Why is the federal reserve good?

Question

Why is the federal reserve good?

Lol, no one seems to know why...

Answer 1

Since the FRS did not exist before 1913, we can look to history to what it would be like without a publicly owned central bank:

-There would be no national coordinated monetary policy. Each bank would expand or contract credit based on their immediate business needs, not the natons requirements.

- Smaller banks would be dependent on larger banks for credit extensions, currency, etc. History has shown that larger banks often consider smaller banks as competition and didn't care if they failed. (After 1935, the Fed was charged with looking after the overall health of the system)

- Prior to the Federal Reserve, there was over 30,000 types of currency in circulation as many state banks issue currency.

- In international monetary matters, the nations largest private banks would represent America

- There would be no elasticity to the currency. You would see more cycles of inflation/deflation, and boom/bust as we saw in the 1800s

- Banks would return to being audited soley by themselves in their shareholders interest. (After 1935, the Fed was charged with being the nations bank auditors to serve depositers interest as well.)

- Clearing of checks would go back to private clearinghouses often run by large banks. Without an impartial clearinghouse, decisions in the process would sway toward the private interests that control it.

So clearly there is some benefit to a central bank.

Answer 2

The Fed is simply designed to regulate the US Money supply. This is primarily done through the Federal Reserve Rate, which is the loan rate between banks. The Reserve is focused prinicipally on inflation, and not the growth and vibrancy of the economy or the unemployment. The economy and unemployment issues are handled by the market and elected officials. The Fed controls inflation by controling the amount of currency on the market and the demand for the currency (Fed Rate). There is no single organization that can monitor this delicate, very complex operation outside of the Fed. In fact, prior to the fed, this was controlled through market forces between banks. A process that largely led to monopolies controlling interest rates; which was an absolute nightmare. So, as much as it seems a pointless organization, it does serve a purpose and is definitely needed.

Answer 3

The Federal Reserve System tries to control the size of the money supply by conducting open market operations, in which the Federal Reserve lends or purchases specific types of securities with authorized participants, known as primary dealers, such as the United States Treasury.

Ultimately the federal reserve tries to keep the us economy growing, inflation low & employment high.

Answer 4

The Fed is good "IF" it makes the right decisions on interest rates, and liquidity.