Federal Reserve System Wiki

[1] composed of (1) the presidentially-appointed Board of Governors of the Federal Reserve System in Washington, D.C.; (2) the Federal Open Market Committee; (3) 12 regional Federal Reserve Banks located in major cities throughout the nation acting as fiscal agents for the U.S. Treasury, each with its own nine-member board of directors; (4) numerous private U.S. member banks, which subscribe to required amounts of non-transferable stock in their regional Federal Reserve Banks; and (5) various advisory councils. Currently, Ben Bernanke serves as the Chairman of the Board of Governors of the Federal Reserve System. Contents 1 History 1.1 Key laws affecting the Federal Reserve 2 Purpose 2.1 Addressing the problem of bank panics 2.2 Balance between private banks and responsibility of government 2.2.1 Independent within government 2.2.2 Government regulations 2.2.3 Private banks 2.2.3.1 Interbank lending of reserves 3 Monetary policy 3.1 Interbank lending is the basis of policy 3.2 Goals of monetary policy 3.3 Tools of monetary policy 3.3.1 Open market operations 3.3.1.1 Repurchase agreements 3.3.2 Federal funds rate and discount rate 3.3.3 Reserve requirements 3.4 Measurement of economic variables 3.4.1 The money supply 3.4.2 Consumer price index 3.4.2.1 Inflation and the economy 4 The Federal Reserve Banks and the member banks 4.1 The Federal Reserve Banks 4.2 The member banks 5 Legal status and position in government 6 Federal Reserve balance sheet 7 Regulation of fractional reserve 8 Criticisms 8.1 Historical criticisms 8.1.1 Handling of The Great Depression 8.1.2 Inflation 8.2 Monetary policy uncertainties 8.3 Opacity 8.4 Business cycles, libertarian philosophy and free markets 8.5 Congress 8.6 Conspiracy theories 9 Other prominent banking institutions 10 See also 11 Notes 12 Bibliography 12.1 Recent 12.2 Historical 13 External links 13.1 Official Federal Reserve websites and information 13.1.1 Open Market Operations 13.1.1.1 Repurchase Agreements 13.1.2 Discount Window 13.1.3 Economic Indicators 13.2 Other websites describing the Federal Reserve 13.3 Sites critical of the Federal Reserve

[edit] History It has been suggested that this section be split into a new article entitled History of the Federal Reserve System . (Discuss) Main article: History of central banking in the United States The Federal Reserve System is the third central banking system in the United States' history. The First Bank of the United States (1791-1811) and the Second Bank of the United States (1816-1836) each had 20-year charters, and both issued currency, made commercial loans, accepted deposits, purchased securities, had multiple branches, and acted as fiscal agents for the U.S. Treasury.

[2] In both banks the Federal Government was required to purchase 20% of the bank's capital stock and appoint 20% of the directors. Thus majority control was in the hands of private investors who purchased the rest of the stock. The banks were opposed by state-chartered banks, who saw them as very large competitors, and by many who thought they were corrupt and supported the business class over the needs of the common man. President Andrew Jackson vetoed legislation to renew the Second Bank of the United States, starting a period of free banking. In 1863, as a means to help finance the Civil War, a system of national banks was instituted by the National Currency Act. The banks each had the power to issue standardized national bank notes based on United States bonds held by the bank. The Act was totally revised in 1864 and later named as the National-Bank Act, or National Banking Act, as it is popularly known. The administration of the new national banking system was vested in the newly created Office of the Comptroller of the Currency and its chief administrator, the Comptroller of the Currency. The Office, which still exists today, examines and supervises all banks chartered nationally and is a part of the U.S. Treasury Department. The early national banking system had two main weaknesses: an "inelastic" currency; and a lack of liquidity.

[3] National bank currency was considered inelastic because it was based on the fluctuating value of U.S. Treasury bonds rather than the growing needs of the U.S. economy. If Treasury bond prices declined, a national bank had to reduce the amount of currency it had in circulation by either refusing to make new loans or by calling in loans it had made already. The related liquidity problem was largely caused by an immobile, pyramidal reserve system, in which nationally chartered country banks were required to set aside their reserves in reserve city banks, which in turn were required to have reserves in central city banks. During planting season country banks needed to call in their reserves, and during the harvest season they would add to their reserves. A national bank whose reserves were being drained would replace its reserves by selling stocks and bonds, by borrowing from a clearing house or by calling in loans. As there was little in the way of deposit insurance, if a bank was rumored to be having liquidity problems then this might cause many people to remove their funds from the bank. Because of the crescendo effect of these and other difficulties, during the last quarter of the 19th century and the beginning of the 20th century the United States economy went through a series of financial panics.

[3] A particularly severe panic in 1907 provided the motivation for renewed demands for banking and currency reform.

[4] The following year Congress enacted the Aldrich-Vreeland Act which provided for an emergency currency and established the National Monetary Commission to study banking and currency reform.

[5] The chief of the bipartisan National Monetary Commission was financial expert and Senate Republican leader Nelson Aldrich. Aldrich set up two commissions €” one to study the American monetary system in depth and the other, headed by Aldrich himself, to study the European central-banking systems and report on them.

[5] Aldrich went to Europe opposed to centralized banking, but after viewing Germany's banking system came away believing that a centralized bank was better than the government-issued bond system that he had previously supported. Centralized banking was met with much opposition from politicians, who were suspicious of a central bank and who charged that Aldrich was biased due to his close ties to wealthy bankers such as J.P. Morgan and his daughter's marriage to John D. Rockefeller, Jr. In 1910, Aldrich and executives representing the banks of J.P. Morgan, Rockefeller, and Kuhn, Loeb, & Co., secluded themselves for 10 days at Jekyll Island, Georgia.

[5] The executives included Frank A. Vanderlip, president of the National City Bank of New York, associated with the Rockefellers; Henry Davison, senior partner of J.P. Morgan Company; Charles D. Norton, president of the First National Bank of New York; and Col. Edward House, who would later become President Woodrow Wilson's closest adviser and founder of the Council on Foreign Relations.

[6] There, Paul Warburg of Kuhn, Loeb, & Co. directed the proceedings and wrote the primary features of what would be called the Aldrich Plan. Warburg would later write that "The matter of a uniform discount rate (interest rate) was discussed and settled at Jekyll Island." Vanderlip wrote in his 1935 autobiography From Farmboy to Financier : I was as secretive, indeed I was as furtive as any conspirator. Discovery, we knew, simply must not happen, or else all our time and effort would have been wasted. If it were to be exposed that our particular group had got together and written a banking bill, that bill would have no chance whatever of passage by Congress€¦I do not feel it is any exaggeration to speak of our secret expedition to Jekyll Island as the occasion of the actual conception of what eventually became the Federal Reserve System.€ Despite meeting in secret, from both the public and the government, the importance of the Jekyll Island meeting was revealed three years after the Federal Reserve Act was passed; when journalist Bertie Charles Forbes wrote an article about the "hunting trip" in 1916. Aldrich fought for a private bank with little government influence, but conceded that the government should be represented on the Board of Directors. Aldrich then presented what was commonly called the "Aldrich Plan" -- which called for establishment of a "National Reserve Association" -- to the National Monetary Commission.

