Federal Reserve – Independent?

There has been a lot of talk about a recession, an economic crisis and that the Federal Reserve is printing money. But what is the Federal Reserve? Maybe many of you know already about it, but I decided to investigate a little and find out more about when it started, who created, what is its role in the economy and how it is impacting the crisis?

“The Federal Reserve was created on December 23, 1913, with the signing of the Federal Reserve Act by President Woodrow Wilson. The act had been drafted as House Resolution 7837 by Representative Carter Glass (D-VA), incoming chairman of the House Banking and Currency Committee.

“The Fed” was created to provide the nation with a safer, more flexible, and more stable monetary and financial system. Over the years, its role has evolved and expanded.” (http://www.federalreserve.gov)

The Federal Reserve has a unique configuration which includes a federal government agency, the Board of Governors, in Washington, D.C., and 12 regional Reserve Banks. Before the Federal Bank was created the United States went through several financial crises and the government was hopeful that this new entity would help regulate the financial system. However, asides from its name The Fed is not a government own institution; it is actually an independent entity within the government, having both public purposes and private aspects. As the nation’s central bank, the Federal Reserve derives its authority from the U.S. Congress.

It is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress, it receives its funds from the interest on U.S. government securities that it has acquired through open market operations, other foreign operations, and fees from banks and interest on loans.

Even though it is called independent, the Federal Reserve is only partially independent because it is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by a bill.

In other words, the government actually has power over the Central bank, because it was money from The Fed that bailout companies and the government approved the bailouts. In addition, in the last 14 months alone, the Federal Reserve, a non-government organization of private bankers, has interceded 34 times in the financial markets, primarily by providing fiat money backed by U.S. Treasury securities (government IOU’s) investment-banking firms in exchange for getting those companies’ holdings of extremely poorly performing or non-performing mortgage-backed securities.

Okay, if that is true, the government is actually manipulating the system, allowing loans to otherwise failed entities, and bringing the Federal Bank into the mess. So, does the solution lies with the Federal Bank or in the government? I don’t really know the answer, but I after reading all those different articles, I came with the conclusion that the Federal bank could be a government entity in disguise.

sources

http://www.federalreserve.gov; http://www.examiner.com/x-4285-Salt-Lake-Nonpartisan-Examiner~y2009m3d15-The-Federal-Reserve-Bank-creates-economic-crisi

http://newsblaze.com/story/20080927140845tsop.nb/topstory.html

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5 Responses

  1. […] Bloginization added an interesting post today on Federal Reserve – Independent?Here’s a small readingThere has been a lot of talk about a recession, an economic crisis and that the Federal Reserve is printing money. But what is the Federal Reserve? Maybe many of you know already about it, but I decided to investigate a little and find out more about when it started, who created, what is its role in the economy and how it is impacting the crisis? “The Federal Reserve was created on December 23, 1913, with the signing of the Federal Reserve Act by President Woodrow Wilson. The act had been d […]

  2. Anna, coming from another country, it is good for us to see how you learn about something we can take for granted.

    I think you have the basic facts pretty accurate.

    Your question at the end is whether the Fed is a government entity. O you mean that actual decision-making authority is not independent? That the White House or congress tell the Fed governors what to do? You document how the Fed derives its authority (but not its decisions) from the government. So it is in many ways a government entity.

    I would be curious to know what it is like in Brazil. Who controls its central bank?

  3. I think the problem lies within government. The government has been using the Federal Reserve in order to support corporations in need of bailouts. The Federal Reserve was created to manage the supply of money and the rate of inflation in the US and it needs to return to this core. I think our economy is in need of stimulation not from the redistribution of wealth but from confidence in the people in the stability of the dollar. I understand that this cannot happen if the government does not save some of the bankrupt entities, but the Federal Reserve should be emphasizing more the importance of the dollar. I’m not sure I completely understand the problem with the Federal Reserve but from what I know that is my conclusion.

  4. […] Megan on No One Raindrop thinks it Caus…Megan on Federal Reserve – Indepen…Kristen on My Big Question = HUH?Kristen on “Hey Big Spender! Spend …Kristen on […]

  5. In Brazil the government is responsible for the central bank, so there’s no conflict of interests per say. The president appoints 5 other directors for a board and then decisions are made. Usually this bank sets interest rates and so forth.

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