TEAM OS

ESSAY
Federal Reserve System
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Federal Reserve System

The Federal Reserve (Fed) is the central banking system of United States and it was created by
the U.S Congress in 1913.1
Why Federal Reserve Created?
In United States two major periods of central banks exists before creating the Fed, one is created
in 1791 and the second one in 1816. Both of these are creating to stop the economic collapses
and for maintaining a well controlled banking policy. However in 1811, the central banks fear
being very influential for setting the financial strategy and Congress failed to renew the 1st
national charter of bank. When then President Andrew Jackson refused to renew, the period of
central bank 1816 ended in 1836. A chain of banks of US collapses in 1873 and 1907. Moreover,
banks started recalling all of their loans to pay off customers because people were demanding
their money in 1907.2
The plan was unsuccessful to sold the large blocks of deceptive bonds and stocks United Copper
Company and the banks went bankrupt because they were involved in this plan. Hence in 1907, a
congressional investigation concluded that a central bank was necessary. The general public had
little faith in the banking system because there was no formal organization for studying and
executing the monetary policy in the United States. Therefore, in 1913 a law was passed and
independent entity was created named The Federal Reserve. However, the subject of Fed is

1 B. Grey, G. (2015). Federal Reserve System: Background, Analyses and Bibliography. New York: Nova Science
2Wells, D. (2015). The Federal Reserve System: A History. North Carolina: McFarland & Company, Inc.

oversight by the Congress. The decisions of Fed do not ratified by the President of US; however
congress may periodically review the activities of Fed.3
Federal Reserve System & Duties:
The system of Federal Reserve headed by the government agency named Board of Governors in
Washington. The president appoints 7 appointees in Board of Governors and the term of each
appointee is fourteen years and this Board appoints the Feds Chairman and vice Chairmen.
Moreover, there are twelve federal reserve banks that are located in the in the major cities of US
that work under the command of Board of Governors. The Fed generates own revenues from
these sources; providing services to bank, provide loan to depository institutions, earn interest on
loan, and earn interest from the securities of government acquired while carrying out the work on
the Fed.
The Federal Reserve System also includes the Committee of Federal Open Market known as
FOMC. The FOMC is the branch of policy making of the Fed. In Board of Governors there are
seven FOMC voting members, the president of four Reserve Banks and the Federal Reserve
Bank of New York who serve on a rotating basis of 1 year. Moreover the presidents of all
Reserve Bank are participating in the policy discussions of FOMC. Moreover, The FOMC makes
the important decisions about interest rates and economic policies. And finally, all national banks
are the part of the Federal Reserve System and referred as member banks.4

3 Koba, M. (2015). Understanding what informs Fed policy decisions. CNBC. Retrieved 15 November 2015, from
http://www.cnbc.com/id/43752521

4 Staff, I. (2003). The Federal Reserve: What Is The Fed? | Investopedia. Retrieved 15 November 2015, from
http://www.investopedia.com/university/thefed/fed1.asp

The Federal Reserve is perform main duties in four general areas: (i) the monetary policy of the
nation is conducting by the Fed and influencing in the Countrys economy by implementing the
borrowing and financial conditions in recreation of maximum employment, moderate long-term
interest rates and stable prices. (ii) The Fed also regulates and supervises the banking institutions
to ensure the soundness and safety of the financial and banking system and protect the credit
rights of clients. (iii) Preserving or maintaining the financial statement stability and containing
the systemic risk that arises in the financial markets. And finally, providing the financial services
to foreign official institutions, U.S government and depository institutions and playing a key role
in operating the payment system of the nation.5
Monetary Policy
Monetary policy is the regulation of rate of interest and the money availability in order to prevent
downturns and provide economic growth. The European Monetary System (EMS) was
established in 1979, under the Commission of Jenkins European, where most of the European
economic nations Community (EEC) are associated with their currencies to avoid the outsized
fluctuations comparative to one another. Moreover, The Fed makes decisions over monetary
policy and if the economy needs to create more jobs and grow faster than the Fed supply more
credit to banks for lending. The rate of interest is lower that a banks use to borrow funds or
capital from the Fed and it makes cheaper for banks to lend. Therefore, the Fed maintains lower
banks' reserve and lends more to consumers, businesses and other banks. This Feds strategy
increases the money supply in the economy. Additionally, the Fed raises the money supply by
buying the government securities from the public. Hence, for buying the government securities
5 The Federal Reserve System Purposes & Functions. (2005) (9th ed.). Retrieved from
http://www.federalreserve.gov/pf/pdf/pf_1.pdf