[5] Most Republicans and Wall Street bankers favored the Aldrich Plan,

[6] but it lacked enough support in the bipartisan Congress to pass.

[7] Because the bill was introduced by Aldrich, considered the epitome of the "Eastern establishment", the bill received little support and was derided by southerners and westerners who believed that wealthy families and large corporations ran the country and would thus run the proposed National Reserve Association.

[7] Rural bankers also opposed the plan, believing it gave too much power to their eastern counterparts.

[7] Progressive Democrats instead favored a reserve system owned and operated by the government and out of control of the "money trust", ending Wall Street's control of American currency supply.

[6] Conservative Democrats fought for a privately owned, yet decentralized, reserve system, which would still be free of Wall Street's control.

[6] The National Board of Trade appointed Warburg as head of a committee to persuade Americans to support the plan. The committee set up offices in the then-45 states and distributed printed materials about the central bank.

[5] The Nebraskan populist and frequent Democratic presidential candidate William Jennings Bryan said of the plan: "Big financiers are back of the Aldrich currency scheme." He asserted that if it passed, big bankers would "then be in complete control of everything through the control of our national finances."

[8]. There was also Republican opposition to the Aldrich Plan. Republican Sen. Robert M. LaFollette and Rep. Charles Lindbergh Sr. both spoke out against the favoritism that they contended the bill granted to Wall Street. "The Aldrich Plan is the Wall Street Plan€¦I have alleged that there is a 'Money Trust'", said Lindbergh. "The Aldrich plan is a scheme plainly in the interest of the Trust". In response, Rep. Arsène Pujo, a Democrat from Oklahoma, obtained congressional authorization to form and chair a subcommittee (the Pujo Committee) within the House Committee Banking Committee, to conduct investigative hearings on the alleged "Money Trust." The hearings continued for a full year and were led by the Subcommittee's counsel, Democratic lawyer Samuel Untermyer, who later also assisted in preparing the Federal Reserve Act. The "Pujo hearings"

[9] convinced much of the populace that America's money largely rested in the hands of a select few on Wall Street. The Subcommittee issued a report saying:

[10] "If by a 'money trust' is meant an established and well-defined identity and community of interest between a few leaders of finance€¦which has resulted in a vast and growing concentration of control of money and credit in the hands of a comparatively few men€¦the condition thus described exists in this country today...To us the peril is manifest...When we find...the same man a director in a half dozen or more banks and trust companies all located in the same section of the same city, doing the same class of business and with a like set of associates similarly situated all belonging to the same group and representing the same class of interests, all further pretense of competition is useless.... "

[8] Seen as a "Money Trust" plan, the Aldrich Plan was opposed by the Democratic Party as was stated in its 1912 campaign platform, but the platform also supported a revision of banking laws that would protect the public from financial panics and "the domination of what is known as the "Money Trust." During the 1912 election the Democractic Party took control of the Presidency and both chambers of Congress. The newly elected President, Woodrow Wilson, was committed to banking and currency reform, but it took a great deal of his political influence to get an acceptable plan passed as the Federal Reserve Act in 1913.

[7] Wilson thought the Aldrich plan was perhaps "60-70% correct".

[5] When Virginia Rep. Carter Glass, chairman of the House Committee on Banking and Currency, presented his bill to President-elect Wilson, Wilson said that the plan must be amended to contain a Federal Reserve Board appointed by the executive branch to maintain control over the bankers.

[8] After Wilson presented the bill to Congress, a group of Democratic congressmen revolted, led by Representative Robert Henry of Texas, demanding that the "Money Trust" be destroyed before it could undertake major currency reforms. They particularly objected to the idea of regional banks having to operate without the implicit government protections that large, so-called money-center banks would enjoy. The group almost succeeded in killing the bill, but were mollified by Wilson's promises to propose antitrust legislation after the bill had passed and by Bryan's support of the bill.

[8] After months of hearings, amendments, and debates the Federal Reserve Act passed Congress in late 1913 on a mostly partisan basis, with most every Democrats in support and most Republicans against it.

[8] As noted in a paper by the American Institute of Economic Research: In its final form, the Federal Reserve Act represented a compromise among three political groups. Most Republicans (and the Wall Street bankers) favored the Aldrich Plan that came out of Jekyll Island. Progressive Democrats demanded a reserve system and currency supply owned and controlled by the Government in order to counter the "money trust" and destroy the existing concentration of credit resources in Wall Street. Conservative Democrats proposed a decentralized reserve system, owned and controlled privately but free of Wall Street domination. No group got exactly what it wanted. But the Aldrich plan more nearly represented the compromise position between the two Democrat extremes, and it was closest to the final legislation passed.

[6] Frank Vanderlip, one of the Jekyll Island attendees and the President of National City Bank, wrote in his autobiography: "Although the Aldrich Federal Reserve Plan was defeated when it bore the name Aldrich, nevertheless its essential points were all contained in the plan that was finally adopted."

[6] Ironically, in October of 1913, two months before the enactment of the Federal Reserve Act, Frank Vanderlip proposed before the Senate Banking Committee his own competing plan to the Federal Reserve System, one with a single central bank controlled by the Federal government, which almost derailed the legislation then being considered and already passed by the U.S. House of Representatives.

[11] Aldrich himself stated strong opposition to the currency plan passed by the House.

[12] However, the former point was also made by Republican Representative Charles Lindbergh Sr., the most vocal opponent of the bill and a member of the House Banking and Currency Committee, who on the day before the Federal Reserve Act was passed told Congress: "This is the Aldrich bill in disguise€¦The worst legislative crime of the ages is perpetrated by this banking bill€¦The banks have been granted the special privilege of distributing the money, and they charge as much as they wish€¦This is the strangest, most dangerous advantage ever placed in the hands of a special privilege class by any Government that ever existed. The system is private...There should be no legal tender other than that issued by the government€¦The People are the Government. Therefore the Government should, as the Constitution provides, regulate the value of money." (Congressional Record, 1913-12-22) Congressman Victor Murdock told Congress on that same day: "I do not blind myself to the fact that this measure will not be effectual as a remedy for a great national evil €“ the concentrated control of credit€¦The Money Trust has not

[died]...He will not cease fighting€¦at some half-baked enactment€¦You struck a weak half-blow, and time will show that you have lost. You could have struck a full blow and you would have won." (Congressional Record, 12/22/1913) In order to get the Federal Reserve Act passed, Wilson needed the support of populist William Jennings Bryan, who was credited with ensuring Wilson's nomination by dramatically throwing his support Wilson's way at the 1912 Democratic convention.

