The Fed: Is the Federal Reserve Still Necessary in the 21st Century?

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The value of the U.S. dollar has plummeted since the creation of the Federal Reserve. Credit: By DLuber1 (Public domain), from Wikimedia Commons

The value of the U.S. dollar has plummeted since the creation of the Federal Reserve. Image by DLuber1

100 years ago, the world was a vastly different place.

The sinking of the RMS Titanic was still fresh in collective memories across the land. The United States hadn’t yet entered World War I (known idealistically at the time as “the war to end all wars”). The Great Depression was still nearly two decades away. “Google” hadn’t even been coined as a term meaning 1 followed by 100 zeroes yet, much less created as the world’s preeminent search engine.

With that said, the Federal Reserve was born on December 23, 1913, and despite unimaginable changes to the immediate and long-term landscape, remains largely the same today as it has throughout most of its lifespan: politically independent, with the greatest power to change the economic landscape of any entity on Earth — including the U.S. government.

So what is “The Fed” exactly?

What Is The Fed? The Federal Reserve System Explained

The Federal Reserve System (colloquially known as “The Fed”) is the combination of a governmental agency located in Washington, D.C., coupled with twelve regional Federal Reserve banks interspersed throughout the country.

The system is set up in districts, designated as follows: Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Dallas, Kansas City and San Francisco. The San Francisco region, as an example, is the 12th district and governs eleven western states. The current Chairman of the Federal Reserve is Ben Bernanke.

The stated purpose of the Federal Reserve, as per its web site, is as follows:

The Federal Reserve System, often referred to as the Federal Reserve or simply “the Fed,” is the central bank of the United States. It was created by the Congress to provide the nation with a safer, more flexible, and more stable monetary and financial system. The Federal Reserve was created on December 23, 1913, when President Woodrow Wilson signed the Federal Reserve Act into law. Today, the Federal Reserve’s responsibilities fall into four general areas.

  • Conducting the nation’s monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices.
  • Supervising and regulating banks and other important financial institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers.
  • Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets.
  • Providing certain financial services to the U.S. government, U.S. financial institutions, and foreign official institutions, and playing a major role in operating and overseeing the nation’s payments systems.

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