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Line 1: − + − + + + + + + + − One job of the Federal Reserve is to control [[inflation]] by adjusting the supply of money in the economy. This is done by buying and selling government bonds in order to influence banks' cash supply (called "open market operations", setting the amount of money that banks must keep in reserve, and setting the interest rates for money it lends to banks (the Fed's lending facility is called the "discount window")<ref>http://www.federalreserve.gov/pf/pdf/pf_3.pdf</ref>. These three major operations are the basis of [[monetary policy]], and are performed by the Fed to target a specific [[Federal Funds Rate]] that it believes will be low enough to ensure available credit and stimulate the economy, but high enough to prevent inflation.+ − − * Friedman and Schwartz argued that all this was due to the Fed’s failure to carry out its assigned role as the lender of last resort. Rather than providing liquidity through loans, the Fed just watched as banks dropped like flies, seemingly oblivious to the effect this would have on the money supply. [http://www.thefreemanonline.org/featured/the-great-depression-according-to-milton-friedman/ The Great Depression According to Milton Friedman] − In 2008 the Fed became a major player in many new ways, taking over several major banks (ostensibly to prevent total economic collapse) and making trillions of dollars in guarantees. See [[Financial Crisis of 2008]]. + − Federal Reserve banks are located in [[Boston]], [[New York]], [[Philadelphia]], [[Cleveland]], [[Richmond]], [[Atlanta]], [[Chicago]], [[Kansas City]], [[St. Louis]], [[Minneapolis]], [[Dallas]], and [[San Francisco]].+ − − Line 26:
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Federal Reserve System (view source)
Revision as of 02:30, November 3, 2011
, 02:30, November 3, 2011Organization
[[Image:Federal Reserve.jpg|right|thumb|300px|The Federal Reserve headquarters in Washington, DC.]]
[[Image:Federal Reserve.jpg|right|thumb|300px|The Federal Reserve headquarters in Washington, DC.]]
The '''Federal Reserve''' (also known as '''The Fed''') is a central banking system that controls the monetary system of the [[United States]].
The '''Federal Reserve''' (also known as '''The Fed''') is a central banking system that controls the monetary system of the [[United States]].
It was established by the Federal Reserve Act, which was passed by Congress and signed into law by [[President]] [[Woodrow Wilson]] in 1913. "... the Board is a federal government agency consisting of seven members appointed by the President of the United States and confirmed by the U.S. Senate."<ref> [http://www.ny.frb.org/aboutthefed/fedpoint/fed46.html Board of Governors of the Federal Reserve System] - Fedpoints - Federal Reserve Bank of New York</ref> The Federal Reserve is a private bank. The Federal Reserve is headed by a Board of Governors and a Chairman.
It was established by the Federal Reserve Act, which was passed by Congress and signed into law by [[President]] [[Woodrow Wilson]] in 1913. "... the Board is a federal government agency consisting of seven members appointed by the President of the United States and confirmed by the U.S. Senate."<ref> [http://www.ny.frb.org/aboutthefed/fedpoint/fed46.html Board of Governors of the Federal Reserve System] - Fedpoints - Federal Reserve Bank of New York</ref> The Federal Reserve is a system of private banks, twelve of which are designated as Federal Reserve Banks and have some features of public federal agencies. The Federal Reserve is headed by a Board of Governors and a Chairman. The current Chairman is [[Ben Bernanke]], a Republican appointed by President [[George W. Bush]]; his predecessor was [[Alan Greenspan]], a Republican appointed by President [[Ronald Reagan]].
The current Chairman is [[Ben Bernanke]], a Republican appointed by President [[George W. Bush]]; his predecessor was [[Alan Greenspan]], a Republican appointed by President [[Ronald Reagan]].
One of the main jobs of the Federal Reserve is to control [[inflation]] by adjusting the supply of money in the economy, while at the same time maintain the stability of the financial system and promote economic growth. This is done by buying and selling government bonds in order to influence banks' cash supply (called "open market operations"), setting the amount of money that banks must keep in reserve, and setting the interest rates for money it lends to banks (the Fed's lending facility is called the "discount window").<ref>http://www.federalreserve.gov/pf/pdf/pf_3.pdf</ref> These three major operations are the basis of [[monetary policy]], and are performed by the Fed to target a specific [[Federal Funds Rate]] that it believes will be low enough to ensure available credit and stimulate the economy, but high enough to prevent inflation. The Fed also has the responsibility of supervising and regulating banking institutions.<ref>http://www.federalreserve.gov/generalinfo/mission/default.htm</ref>
In 2008 the Fed became a major player in many new ways, taking over several major banks (ostensibly to prevent total economic collapse) and making trillions of dollars in guarantees. See [[Financial Crisis of 2008]].
Federal Reserve banks are located in [[Boston]], [[New York]], [[Philadelphia]], [[Cleveland]], [[Richmond]], [[Atlanta]], [[Chicago]], [[Kansas City]], [[St. Louis]], [[Minneapolis]], [[Dallas]], and [[San Francisco]].
