This morning in my HS economics class, I used an illustration to explain the Reverse Re-Purchase Agreement to a class of 11th grade students. The illustration went along these lines:
“The Fed’s creation and eventual use of the Reverse Re-Purchase Agreement is like a wealthy bomb-maker creating pipe bombs and giving them to average citizens to store in their garages. The wealthy bomb-maker then realizes that if the average citizen sold them to terrorists that uncalculable damage would be done. So, the wealthy bomb maker decides to pay people to warehouse those bombs in an amount greater than what terrorists would pay (he hopes). In the same way, the Fed has created it’s most damaging instrument, money, has realized the harm, and paid member banks to keep that money from being sold on the market in the form of loans, credit cards, etc.”
Any thoughts? Does this line up with everyone’s understanding of the situation, or do you think this is an oversimplification? If this is an accurate assesment, then under what circumstances will the “pipe bombs” make it to the streets?
Thanks from a 1st time poster/newbie!
“Happiness depends on being free, and freedom depends on being courageous.”
Well firstly how old are 11th graders? I know v. little about the US system. But if they’re 14-16 you should give them more room to interpret it themselves instead of using “pipe-bomb” comparisons. Also, money is an amazing thing, and the fed didn’t create it – the fed destroyed it. And more than that, it was already being partially destroyed before then.
I would use illustrations of what happens when banks increase credit without an increase in specie, and the harmful effects of allowing banks to stop payments in times of monetary crises, as happened periodically during the 19th century in the UK and USA.
Then let them form their own conclusions about central banking. Obviously, I agree with you, but they will respect the views more if you don’t force them on them. Overall, good job though.
That said, most of the FED operations are pretty dense material for high schoolers. I’m 29 and I’ve got a damn master’s degree in econ and I still have trouble still don’t “get” a lot of what they do, and I still have trouble understanding the financial jargon…
You could devise a game begin by distributing several different types of candy in equal amounts to all the students. You could have them play “market” and exchange based on what they prefer, i.e., “I’ll trade you two Reeses for one Snickers bar…” etc. Then you could play the role of Federal Reserve in the system.
It really depends on the skill level of the class. That wouldn’t work out well in an AP-level course. I know I was bored in my senior year AP Economics because it was already too easy.