[8] Wilson appointed Bryan as his Secretary of State.

[7] Bryan served as leader of the agrarian wing of the party and had argued for unlimited coinage of silver in his "Cross of Gold Speech" at the 1896 Democratic convention.

[13] Bryan and the agrarians wanted a government-owned central bank which could print paper money whenever Congress wanted, and thought the plan gave bankers too much power to print the government's currency. Wilson sought the advice of prominent lawyer Louis Brandeis to make the plan more amenable to the agrarian wing of the party; Brandeis agreed with Bryan. Wilson convinced them that because Federal Reserve notes were obligations of the government and because the President would appoint the members of the Federal Reserve Board, the plan fit their demands.

[8] However, Bryan soon became disillusioned with the system. In the November 1923 issue of "Hearst's Magazine" Bryan wrote that "The Federal Reserve Bank that should have been the farmer's greatest protection has become his greatest foe." Southerners and westerners learned from Wilson that the system was decentralized into 12 districts and surely would weaken New York and strengthen the hinterlands. Sen. Robert Owen of Oklahoma eventually relented to speak in favor of the bill, arguing that the nation's currency was already under too much control by New York elites, whom he alleged had singlehandedly conspired to cause the 1907 Panic.

[6] Large bankers thought the legislation gave the government too much control over markets and private business dealings. The New York Times called the Act the "Oklahoma idea, the Nebraska idea"-- referring to Owen and Bryan's involvement.

[8] However, several Congressmen, including Owen, Lindbergh, LaFollette, and Murdock claimed that the New York bankers feigned their disapproval of the bill in hopes of inducing Congress to pass it. The day before the bill was passed, Murdock told Congress: "You allowed the special interests by pretended dissatisfaction with the measure to bring about a sham battle, and the sham battle was for the purpose of diverting you people from the real remedy, and they diverted you. The Wall Street bluff has worked." (Congressional Record, 12/22/1913) While a system of 12 regional banks was designed so as not to give eastern bankers too much influence over the new bank, in practice, the Federal Reserve Bank of New York became "first among equals". The New York Fed, for example, is solely responsible for conducting open market operations, at the direction of the Federal Open Market Committee.

[14] Democratic Congressman Carter Glass sponsored and wrote the eventual legislation,

[7] and his home state capital of Richmond, Virginia, was made a district headquarters. Democratic Senator James A. Reed of Missouri obtained two districts for his state.

[15] However, the 1914 report of the Federal Reserve Organization Committee, which clearly laid out the ratiionale for their decisions on establishing Reserve Bank districts in 1914, showed that it was based almost entirely upon current correspondent banking relationships.

[16] To quell Elihu Root's objections to possible inflation, the passed bill included provisions that the bank must hold at least 40% of its outstanding loans in gold. (In later years, to prevent depressions and stimulate short-term economic activity, Congress would amend the act to allow more discretion in the amount of gold that must be redeemed by the Bank.)

[6] Critics of the time (later joined by economist Milton Friedman) suggested that Glass's legislation was almost entirely based on the Aldrich Plan that had been derided as giving too much power to elite bankers. Glass denied copying Aldrich's plan. In 1922, he told Congress, "no greater misconception was ever projected in this Senate Chamber."

[13] Wilson named Warburg and other prominent experts to direct the new system, which began operations in 1915 and played a major role in financing the Allied and American war efforts.

[17] Warburg at first refused the appointment, citing America's opposition to a "Wall Street man", but when World War I broke out he accepted. He was the only appointee asked to appear before the Senate, whose members questioned him about his interests in the central bank and his ties to Kuhn, Loeb, & Co.'s "money trusts".

[5] In July 1979, Paul Volcker was nominated, by President Carter, as Chairman of the Federal Reserve Board amid roaring inflation. He tightened the money supply, and by 1986 inflation had fallen sharply.

[18] In October 1979 the Federal Reserve announced a policy of "targeting" money aggregates and bank reserves in its struggle with double-digit inflation.

[19] In January 1987, with retail inflation at only 1%, the Federal Reserve announced it was no longer going to use money-supply aggregates, such as M2, as guidelines for controlling inflation, even though this method had been in use from 1979, apparently with great success. Before 1980, interest rates were used as guidelines; inflation was severe. The Fed complained that the aggregates were confusing. Volcker was chairman until August 1987, whereupon Alan Greenspan assumed the mantle, seven months after monetary aggregate policy had changed.

[20]

[edit] Key laws affecting the Federal Reserve Key laws affecting the Federal Reserve have been:

[21] Banking Act of 1935 Employment Act of 1946 Bank Holding Company Act of 1956 and the amendments of 1970 Federal Reserve Reform Act of 1977 International Banking Act of 1978 Full Employment and Balanced Growth Act of 1978 Depository Institutions Deregulation and Monetary Control Act of 1980 Financial Institutions Reform, Recovery and Enforcement Act of 1989 Federal Deposit Insurance Corporation Improvement Act of 1991 Gramm-Leach-Bliley Act of 1999

[edit] Purpose The primary motivation for creating the Federal Reserve was to address banking panics (bank runs). The Federal Reserve briefly describes the circumstances that led to its creation, the purpose for creating it, and functions of the system in The Federal Reserve in Plain English:

[22] "Just before the founding of the Federal Reserve, the nation was plagued with financial crises. At times, these crises led to €œpanics,€ in which people raced to their banks to withdraw their deposits. A particularly severe panic in 1907 resulted in bank runs that wreaked havoc on the fragile banking system and ultimately led Congress in 1913 to write the Federal Reserve Act. Initially created to address these banking panics, the Federal Reserve is now charged with a number of broader responsibilities, including fostering a sound banking system and a healthy economy." The purpose of the Federal Reserve System is formally stated in the Federal Reserve Act:

[23] "To provide for the establishment of Federal reserve banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes." The purpose and functions of the Federal Reserve include:

[22]

[24] to address banking panics (bank runs) to serve as the central bank for the United States to strike a balance between private interests of banks and the centralized responsibility of government supervising and regulating banking institutions protect the credit rights of consumers to manage the nation's money supply through monetary policy maximum employment stable prices moderate long-term interest rates maintain the stability of the financial system and containing systemic risk in financial markets providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system national functions facilitate the exchange of payments among regions strengthen U.S. standing in the world economy regional functions within the nation to be responsive to local liquidity needs

[edit] Addressing the problem of bank panics Further information: bank run, fractional-reserve banking, and money creation Bank runs occur because banking systems are usually fractional reserve lending institutions. Banks almost never have enough cash in reserves to give to all of their depositors simultaneously. Since banks give out loans, and since some people can default on loans, a bank can go bankrupt and thus, the depositors will never get their deposits back if their bank goes bankrupt. If the depositors get word that a bank is going to go bankrupt, they will rush to make withdrawals on their deposits. Since only a minority of people will be able to get their deposits back, the majority of people will have lost their savings and investments. Bank runs can lead to a multitude of social and economic problems. The Federal Reserve was designed as an attempt to prevent this from occurring. How the Federal Reserve addresses the problem of bank panics is described in The Federal Reserve System - Purposes and Functions:

[21] "To address these problems, Congress gave the Federal Reserve System the authority to establish a nationwide check-clearing system. The System, then, was to provide not only an elastic currency€”that is, a currency that would expand or shrink in amount as economic conditions warranted€” but also an efficient and equitable check-collection system."