makes more available money with the intention of boosting the economy and increasing the
consumer spending increasing.6
Nowadays, if the Fed believes that the economy is shows more upward trend or growing fast and
needs to slow down the growth to control inflation than they increased the costs of products and
vice versa. The Fed also slows down the economy by increasing the Loan interest rates, so the
banks hold their money and as a result lending will decrease. Finally, the Fed also stops buying
the government securities from general public for reducing the inflation by controlling the
economic growth. According to Wheelan, the pseudo-economic interpretation is the action of the
Federal Reserve System and the gigantic image is that the main function of Federal Reserve is to
carry on the smooth rate of Countrys economic growth. Moreover, he said that the monetary
policy is a complicated business and it is hard job for Fed to make appropriate monetary policy.
However, an experienced hand on credit taps of America will beats the market chaos alternative
and we get if money is a product will not being capable to manipulated for the purposes of
macroeconomics.7
Why Federal Reserve is a Bad force
The decisions of Fed have a major impact on daily life of every inhabitants of United States.
Sometimes, Fed wants to slow down the economy so they raises the interest rates that means the
intangible assets ( Land, Property, Plant & Equipment) becomes more expensive, if the consumer
wants to buy the intangible or other non-current assets on a loan. The interest rates of Credit card
6 Koba, M. (2015). Understanding what informs Fed policy decisions. CNBC. Retrieved 15 November
2015, from http://www.cnbc.com/id/43752521
7 Wheelan, C. (2002). Naked Economics. New York: Norton.

also increasing and due to low demand, the unemployment rate will increase because the
organizations wanted to lay off the people. Thats why the common perception of inhabitants of
Americans is that the Fed is bad, however few of them can explain logically why the fed is bad.
Moreover, for many years the central bank has controlled by an unelected identity has controlled
the currency of America and has driven the United States government to the edge of liquidation.8
Now we discuss some logical reasons why the force of fed is bad. Firstly, the Fed devalues the
currency. According to the laws of demand and supply to money if the consumer holds more
money (dollars) holds than the worth of currency becomes less. While the Fed was created the
dollar of U.S. lost 96% of its purchasing power worth. 9 Moreover, the boards of directors of Fed
are not directly elected by the citizens of U.S. All the seven members of Fed decide the
purchasing power of U.S currency and also control the money supply. The Fed is principally
responsible for the deficit budget because Congress spent huge out of control money.10 Moreover,
the federal government generates revenue only through borrowing money, printing and taxation.
The preferred method of federal government is to Printing the money and this is the most
destructive method because it has a continuous spending cycle and more money is printing. The
Fed can pump or pull out trillions into the economy without being answerable to government
department. Therefore the consequence is disastrous because that form of central planning would
never exits in the economy of free market. Additionally in 1929, the stock market of U.S. had
8 Snyder, M. (2010). 11 Reasons Why the Federal Reserve Is Bad. The Economic Collapse. Retrieved 4 August
2010, from http://theeconomiccollapseblog.com/archives/11-reasons-why-the-federal-reserve-is-bad

9 BOROWSKI, J. (2015). Top 10 Reasons to End the Federal Reserve | Freedom Works. Freedomworks.org.
Retrieved 2 January 2012, from http://www.freedomworks.org/content/top-10-reasons-end-federal-reserve

10 Frezza, B. (2015). Forbes Welcome. Forbes.com. Retrieved 15 November 2015, from

http://www.forbes.com/sites/billfrezza/2013/05/07/how-the-federal-reserve-became-historys-biggest-bad-bank/

crash and the Federal Reserve continued to money supply contract. Therefore, many analysts has
point of view that the non accountability of feds to government authorities is a key thing that
precipitated the large Depression.11

References
B. Grey, G. (2015). Federal Reserve System: Background, Analyses and Bibliography. New
York: Nova Science Publishers, Inc.
Wells, D. (2015). The Federal Reserve System: A History. North Carolina: McFarland &
Company, Inc.
Bernanke, B. The Federal Reserve and the financial crisis.
Wheelan, C. (2002). Naked Economics. New York: Norton.
The Federal Reserve System Purposes & Functions. (2005) (9th ed.). Retrieved from
http://www.federalreserve.gov/pf/pdf/pf_1.pdf
BOROWSKI, J. (2015). Top 10 Reasons to End the Federal Reserve | Freedom Works.
Freedomworks.org. Retrieved 2 January 2012, from http://www.freedomworks.org/content/top10-reasons-end-federal-reserve
Frezza, B. (2015). Forbes Welcome. Forbes.com. Retrieved 15 November 2015, from
http://www.forbes.com/sites/billfrezza/2013/05/07/how-the-federal-reserve-becamehistorys-biggest-bad-bank/
John Marotta, D. (2015). Forbes Welcome. Forbes.com. Retrieved 10 March 2014, from
11 Bernanke, B. The Federal Reserve and the financial crisis.

http://www.forbes.com/sites/davidmarotta/2014/05/10/the-purpose-of-the-federal-reserve/
Koba, M. (2015). Understanding what informs Fed policy decisions. CNBC. Retrieved 15
November 2015, from http://www.cnbc.com/id/43752521
Snyder, M. (2010). 11 Reasons Why the Federal Reserve Is Bad. The Economic Collapse.
Retrieved 4 August 2010, from http://theeconomiccollapseblog.com/archives/11-reasonswhy-the-federal-reserve-is-bad
Staff, I. (2003). The Federal Reserve: What Is The Fed? | Investopedia. Investopedia. Retrieved
15 November 2015, from http://www.investopedia.com/university/thefed/fed1.asp