the public sector plays a crucial role in shaping the future of money through digital means. Part Three: Formulas and Graphs According to The Decline of Traditional Banking - Implications for Financial Stability and Regulatory Policy Edwards and Mishkin, 1995). This graph shows an example of when a particular industry becomes less profitable it tends to lead to companies exiting the industry through bankruptcies. This was observed in the banking sector, in the United States during the 1980s. From the 1960s to the 1980s there were typically ten bank failures per year in the United States. However in the 1980s there was an increase in bank failures reaching over 200, per year by the late 1980s. One article I came across is “What Is Systemic Risk and How Does It Lead to a Banking Crisis?” Bougheas, Spiros.The Conversation. The article mentions the collapse of Silicon Valley Bank (SVB) and the subsequent collapse of Credit Suisse. The concept of balance sheet contagion, as described in the article, explains how the failure of a relatively small institution (SVB) can have a cascading effect on larger interconnected banks, leading to a global crisis. In the 1980s, economic conditions and industry challenges may have contributed to the surge in bank failures, possibly driven by factors such as economic recessions, changes in regulatory environments, or shifts in market dynamics. Similarly, the recent collapse of SVB could be attributed to specific economic conditions or challenges within the technology and innovation sector, mirroring the challenges faced by banks in the 1980s. During the 1980s, the graph suggests that a decline in industry profitability led to an increase in bankruptcies, indicating that banks were facing financial difficulties and were unable to sustain their operations. In the contemporary scenario, the collapse of SVB and its global repercussions may similarly be linked to challenges affecting the profitability and viability of the bank, contributing to its failure. After experiencing an increase in bank failures during the 1980s regulators likely took action to address the weaknesses that were identified during that time. According to the article, even though regulators made efforts to minimize the impact of SVBs collapse there were still repercussions. This suggests that the lessons learned from banking crises might not have completely eliminated risks to the system. Part Four: Analytic Analysis The historical context leading to the establishment of the Federal Reserve, in 1913 was shaped by crises. The need for a stable banking system. However, there has been criticism of the Federal Reserve for its inability to prevent the housing market crash in 2007. The movie mentions that the Fed has the authority to create money without limits. It also acknowledges the consequences of its actions, such as providing trillions of dollars in loans to corporations. An example cited is when AIG's unregulated derivatives unit received a bailout from the Fed in 2008 showcasing how they responded during a crisis. The movie "Money for Nothing: Inside the Federal Reserve" highlights how the Federal Reserve regulates the money supply by setting interest rates. It points out that despite having control over policy they failed to prevent the housing bubble from forming. To illustrate this point specific instances like the burst of the dot-com bubble and the aftermath of the 9/11 attacks are mentioned, which led to interest rate cuts by the Fed but resulted in consequences such as an unsustainable housing market. The historical development of the Federal Reserve is explored well including events like delinking the dollar from gold in 1971. One notable example is Paul Volcker's appointment as Chairman of the Federal Reserve in 1979, with a mission to tackle inflation. Volcker's commitment to his policies despite facing opposition ultimately led to a period of stability known as the Great Moderation. Alan Greenspan's tenure as leader of the Federal Reserve on the other hand was characterized by an ideology that emphasized markets and limited regulation. Unfortunately, this approach had consequences. Culminated in the financial crisis of 2008. The impact of the Federal Reserve policies on today's economy can be seen in how it has distorted the housing market. Specifically low interest rates played a role in fueling a housing bubble. People were enticed by access to credit. Ended up borrowing excessively. The collapse of Lehman Brothers during the crisis in 2008 serves as a concrete example of how these policies had far-reaching implications for the overall economy. A contemporary news article I came across was “ Freedman, Eric. “Federal Reserve to Taper Bond Purchases and Raise Interest Rates | U.S.” The contemporary news article provides an analysis of the Federal Reserve's present policy response to inflation, offering valuable insights that can be correlated with the themes explored in "Money for Nothing: Inside the Federal Reserve." Notably, the article delves into the Federal Reserve's decision to uphold high-interest rates following a prior hike, emphasizing the central bank's crucial role in utilizing interest rates as a tool to counter inflationary pressures. This mirrors the historical context presented in the documentary, where the Fed's influence over interest rates and its consequent impact on the broader economy is underscored. Moreover, the article sheds light on a pivotal shift in the Federal Reserve's approach, moving away from its longstanding "easy money" stance that originated in the aftermath of the 2008 financial crisis. This strategic shift aligns seamlessly with the documentary's exploration of the Fed's historical development and functions, illustrating the central bank's adaptability to changing economic conditions. The article details the Fed's adoption of a "quantitative tightening" approach, reducing its participation in the bond market. This action connects with the documentary's elucidation of the intricate relationship between the central bank and financial markets, exemplified by changes in the bond market and an inverted yield curve dynamic. Lastly, the article highlights the Federal Reserve's unwavering focus on combating inflation, providing real-time examples of its commitment to achieving a 2% annual inflation target. This thematic emphasis resonates with the documentary's examination of the Fed's role in managing inflation and the inherent challenges in reaching that goal. The interconnectedness between the Federal Reserve's policies, financial markets, and the broader economy is distinctly demonstrated in both the contemporary analysis and the historical perspective presented in the documentary. Articles Citations : ● Money Talks But What Is It Saying: Semiotics of Money, Wennerlind (2001) ● Pitt-Watson, David. 2019. Harnessing the Power of Money. TED Talk ● The Role of Money: Monetary Trends in the United States and United Kingdom - Their Relation to Income, Prices, and Interest Rates, 1867-1975 (Friedman and Schwartz, 1982). ● The Digitization of Money (Brunnermeier and Landau, 2019) ● Mazzucato, Mariana. 2019. What is Economic Value, and Who Creates It? TED Talk ● The Decline of Traditional Banking - Implications for Financial Stability and Regulatory Policy Edwards and Mishkin, 1995) ● Bougheas, Spiros. “What Is Systemic Risk and How Does It Lead to a Banking Crisis?” The Conversation, https://theconversation.com/what-is-systemic-risk-and-how-does-it-lead-to-a-bankingcrisis-202174 ● Bruce, Jim. Money for Nothing: Inside the Federal Reserve. (2013). ● Freedman, Eric. “Federal Reserve to Taper Bond Purchases and Raise Interest Rates | U.S. Bank.” Www.usbank.com, 23 Mar. 2023, www.usbank.com/investing/financial-perspectives/market-news/federal-reserve-taperi ng-asset-purchases.html.