[edit] Balance between private banks and responsibility of government The Federal Reserve System was created to strike a balance between the private interest of banks and the centralized responsibility of government.

[22] This sometimes leads to some confusion about "ownership" within the federal reserve system. There are private banks that exist within a system that is regulated by the government. The Federal Reserve is the part of government that regulates the private banks. The governmental aspect of the system is such that the Federal Reserve is said to be "independent within the government".

[edit] Independent within government The Federal Reserve explains the independence within government in the Federal Reserve System FAQ:

[25] 'The Federal Reserve System is not "owned" by anyone and is not a private, profit-making institution. Instead, it is 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, and the terms of the members of the Board of Governors span multiple presidential and congressional terms. However, the Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute. Also, the Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government. Therefore, the Federal Reserve can be more accurately described as "independent within the government." The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation's central banking system, are organized much like private corporations--possibly leading to some confusion about "ownership." For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.'

[edit] Government regulations How the system is regulated is described by the Federal Reserve:

[21] "The Board also plays a major role in the supervision and regulation of the U.S. banking system. It has supervisory responsibilities for state-chartered banks that are members of the Federal Reserve System, bank holding companies (companies that control banks), the foreign activities of member banks, the U.S. activities of foreign banks, and Edge Act and agreement corporations (limited-purpose institutions that engage in a foreign banking business). The Board and, under delegated authority, the Federal Reserve Banks, supervise approximately 900 state member banks and 5,000 bank holding companies. Other federal agencies also serve as the primary federal supervisors of commercial banks; the Office of the Comptroller of the Currency supervises national banks, and the Federal Deposit Insurance Corporation supervises state banks that are not members of the Federal Reserve System. "Some regulations issued by the Board apply to the entire banking industry, whereas others apply only to member banks, that is, state banks that have chosen to join the Federal Reserve System and national banks, which by law must be members of the System. The Board also issues regulations to carry out major federal laws governing consumer credit protection, such as the Truth in Lending, Equal Credit Opportunity, and Home Mortgage Disclosure Acts. Many of these consumer protection regulations apply to various lenders outside the banking industry as well as to banks. "Members of the Board of Governors are in continual contact with other policy makers in government. They frequently testify before congressional committees on the economy, monetary policy, banking supervision and regulation, consumer credit protection, financial markets, and other matters." "The Board has regular contact with members of the President's Council of Economic Advisers and other key economic officials. The Chairman also meets from time to time with the President of the United States and has regular meetings with the Secretary of the Treasury. The Chairman has formal responsibilities in the international arena as well."

[edit] Private banks Individual banks within the system are privately owned for-profit businesses. They decide on their own where money will be invested. However, regulators are in place who try to ensure that banks do not give out loans to people who cannot possibly pay them back.

[edit] Interbank lending of reserves When a bank is short of funds to meet depositors withdrawals, the bank will sometimes choose to borrow funds from another bank. The interest rate on these borrowed funds is determined freely as any free market good but the Federal Reserve influences this market determined rate through open market operations, which are discussed below.

[edit] Monetary policy Further information: Monetary policy of the USA The term "monetary policy" refers to the actions undertaken by a central bank, such as the Federal Reserve, to influence the availability and cost of money and credit to help promote national economic goals. What happens to money and credit affects interest rates (the cost of credit) and the performance of the U.S. economy. The Federal Reserve Act of 1913 gave the Federal Reserve responsibility for setting monetary policy.

[26]

[27]

[edit] Interbank lending is the basis of policy The Federal Reserve implements monetary policy by influencing the interbank lending of excess reserves. The rate that banks charge each other for the loaning of excess reserves is determined by the markets but the Federal Reserve influences this rate through the three tools of monetary policy which are described in the "Tools of monetary policy" section below. A summary of the basis and implementation of monetary policy is stated by the Federal Reserve: "The Federal Reserve implements U.S. monetary policy by affecting conditions in the market for balances that depository institutions hold at the Federal Reserve Banks...By conducting open market operations, imposing reserve requirements, permitting depository institutions to hold contractual clearing balances, and extending credit through its discount window facility, the Federal Reserve exercises considerable control over the demand for and supply of Federal Reserve balances and the federal funds rate. Through its control of the federal funds rate, the Federal Reserve is able to foster financial and monetary conditions consistent with its monetary policy objectives."

[21]

[edit] Goals of monetary policy The goals of monetary policy include:

[27]

[24] maximum employment stable prices moderate long-term interest rates promotion of sustainable economic growth

[edit] Tools of monetary policy Monetary policy is all about influencing the amount of reserves that banks hold.

[21] The Federal Reserve does not control private banks directly. Instead, it provides a stimulus which is meant to guide the private banks into making decisions which increase or decrease the amount of reserves they hold. There are three main tools of monetary policy that the Federal Reserve uses to influence the amount of reserves in private banks:

[26] open market operations - purchases and sales of U.S. Treasury and federal agency securities--the Federal Reserve's principal tool for implementing monetary policy. The Federal Reserve's objective for open market operations has varied over the years. During the 1980s, the focus gradually shifted toward attaining a specified level of the federal funds rate (the rate that banks charge each other for overnight loans of federal funds, which are the reserves held by banks at the Fed), a process that was largely complete by the end of the decade.

[28] discount rate - the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility--the discount window.

[29] reserve requirements - the amount of funds that a depository institution must hold in reserve against specified deposit liabilities.

