Federal Reserve Paper

Federal Reserve

The Federal Reserve System was established in 1913 by Congress to provide our nation with a better monetary and financial system. It was created after the nations two main bank sources failed. The idea behind the Federal Reserve is to ensure that our nation’s monetary policies and financial policies are followed so that we do not run out of funding from our banks. The Reserve is the driving force behind funding rates and allows the economy to grow in an upward direction. The Federal Reserve now regulates the banking systems allowing for a more flexible money supply. Through many different markets, banks can use the deposited monies and invest them into stocks and bonds, or other types of monetary investments. With the increases in available loans, more companies will have a chance at survival and also in helping to provide jobs to cut back our nation’s unemployment rates.

The Federal Reserve consists of the Board of Governors, Federal Open Market Committee, Advisors, regional banks, and smaller banks. The Federal Reserve System is over seen by the United States Congress. Although the Federal Reserve was created during a time of hopelessness to aid the nation’s financial institutions, it is also thought that the decisions made by the Federal Reserve have also harmed the United States economy. Some economists may argue that some of the United State’s financial crises could have been avoided by reducing or eliminating the roles of the Federal Reserve.

The national economy is co-dependent on the Federal Reserve. According to the Federal Reserve, its role has remained the same since its creation (Unknown, 2012). Economists will argue that the Federal Reserve System was the cause of the Great Depression of 1929. The reason they believe that the Reserve is at fault is because they feel that the Reserve allowed too much government interference when the New Deal was established by President Roosevelt. Economists believe that the New Deal assisted in the major failure of the banks that caused the market crash. This left the impression to most that the Federal Reserve lacked persuasion in its policy making. Shortly after the New Deal, President Woodrow Wilson created the Federal Reserve Act. This Act promised the citizens of the United States that it would provide liquidity for economic growth and purchasing power. Instead of the purchasing power taking control as it was intended, the opposite happened. So again, economists believe that the Federal Reserve was at fault because of the interference of government.

During Jimmy Carter’s presidency in the 1980’s, the concern turned to inflation. Inflation caused the value of cash holdings to diminish, which in turn caused consumers to pay higher prices for nonessential items. It also caused the purchasing power of the dollar to shrink by