At the heart of U.S. monetary policy is the Federal Reserve System. The Federal Reserve controls the money supply to member banks, and the interest rates that money can be lent and borrowed at. They also can control the money supply through open market sales on a much smaller level, but interest rates and reserve requirements are the big tools that the Federal Reserve uses to control the economy.

A basic explanation of the functions of the monetary policy tools is necessary at this point so the positions of the actors and political ideologies can be understood. This purposes of these tools can best be explained by Paul Peretz:

Monetary policies determine the amount of money and credit that is available in a society. When the amount of money and credit is reduced, the price the borrowers have to pay for money (th

This is the reason behind Edward R. Tufte's theory on political control of the economy. Tufte thinks that Presidents try to pump up the economy before elections, especially incumbents. The purpose of this is to gain electoral support going into the polls. Both parties have different methods for achieving their goals. Republicans typically depress the economy prior to the election then take the brakes off. Democrats try to stimulate the economy previous to the election. Both ways have the same goal, to increase the amount of disposable income.

The Democratic Party typically wants lower interest rates. They are willing to risk inflation for economic growth. This is most historically prevalent during the Great Depression. Massive government spending to stimulate the economy and lower astronomical unemployment rates came under Franklin Roosevelt, a Democratic president.

The Federal Reserve acts as an independent agency. Its members serve comparatively long terms and are politically insulated to a certain degree. My previous paper touched upon the debate over whether something so important as economic stabilization should be controlled by a body that is so independent. This can be related to the ideological differences between the parties and their beliefs on monetary policy.

Other federal agencies play a role in economic policy because it affects their policy initiatives and implementation. Two examples are the FFIEC (The Federal Financial Institutions Examinations Council) and the FDIC (Federal Deposit Insurance Corporation). The FFIEC as a specific mission, "The Council is a formal interagency body empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions" (FFEIC, 1999). The FFIEC is responsible for supervising and regulating the actions of banks. The success of the Federal Reserve depends upon the performance of banks. If they act irresponsibly, then the Federal Reserve can have problems stabilizing the economy. The Federal Reserve Board National Information Center "provides comprehensive information on banks and other institutions for which the Federal Reserve has a supervisory, regulatory, or research interest including both domestic and foreign banking organizations operating in the U.S." (National Information Center Website, 1999).

"The Committee will hold hearings on the Federal Reserve Board's semi-annual reports on the conduct of the nation's monetary policy. . .. No Committee has a greater oversight obligation than the Banking Committee with its jurisdiction over the Federal Reserve Board and its conduct of monetary policy. In this regard, the combination of a more disciplined fiscal policy promulgated by Congress and the continued prudential stewardship of monetary policy by Chairman Greenspan has produced the longest peacetime growth in modern times. Given many economic and financial difficulties globally, however, it is important to understand how these problems could affect the U.S. domestic econo

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