[30]

[edit] Open market operations Further information: open market operations, money creation, and seignorage Open market operations put money in and take money out of the banking system. This is done through the sale and purchase of U.S. government treasury securities. When the U.S. government sells securities, it gets money from the banks and the banks get a piece of paper (I.O.U.) that says the U.S. government owes the bank money. This drains money from the banks. When the U.S. government buys securities, it gives money to the banks and the banks give the I.O.U. back to the U.S. government. This puts money back into the banks. The Federal Reserve education website describes open market operations as follows:

[27] 'Open market operations involve the buying and selling of U.S. government securities (federal agency and mortgage-backed). The term "open market" means that the Fed doesn't decide on its own which securities dealers it will do business with on a particular day. Rather, the choice emerges from an "open market" in which the various securities dealers that the Fed does business with€”the primary dealers€”compete on the basis of price. Open market operations are flexible and thus, the most frequently used tool of monetary policy. 'Open market operations are the primary tool used to regulate the supply of bank reserves. This tool consists of Federal Reserve purchases and sales of financial instruments, usually securities issued by the U.S. Treasury, Federal agencies and government-sponsored enterprises. Open market operations are carried out by the Domestic Trading Desk of the Federal Reserve Bank of New York under direction from the FOMC. The transactions are undertaken with primary dealers. 'The Fed's goal in trading the securities is to affect the federal funds rate, the rate at which banks borrow reserves from each other. When the Fed wants to increase reserves, it buys securities and pays for them by making a deposit to the account maintained at the Fed by the primary dealer's bank. When the Fed wants to reduce reserves, it sells securities and collects from those accounts. Most days, the Fed does not want to increase or decrease reserves permanently so it usually engages in transactions reversed within a day or two. That means that a reserve injection today could be withdrawn tomorrow morning, only to be renewed at some level several hours later. These short-term transactions are called repurchase agreements (repos) €“ the dealer sells the Fed a security and agrees to buy it back at a later date.' A simpler description is described in The Federal Reserve in Plain English:

[22] "How do open market operations actually work? Currently, the FOMC establishes a target for the federal funds rate (the rate banks charge each other for overnight loans). Open market purchases of government securities increase the amount of reserve funds that banks have available to lend, which puts downward pressure on the federal funds rate. Sales of government securities do just the opposite€”they shrink the reserve funds available to lend and tend to raise the funds rate. By targeting the federal funds rate, the FOMC seeks to provide the monetary stimulus required to foster a healthy economy. After each FOMC meeting, the funds rate target is announced to the public."

[edit] Repurchase agreements Further information: repurchase agreement To smooth temporary or cyclical changes in the monetary supply, the desk engages in repurchase agreements (repos) with its primary dealers. Repos are essentially secured, short-term lending by the Fed. On the day of the transaction, the Fed deposits money in a primary dealer's reserve account, and receives the promised securities as collateral. When the transaction matures, the process unwinds: the Fed returns the collateral and charges the primary dealer's reserve account for the principal and accrued interest. The term of the repo (the time between settlement and maturity) can vary from 1 day (called an overnight repo) to 65 days.

[31]

[edit] Federal funds rate and discount rate Further information: federal funds rate and discount rate The effective federal funds rate charted over fifty years The Federal Reserve System implements monetary policy largely by targeting the federal funds rate. This is the rate that banks charge each other for overnight loans of federal funds, which are the reserves held by banks at the Fed. This rate is actually determined by the market and is not explicitly mandated by the Fed. The Fed therefore tries to align the effective federal funds rate with the targeted rate by adding or subtracting from the money supply through open market operations. The late economist Milton Friedman consistently criticized this reverse method of controlling inflation by seeking an ideal interest rate and enforcing it through affecting the money supply since nowhere in the widely accepted money supply equation are interest rates found.

[32] The Federal Reserve System also directly sets the "discount rate", which is the interest rate that banks pay the Fed to borrow directly from it. This rate is generally set at a rate close to 100 points above the target federal funds rate. The idea is to encourage banks to seek alternative funding before using the "discount rate" option.

[33] Both of these rates influence the prime rate which is usually about 3 percentage points higher than the federal funds rate. Lower interest rates stimulate economic activity by lowering the cost of borrowing, making it easier for consumers and businesses to buy and build, but at the cost of promoting the expansion of the money supply and thus greater inflation. Higher interest rates slow the economy by increasing the cost of borrowing. (See monetary policy for a fuller explanation.) The Federal Reserve System usually adjusts the federal funds rate by 0.25% or 0.50% at a time. From early 2001 to mid 2003 the Federal Reserve lowered its interest rates 13 times, from 6.25 to 1.00%, to fight recession. In November 2002, rates were cut to 1.75, and many interest rates went below the inflation rate. (This is known as a negative real interest rate, because money paid back from a loan with an interest rate less than inflation has lower purchasing power than it had before the loan.) On June 25, 2003, the federal funds rate was lowered to 1.00%, its lowest nominal rate since July, 1958, when the overnight rate averaged 0.68%. Starting at the end of June, 2004, the Federal Reserve System raised the target interest rate and then continued to do so 17 straight times. The Fed cut by .25% after its December 11, 2007 meeting, disappointing many individual investors: the Dow Jones Industrial Average dropped by nearly 300 points at its close. Most recently, the Fed slashed the rate 0.75% in an emergency action on January 22, 2008 to assist in reversing a significant market slide influenced by weakening international markets. The Dow Jones Industrial Average initially fell nearly 4% (465 points) at the start of trading and then rebounded to a more tolerable 1.06% (128 point) loss. The Federal Reserve System might also attempt to use open market operations to change long-term interest rates, but its "buying power" on the market is significantly smaller than that of private institutions. The Fed can also attempt to "jawbone" the markets into moving towards the Fed's desired rates, but this is not always effective.

[citation needed]

[edit] Reserve requirements Table: Reserve Requirements in the U.S. Federal Reserve System

[34] Type of liability Requirement Percentage of liabilities Effective date Net transaction accounts $0 to $9.3 million 0 12/20/07 More than $9.3 million to $43.9 million 3 12/20/07 More than $43.9 million 10 12/20/07 Nonpersonal time deposits 0 12/27/90 Eurocurrency liabilities 0 12/27/90

[edit] Measurement of economic variables

[edit] The money supply Components of US money supply (M1, M2, and M3) since 1959 The most common measures are named M0 (narrowest), M1, M2, and M3. In the United States they are defined by the Federal Reserve as follows: M0: The total of all physical currency, plus accounts at the central bank that can be exchanged for physical currency. M1: M0 + those portions of M0 held as reserves or vault cash + the amount in demand accounts ("checking" or "current" accounts). M2: M1 + most savings accounts, money market accounts, and small denomination time deposits (certificates of deposit of under $100,000). M3: M2 + all other CDs, deposits of eurodollars and repurchase agreements. The Federal Reserve ceased publishing M3 statistics in March 2006, explaining that it cost a lot to collect the data but did not provide significantly useful information.

[35] The other three money supply measures continue to be provided in detail.

[edit] Consumer price index Year on year change in the US dollar consumer price index 1914-2006. The ability to maintain a low inflation rate is a long-term measure of the Fed's success. US consumer price index 1913-2006 The consumer price index is used to measure the value of the money. It is defined as: "a measure of the average price level of a fixed basket of goods and services purchased by consumers as determined by the Bureau of Labor Statistics. Monthly changes in the CPI represent the rate of inflation. Core CPI excludes volatile components, i.e., food and energy prices."

