by
Crown Financial Ministries
|
America's central bank
The Federal Reserve System (the Fed), the central bank for the U.S., was established on December 23, 1913 with the passage of the Federal Reserve Act, following an era marked by financial panics and economic depressions.
Its principle goals then were to provide national economic stability by giving the country an elastic currency, to provide facilities for discounting commercial paper, and to improve the supervision of banking.
Since then, the Fed's responsibilities have broadened.
The Federal Reserve System is an unusual mixture of public and private elements and centralized and decentralized components.
The 12 regional Federal Reserve Banks, which are legally private but functionally public corporations, and their branch offices serve as the decentralized portion of the system, carrying out day-to-day operations, such as circulating currency and coins and providing fiscal agency functions and payments mechanism services. These banks have as stockholders the commercial banks that are members of the Fed.
At the head of its formal organization is the seven member board of governors, located in Washington, D.C.
The members of the board are appointed by the president of the United States and confirmed by the U.S. Senate to serve 14-year terms.
The president also appoints from among the seven board members the chairman and vice chairman of the board for four-year terms. The board is the policy-making body for the Fed.
In addition to those responsibilities, it supervises the budget and operations of the Reserve Banks, approves the appointments of their presidents, and appoints district bank directors.
Responsibilities of the Fed
The Fed's principle responsibility is monetary policy, the means by which it influences the growth of money and credit in the U.S. economy, which will contribute to stable prices, high employment, and growth in the economy.
As the regulator of the supply of money we have in circulation and of credit availability, the Fed uses three control tools: minimum reserve requirements (by this policy a reserve is maintained in the central bank that can be used to help member banks when necessary), setting the discount rate (the interest rate at which depository institutions can borrow money from the Reserve Bank) in order to influence money supply, and the open market operations.
Of the three, the most important monetary control tool is open market operations, which is regulated by the Federal Open Market Committee.
In America, we face two constant threats to our economic well-being: recession and inflation. However, it is impossible to combat both of these threats simultaneously.
So, the goal of the Fed is to maintain just the right amount of money so that the economy is growing moderately and the dollar will buy roughly the same amount of goods and services next year as it does this year.
To accomplish this goal, the federal government, based on its projected budget, borrows needed budgetary funds from the Fed. This loan has to be paid back with interest.
To guarantee the payback the Fed demands the issuance of Federal Reserve Notes by the U.S. Treasury that are equal to the amount borrowed. These in effect are promissory notes issued by the United States government on behalf of the citizens of the United States, which guarantees the interest laden payback to the Fed.
When there is not enough money generated by taxes or exports to pay the Fed promissory notes, the government borrows from its own citizens through the issuance of savings bonds.
These bonds are government promissory certificates that promise the people who buy them that if they give their money to the government now, the government will pay them back that amount plus interest within a certain number of years.
The second responsibility of the Federal Reserve is to be a bank to the banks. As such, the Fed is a kind of master bank.
In connection with its supervision of the nation's banks, it (1) performs periodic surprise audits on bank records to make sure the Fed's regulations are being followed; (2) serves as a clearinghouse for all the checks written on checking accounts nationwide; and (3) loans money to banks that might need it to meet regulatory requirements or that simply wish to make more loans to their customers.
The third responsibility of the Federal Reserve is to be the bank to the government.
In this capacity the Fed utilizes three statutory advisory councils: the Federal Advisory Council, the Consumer Advisory Council, and the Thrift Institutions Advisory Council. These advise the board on matters of current governmental interests and policies.
The Federal Advisory Council meets with the Federal Reserve Board four times a year to discuss business and financial conditions.
The Consumer Advisory Council advises the Board on its implementation of consumer regulations.
The Thrift Institutions Advisory Council provides information and perspectives on the special needs and problems of thrift institutions.
Conclusion
Because the Federal Reserve System is an independent private organization within the government structure, many articles have been written that refute the legality of the Fed and point out the Fed's abuse of power.
Although the Fed may not always operate in the best interest of the nation, unfortunately it is presently so much a part of our economy that the effects of any attempt to untangle its hold could have drastic consequences on our entire banking system. The two are so thoroughly enmeshed that one could not suffer without dragging the other down with it.
|