==Criticism==
[[Libertarian]]s, such as [[Ron Paul]], and many conservatives want to abolish the Federal Reserve. For 30 years Ron Paul has called for the secretive Federal Reserve bank to be audited.<ref>[http://www.ronpaul.com/congress/legislation/111th-congress-200910/audit-the-federal-reserve-hr-1207/ Audit the Federal Reserve]</ref> Ron Paul's website declares "Since the Fed’s creation in 1913 the dollar has lost more than 96% of its value, and by recklessly inflating the money supply the Fed continues to distort interest rates and intentionally erodes the value of the dollar."<ref>[http://www.ronpaul.com/congress/legislation/111th-congress-200910/audit-the-federal-reserve-hr-1207/ Audit the Federal Reserve]</ref>
[[Libertarian]]s, such as [[Ron Paul]], and many conservatives want to abolish the Federal Reserve. For 30 years Ron Paul has called for the secretive Federal Reserve bank to be audited.<ref>[http://www.ronpaul.com/congress/legislation/111th-congress-200910/audit-the-federal-reserve-hr-1207/ Audit the Federal Reserve]</ref> Ron Paul's website declares "Since the Fed’s creation in 1913 the dollar has lost more than 96% of its value, and by recklessly inflating the money supply the Fed continues to distort interest rates and intentionally erodes the value of the dollar."<ref>[http://www.ronpaul.com/congress/legislation/111th-congress-200910/audit-the-federal-reserve-hr-1207/ Audit the Federal Reserve]</ref>
==Effects of the Fed's Monetary Policy==
The Fed made the [[Great Depression]] much, much worse by utterly failing in its primary responsibility. It simply did nothing, as hundreds and thousands of banks failed (see [[bank run]]). What it was supposed to do was lend them enough money to keep going!
The Fed made the [[Great Depression]] much, much worse by utterly failing in its primary responsibility. It simply did nothing, as hundreds and thousands of banks failed (see [[bank run]]). What it was supposed to do was lend them enough money to keep going!
Friedman and Schwartz argued that all this was due to the Fed’s failure to carry out its assigned role as the lender of last resort. Rather than providing liquidity through loans, the Fed just watched as banks dropped like flies, seemingly oblivious to the effect this would have on the money supply. [http://www.thefreemanonline.org/featured/the-great-depression-according-to-milton-friedman/ The Great Depression According to Milton Friedman]
==Recent Literature==
==Recent==
* Epstein, Lita & Martin, Preston (2003). ''The Complete Idiot's Guide to the Federal Reserve''. ISBN 0-02-864323-2. [http://www.amazon.com/Complete-Idiots-Guide-Federal-Reserve/dp/0028643232/ref=sr_1_2?ie=UTF8&s=books&qid=1212812900&sr=1-2 excerpt and text search]
* Epstein, Lita & Martin, Preston (2003). ''The Complete Idiot's Guide to the Federal Reserve''. ISBN 0-02-864323-2. [http://www.amazon.com/Complete-Idiots-Guide-Federal-Reserve/dp/0028643232/ref=sr_1_2?ie=UTF8&s=books&qid=1212812900&sr=1-2 excerpt and text search]
* Greenspan, Alan. '' The Age of Turbulence: Adventures in a New World'' (2007), memoirs covering his chairmanship 1987-2006 [http://www.amazon.com/Age-Turbulence-Adventures-New-World/dp/1594201315/ref=sr_1_1?ie=UTF8&s=books&qid=1212812097&sr=1-1 excerpt and text search]
* Greenspan, Alan. '' The Age of Turbulence: Adventures in a New World'' (2007), memoirs covering his chairmanship 1987-2006 [http://www.amazon.com/Age-Turbulence-Adventures-New-World/dp/1594201315/ref=sr_1_1?ie=UTF8&s=books&qid=1212812097&sr=1-1 excerpt and text search]
* Woodward, Bob. ''Maestro: Greenspan's Fed and the American Boom'' (2000) study of Greenspan in 1990s.
* Woodward, Bob. ''Maestro: Greenspan's Fed and the American Boom'' (2000) study of Greenspan in 1990s.
==Historical==
==Historical Literature==
* Broz, J. Lawrence. ''The International Origins of the Federal Reserve System'' (1997). [http://www.questia.com/read/103752688?title=The%20International%20Origins%20of%20the%20Federal%20Reserve%20System online edition]
* Broz, J. Lawrence. ''The International Origins of the Federal Reserve System'' (1997). [http://www.questia.com/read/103752688?title=The%20International%20Origins%20of%20the%20Federal%20Reserve%20System online edition]
* Carosso, Vincent P. "The Wall Street Trust from Pujo through Medina", ''Business History Review'' (1973) 47:421-37
* Carosso, Vincent P. "The Wall Street Trust from Pujo through Medina", ''Business History Review'' (1973) 47:421-37
==External Links==
==External Links==
*[http://www.federalreserve.gov/ Board of Governors of the Federal Reserve System]
[[category:Finance]]
[[category:Finance]]
[[category:Progressive Era]]
[[category:Progressive Era]]
[[category:United States History]]
[[category:United States History]]
[[category:Economic History]]
[[category:Economic History]]