[36] The data consists of the US city average of consumer prices and can be found at The US Department of Labor - Bureau of Labor Statistics

[37] One of the Fed's main roles is to maintain price stability. This means that the change in the consumer price index over time should be as small as possible. The ability to maintain a low inflation rate is a long-term measure of the Fed's success.

[22] Although the Fed usually tries to keep the year-on-year change in CPI between 2 and 3 percent,

[38] there has been debate among policy makers as to whether or not the Federal Reserve should have a specific inflation targeting policy.

[39]

[40]

[41]

[edit] Inflation and the economy Inflation is a sustained increase in the general level of prices, which is equivalent to a decline in the value or purchasing power of money. If the supply of money and credit increases too rapidly over many months, the result will be inflation. With inflation, a dollar buys less and less over time.

[27] The effects of inflation include:

[27] Inflation might make people worse off if their incomes don't rise as rapidly as prices. Lenders might lose because they will be repaid with dollars that aren't worth as much. Savers might lose because the dollar they save today will not buy as much when they are ready to spend it. Businesses will find it harder to plan and therefore may decrease investment in future projects. Owners of financial assets suffer. Interest rate-sensitive industries, like mortgage companies, may suffer as inflation drives up long-term interest rates and Federal Reserve tightening raises short-term rates.

[edit] The Federal Reserve Banks and the member banks Federal Reserve Districts The Board of Governors and the Regional Reserve Banks share responsibility for:

[21] supervising and regulating certain financial institutions and activities providing banking services to depository institutions and the federal government ensuring that consumers receive adequate information and fair treatment in their business with the banking system. The 12 regional Federal Reserve Banks (not to be confused with the "member banks"), which were established by Congress as the operating arms of the nation's central banking system, are organized much like private corporations€”possibly leading to some confusion about €œownership.€ For example, the Reserve Banks issue shares of stock to "member banks." However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock by a "member bank" is, by law, a condition of membership in the system. The stock may not be sold or traded or pledged as security for a loan; dividends are, by law, limited to 6% per year.

[42] The largest of the Reserve Banks, in terms of assets, is the Federal Reserve Bank of New York, which is responsible for the Second District covering the state of New York, the New York City region, 12 northern New Jersey counties, Puerto Rico, and the U.S. Virgin Islands.

[43] The dividends paid by the Federal Reserve Banks to member banks are considered partial compensation for the lack of interest paid on member banks' required reserves held at the Federal Reserve Banks. By law, banks in the United States must maintain fractional reserves either as vault cash or on account at the Fed. Member banks earn no interest on either of these. The basic structure of the Federal Reserve System includes: The Federal Reserve Board of Governors The Federal Open Market Committee The Federal Reserve Banks The member banks. Each Federal Reserve Bank and each member bank of the Federal Reserve System is subject to oversight by a Board of Governors.

[44] The seven members of the board are appointed by the President and confirmed by the Senate.

[45] Members are selected to terms of 14 years (unless removed by the President), which are generally limited to one term. However, if someone is appointed to serve the remainder of another member's uncompleted term, he or she may be reappointed to serve an additional 14-year term.

[46] Conversely, a governor may serve the remainder of another governor's term even after he or she has completed a full term. Ben Bernanke, chairman of the Board of Governors of the Federal Reserve System. The current members of the Board of Governors are: Ben Bernanke, Chairman Donald Kohn, Vice-Chairman Frederic Mishkin Kevin Warsh Randall Kroszner (*Because appointments of members are staggered there are currently only five members on the board.) All current members of the Board of Governors have taken office during the presidency of George W. Bush. The Federal Open Market Committee (FOMC) created under 12 U.S.C. § 263 comprises the seven members of the board of governors and five representatives selected from the regional Federal Reserve Banks. The representative from the Second District, New York, (currently Timothy Geithner) is a permanent member, while the rest of the banks rotate at two- and three-year intervals.

[edit] The Federal Reserve Banks The Federal Reserve Districts are listed below along with their identifying letter and number. These are used on Federal Reserve Notes to identify the issuing bank for each note. Federal Reserve Bank Letter Number Website President Boston A 1 http://www.bos.frb.org/ Eric S. Rosengren New York B 2 http://www.newyorkfed.org/ Timothy F. Geithner Philadelphia C 3 http://www.philadelphiafed.org/ Charles I. Plosser Cleveland D 4 http://www.clevelandfed.org/ Sandra Pianalto Richmond E 5 http://www.richmondfed.org/ Jeffrey M. Lacker Atlanta F 6 http://www.frbatlanta.org/ Dennis P. Lockhart Chicago G 7 http://www.chicagofed.org/ Charles Evans St Louis H 8 http://www.stlouisfed.org/ William Poole Minneapolis I 9 http://www.minneapolisfed.org/ Gary H. Stern Kansas City J 10 http://www.kansascityfed.org/ Thomas M. Hoenig Dallas K 11 http://www.dallasfed.org/ Richard W. Fisher San Francisco L 12 http://www.frbsf.org/ Janet L. Yellen

[edit] The member banks National banks are required to be member banks in the Federal Reserve System. Federal statute provides (in part): Every national bank in any State shall, upon commencing business or within ninety days after admission into the Union of the State in which it is located, become a member bank of the Federal Reserve System by subscribing and paying for stock in the Federal Reserve bank of its district in accordance with the provisions of this chapter and shall thereupon be an insured bank under the Federal Deposit Insurance Act

[. . . .]"

[47] Other banks may elect to become member banks. According to the Federal Reserve Bank of Boston: Any state-chartered bank (mutual or stock-formed) may become a member of the Federal Reserve System. The twelve regional Reserve Banks supervise state member banks as part of the Federal Reserve System's mandate to assure strength and stability in the nation's domestic markets and banking system. Reserve Bank supervision is carried out in partnership with the state regulators, assuring a consistent and unified regulatory environment. Regional and community banking organizations constitute the largest number of banking organizations supervised by the Federal Reserve System.

[48] For example, as of October 2006 the member banks in New Hampshire included Community Guaranty Savings Bank; The Lancaster National Bank; The Pemigewasset National Bank of Plymouth; and other banks.

[49] In California, member banks (as of September 2006) included Bank of America California, National Association; The Bank of New York Trust Company, National Association; Barclays Global Investors, National Association; and many other banks.

