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Pros And Cons Of The Federal Reserve System

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The Federal Reserve is the centralized banking system of the United States. It was designed to provide the US with a safer, more flexible, and more stable monetary and financial system (federalreserve.gov). The Federal Reserve uses various tools such as open market operations, reserve requirement, discount window lending, or quantitative easing when it comes to conducting the monetary policy. Even though some may argue on weather why they believe the Federal Reserve System is or is not beneficial to our economy, the Federal Reserve Act is still one of the most talked about laws concerning the US financial system today.
The Panic of 1907 inspired the implementation of monetary policy and led to the creation of the Federal Reserve System and the Federal Deposit Insurance Corporation (Moen and Tallman). The Panic of 1907, was one of the worst economic recessions in US history at the time. The stock market collapsing, banks were in crisis due to subsequent bank runs, and credit started to evaporate with expansion. The US believed the reason behind all of this was due to the lack of structure and the fact that there was no centralized bank. On December 23, 1913, congress established the Federal Reserve Act which was signed into law by President Woodrow Wilson (federalreserve.gov). After many …show more content…

It is when the Federal Reserve purchases and sells securities in the open market in order to expand or contract the money in circulation. The goal of implementing open market operations is to control interest rates. To increase interest rates the Feds will sell securities to banking institutions. To decrease interest rates the Feds will buy securities from these banking intuitions (Amadeo). Any type of depository institution must meet reserve requirements. Open market operations is an very important factor that is tied to the monetary policy because it is correlated with inflation and economic

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To conduct the nation’s monetary policy is to “promote maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy;” (Board). The Federal Reserve promotes the stability of the financial system. Promoting the stability of the financial system is to seek to “minimize and contain systemic risks through active monitoring and engagement in the U.S. and abroad;” (Board). The Federal Reserve promotes the safety and soundness of individual financial institutions, “and monitors their impact on the financial system as a whole;” (Board). The Federal Reserve “fosters payment and settlement system safety and efficiency through services to the banking industry and the U.S. government that facilitate U.S.-dollar transactions and payments;” and “promotes consumer protection and community development through consumer-focused supervision and examination, research and analysis of

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How Has The Congress Created The Federal Reserve System

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Congress created the Federal Reserve System, which is the central bank, on December 23rd, 1913. Dual mandate, which is the Fed’s main goals, focuses on maintaining low inflation and having a low rate of unemployment; allowing the Fed to have a clear objective in what they are trying to accomplish. The main roles of the Fed in the U.S. economy are open market operations, open market purchases, open market sales, the discount rate, and required reserves. Thus, it revolves around monetary policy and creates different ways to alter and affect how the economy is running.

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This is their field of expertise. After reading Chapter 29 and other articles I feel that if the government was in power of the Federal Reserve System and had the ability to influence all their decisions we would be in a very messy system. It is a well-known fact that you cannot make everyone happy, so when you have all the political parties chiming in your ear telling you what to do it doesn’t allow our experts in the Federal Reserve System to use their expertise and make the correct calls. There should not be any room for bias. For example, I feel that if the government had complete control they would be very tempted to just print more money to cover their debts… and while before this class I probably would have thought “well, what’s the problem with that?”

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How Did The Federal Reserve Start

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This system was established many years ago and is still in effect and functioning today. The Federal Reserve was officially established after President Wilson signed off on “The Federal Reserve Act” which Congress had proposed in December 23, 1913 (Federal Reserve.gov). “The Federal Reserve act” gave power to The Federal Reserve to issue Federal Reserve notes which we know today as dollar bills. The Federal Reserve notes are to act as a means of exchange that is to help make the financial system in America more constant. The Federal Reserve helps bring several other benefits such as making the US dollar internationally recognized as currency.

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The act was passed as to be an immediate response in times of a panic and to provide emergency currency. The Aldrich Vreeland act established the monetary commission to solve the banks and nation's financial problems long term instead of short fixes. The banker-controlled plan was developed in response to the commission under Senator Nelson Aldrich. During 1912 when Woodrow Wilson was elected he got rid of the Aldrich plan, although this helped set up for an emergency of a decentralized central bank (History of The Federal Reserve, n.d.). Even though Woodrow Wilson was not all that knowledgeable about finance and banking he sought out Virginia Representative Carter Glass.

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Established by an act of Congress in 1913, the Federal Reserve System had several goals, including stabilizing the economy, regulating the money supply, and preventing bank failures. The Federal Reserve has played a vital role in the country's financial system, and its policies have had a significant impact on the economy over the years. Its creation was a major step towards establishing a more stable and secure financial system in the United States. The Federal Reserve System has not met its goals of greater stability and low inflation, which is just further examples of the problems with it. Unfortunately, it was also created for the purpose of making credit more readily available, which drives the country further into debt.

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