The Federal Reserve Essay

1194 words - 5 pages

Calls to “End the Fed” have raged for some time now, with most proponents of this movement being part of grassroots movements such as The Tea Party, and the now infamous Occupy Wall Street crowd. Even some elected officials, from both the Democratic Party and Republican Party have questioned the existence of the Federal Reserve, most notably Ron Paul. Most arguments regarding the demolition of the Federal Reserve System revolve around the constitutional legality, transparency issues, and monetary policy of the Federal Reserve. Most arguments are based on misconceptions, grossly misstated facts, and the literal overlooking of history, as if banking and finance did not exist before 1913. The Federal Reserve System is the central bank of the United States and crucial part of the banking system, as well the government as a whole. Each proposed solution has numerous fallacies, and they also do not take into account the duties and responsibilities of the Federal Reserve and how it is vital to the overall welfare of our nation. Biased information, opinions masqueraded as facts, and warped economic views have all led to the belief that the Federal Reserve System is an uncontrollable, unaccountable printing press, and neither is true.
To see how the Federal Reserve System came about, one must look to the past, namely banking before 1913. The First Bank of the United States was chartered in 1791. It was a privately held institution, with the U.S Government owning about 20% of it, and the rest was owned by foreign investors and foreign governments. The Second Bank of the United States was granted a charter by Congress in 1816, and expired in 1836. In the absence of a central banking system, state banks grew in number and influence, in the addition to a number of private banks, each with its own policy and currency. This created substantial problem in that the payment system was systematically flawed because there was no common currency. Inflation was also rampant during the 1860’s, and with those economic conditions, The National Banking Act of 1864 was enacted. This act created The Office of the Comptroller of Currency to issue charters to national banks. These banks were authorized to issue national bank notes, which created the national currency. Crisis and bank failures in 1873, 1883, 1893, and 1907, eventually gave way to the Federal Reserve Act of 1913, to stabilize the banking system. Now we begin banking after 1913, starting with the creation of the Fed. Congress formed a bipartisan group, which enacted the Federal Reserve Act of 1913, a system founded that was to be both adaptable and flexible as it is now.
The Federal Reserve System is essentially the organization that determines the monetary policy for the United States, and is the result of 150 years of banking and financial history. It also is the regulatory body of the U.S. banking system. Its last responsibility is to ensure the efficient functioning of the payments system. The Federal...

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