[50]

[edit] Legal status and position in government Public finance This article is part of the series: Finance and Taxation Taxation Income tax  ·   Payroll tax CGT  ·   Stamp duty Sales tax  ·   VAT  ·   Flat tax Tax, tariff and trade Tax haven Tax incidence Tax rate  ·   Proportional tax Progressive tax  ·   Regressive tax Tax advantage Taxation by country Australia British Virgin Islands Canada China Colombia France Germany Hong Kong India Indonesia Ireland Netherlands New Zealand Peru Russia Singapore Tanzania United Kingdom United States European Union  v €¢ d €¢ e  Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank  ·   Money supply Fiscal policy Spending  ·   Deficit  ·   Debt Policy-mix Trade policy Tariff  ·   Trade agreement Finance Financial market Financial market participants Corporate  ·   Personal Public  ·   Banking  ·   Regulation  view €¢ talk €¢ edit €¢ project The Reserve Banks opened for business on November 16, 1914. Federal Reserve Notes were created as part of the legislation, to provide a supply of currency. The notes were to be issued to the Reserve Banks for subsequent transmittal to banking institutions. The various components of the Federal Reserve System have differing legal statuses. The Board of Governors of the Federal Reserve System is an independent federal government agency.

[51] The Board of Governors does not receive funding from Congress, and the terms of the seven members of the Board span multiple presidential and congressional terms. Once a member of the Board of Governors is appointed by the president, he or she functions mostly independently. The Board is required to make an annual report of operations to the Speaker of the U.S. House of Representatives.

[52] The law provides for the removal of a member of the Board by the President "for cause."

[46] The Board of Governors is responsible for the formulation of monetary policy. It also supervises and regulates the operations of the Federal Reserve Banks, and US banking system in general. The Federal Reserve Banks have an intermediate status, with some features of private corporations and some features of public federal agencies (see below). Each member bank owns nonnegotiable shares of stock in its regional Federal Reserve Bank€”but these shares of stock give the member banks only limited control over the actions of the Federal Reserve Banks, and the charter of each Federal Reserve Bank is established by law and cannot be altered by the member banks. While it is unusual, private individuals and non-bank corporations (with proof of a resolution of the board of directors indicating it intends to do so) may also purchase one or more shares of stock of any of the Federal Reserve Banks. The stock is the same nonnegotiable stock as banks receive, cannot be sold and pays a small dividend. In Lewis v. United States,

[53] the United States Court of Appeals for the Ninth Circuit stated that "the Reserve Banks are not federal instrumentalities for purposes of the FTCA

[the Federal Tort Claims Act], but are independent, privately owned and locally controlled corporations." The opinion also stated that "the Reserve Banks have properly been held to be federal instrumentalities for some purposes." Another decision is Scott v. Federal Reserve Bank of Kansas City

[54] in which the distinction between the Federal Reserve Banks and the Board of Governors is made. The member banks are privately owned corporations. The stocks of many of the member banks (or their holding companies) are publicly traded.

[edit] Federal Reserve balance sheet One of the keys to understanding the Federal Reserve is the Federal Reserve balance sheet (or balance statement). In accordance with Section 11 of the Federal Reserve Act, the Board of Governors of the Federal Reserve System publishes once each week the "Consolidated Statement of Condition of All Federal Reserve Banks" showing the condition of each Federal Reserve bank and a consolidated statement for all Federal Reserve banks. Below is the balance sheet as of June 21, 2007 (in millions of dollars): ASSETS: Gold certificate account 11,037 Special drawing rights certificate acct. 2,200 Coin 932 Securities, repos and loans 812,372    Securities held outright 790,439       U.S. Treasury 790,439          Bills 277,019          Notes and bonds 513,420    Repurchase agreements 21,000    Loans 933 Items in process of collection 4,524 Bank premises 2,036 Other assets 37,767 Total Assets 870,868 LIABILITIES: Federal Reserve notes outstanding 976,167    Less: notes held by F.R. Banks 202,531       Federal Reserve notes, net 773,636 Reverse repurchase agreements 30,443 Deposits 22,478    Depository institutions 16,138    U.S. Treasury, general account 6,022    Foreign official 96    Other 222 Deferred availability cash items 5,159 Other liabilities and accrued    dividends 6,042 Total liabilities 837,758 CAPITAL (AKA Net Equity) Capital paid in 16,106 Surplus 15,387 Other capital 1,617 Total capital 33,110 Analyzing the Federal Reserve's Balance Sheet reveals a number of facts: The Fed has over $11 billion in gold which is a holdover from the days the government used to back US Notes and Federal Reserve Notes with gold The Fed holds almost a billion dollars in coinage not as a liability but as an asset. The Treasury Department is actually in charge of creating coins and US Notes. The Fed then buys coinage from the Treasury by increasing the liability assigned to the Treasury's account The Fed holds $790 billion of the national debt. The Fed has about $21 billion in assets from Overnight Repurchase agreements. Repurchase agreements are the primary asset of choice for the Fed in dealing in the Open Market. Repo assets are bought by creating 'Depository institution' liabilities and directed to the bank the Primary Dealer uses when they sell into the Open Market. The $976 billion in Federal Reserve Note liabilities represents the total value of all dollar bills in existence; over $200 billion is held by the Fed (not in circulation); and the "net" figure of $774 billion represents the total face value of Federal Reserve Notes in circulation. The $16 billion in deposit liabilities of 'Depository institutions' shows that dollar bills are not the only source of government money. Banks can swap 'Deposit Liabilities' of the Fed for 'Federal Reserve Notes' back and forth as needed to match demand from customers, and the Fed can have the 'Bureau of Engraving and Printing' create the paper bills as needed to match demand from banks for paper money. The amount of money printed has no relation to the growth of the monetary base (M0). The $6 billion in Treasury liabilities shows that the Treasury Department doesn't use a private banker but rather uses the Fed directly (the lone exception to this rule is Treasury Tax and Loan because government worries that pulling too much money out of the private banking system during tax time could be disruptive). The $96 million Foreign liability represents the amount of foreign central bank deposits with the Federal Reserve. The $6 billion in 'Other liabilities and accrued dividends' represents partly the amount of money owed so far in the year to private banks as part of the 6% dividend guarantee the Fed grants banks for not loaning out a percentage of their reserves Total capital represents the profit the Fed has earned which comes mostly from the assets they purchase with the deposit and note liabilities they create. Excess capital is then turned over to the Treasury Department and Congress to be included into the Federal Budget as "Miscellaneous Revenue".

[edit] Regulation of fractional reserve The Fed regulates banks' fractional reserves€”the portion of their deposits that banks must keep, on hand ("vault cash") or at the Fed, as reserves to satisfy any demands for withdrawal. This directly affects the banks' ability to make loans, since loans cannot be made out of reserves. Without required reserves, financial institutions could theoretically loan out all of the money they receive from deposits (albeit with the disastrous tradeoff of having no way to provide withdrawals requested by depositors on a daily basis) - thus creating a scenario much like a pyramid scheme. The United States' rules and oversight are within limits and guidelines set by the Bank for International Settlements, a banking agency which pre-dates the Bretton Woods financial and monetary system and its institutions.

[edit] Criticisms It has been suggested that this section be split into a new article entitled Criticisms of the Federal Reserve . (Discuss) Critics charge that a cult of personality surrounded Alan Greenspan A large and varied group of criticisms has been directed against the Federal Reserve System. One critique, typified by the Austrian School, is that the Federal Reserve is an unnecessary and counterproductive interference in the economy.

[55] Other critiques include arguments in favor of the gold standard (usually coupled with the charge that the Federal Reserve System is unconstitutional)

[56] or beliefs that the centralized banking system is doomed to fail (due to the fractional reserve system's strong resemblance of the unsustainable pyramid scheme scam).

[55] Some critics argue that the Fed lacks accountability and transparency or that there is a culture of secrecy within the Reserve.

[57]

[edit] Historical criticisms Criticisms of the Federal Reserve System are not new, and some historical criticisms are reflective of current concerns. At one end of the spectrum are economists from the Austrian School and the Chicago School who want the Federal Reserve System abolished.

[58] They criticize the Federal Reserve System's expansionary monetary policy in the 1920s, arguing that the policy allowed misallocations of capital resources and supported a massive stock price bubble. They also cite politically motivated expansions or tightening of currency in the 1970s and 1980s.

[58]

[edit] Handling of The Great Depression Milton Friedman, leader of the Chicago School, argued that the Federal Reserve System did not cause the Great Depression, but made it worse by contracting the money supply at the very moment that markets needed liquidity. Since its entire existence was predicated on its mission to prevent events like the Great Depression, it had failed in what the 1913 bill tried to enact.

[59] Friedman explains his hypothesis on the cause of The Great Depression and the role the Federal Reserve played in it in his book and documentary series free to choose. An excerpt of his hypothesis:

[60] "the recession only became a crisis when these failures spread to New York and in particular to this building, then the headquarters of the Bank of United States. The failure of this bank had far reaching effects and need never have happened...Only a few blocks away is the Federal Reserve Bank of New York. It was here that the Bank of United States could have been saved. Indeed, the Federal Reserve System had been set up 17 years earlier precisely to prevent the worst consequences of bank failures...It was all a question of reassuring the public that they could get their money. The Federal Reserve System was there to insure that this happened by supplying cash to the banks...Why didn't this system prevent The Great Depression after 1929? Because from 1929 to 1930 after the stock market crashed, the Federal Reserve system allowed the quantity of money to decline slowly thereby throttling the monetary structure...If the Federal Reserve had stepped in, bought government securities on a large scale, provided the cash, the depositors would have found that they could've got their money and they would have stopped asking for it...Despite excellent advice from New York, the system refused to buy government bonds, something which would have provided cash to the commercial banks with which they could have met more easily the insisted demands of their depositors. Instead, believe it or not, the system stood idly by while banks crashed on all sides. As the head of one of the banks put it, the reserve system had to keep its powder dry for a real emergency." This is also the current conventional wisdom on the matter, as both Ben Bernanke and other economists such as the late John Kenneth Galbraith--the latter being an ardent Keynesian--have upheld this reasoning. Friedman also said that ideally he would "prefer to abolish the federal reserve system altogether" rather than try to reform it, because it was a flawed system in the first place.

[61] He later said he would like to "abolish the Federal Reserve and replace it with a computer", meaning that it would be a mechanical system in nature that would keep the quantity of money going up at a steady rate. Friedman also believed that, ideally, the issuing power of money should rest with the Government instead of private banks issuing money through fractional reserve lending.

[62] Ben Bernanke agreed that the Fed had made the Great Depression worse, saying in a 2002 speech: "I would like to say to Milton

[Friedman] and Anna

[J. Schwartz]: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."

[63]

[64]

[edit] Inflation CPI since 1800 One major area of criticism focuses on the failure of the Federal Reserve System to stop inflation; this is seen as a failure of the Fed's legislatively mandated duty

[24] to maintain stable prices. These critics focus particularly on inflation's effects on wages, since workers are hurt if their wages do not keep up with inflation.

[65] They point out that wages, as adjusted for inflation, or real wages, have dropped in the past.

[66] But other economists argue that the Fed is too much focused on inflation, which is effectively a contractionary policy that keeps the unemployment rate too high and suppresses wages, as a result.

[citation needed] Milton Friedman alleged that the Fed caused the high inflation of the 1970s. When asked about the greatest economic problem of the day, he said the most pressing was how to get rid of the Federal Reserve.

[59] Friedman discusses the high inflation rate of the 1970's and other periods in free to choose:

[67] "Inflation is just like alcoholism. In both cases when you start drinking or when you start printing too much money, the good effects come first. The bad effects only come later...That's why in both cases there is a strong temptation to overdo it. To drink too much and to print too much money. When it comes to the cure, it's the other way around. When you stop drinking or when you stop printing money, the bad effects come first and the good effects only come later. That's why it's so hard to persist with the cure. In the United States, four times in the 20 years after 1957, we undertook the cure. But each time we lacked the will to continue. As a result, we had all the bad effects and none of the good effects." United States congressman Ron Paul has also criticized Federal Reserve policy for creating too much inflation:

[68] "This decline in the value of the dollar is simple to explain. The dollar loses value as the direct result of the Federal Reserve and U.S. Treasury increasing the money supply. Inflation, as the late Milton Friedman explained, is always a monetary phenomenon. The federal government consistently wants to spend more than it can tax and borrow, so Congress turns to the Fed for help in covering the difference. The result is more dollars, both real and electronic-- which means the value of every existing dollar goes down...when the Fed sets interest rates artificially low, the cost of borrowing becomes cheap. Individuals incur greater amounts of debt, while businesses overextend themselves and grow without real gains in productivity. The bubble bursts quickly once the credit dries up and the bills cannot be paid...the Fed steadily increased the monetary supply throughout the 1990s by printing money. Recent Fed numbers show double-digit annual increases in the M2 money supply. These new dollars may make Americans feel richer, but the net result of monetary inflation has to be the devaluation of savings and purchasing power."

[edit] Monetary policy uncertainties A few of the uncertainties involved in monetary policy decision making are described by the federal reserve:

[21] "While these policy choices seem reasonably straightforward, monetary policy makers routinely face certain notable uncertainties. First, the actual position of the economy and growth in aggregate demand at any point in time are only partially known, as key information on spending, production, and prices becomes available only with a lag. Therefore, policy makers must rely on estimates of these economic variables when assessing the appropriate course of policy, aware that they could act on the basis of misleading information. Second, exactly how a given adjustment in the federal funds rate will affect growth in aggregate demand€”in terms of both the overall magnitude and the timing of its impact€”is never certain. Economic models can provide rules of thumb for how the economy will respond, but these rules of thumb are subject to statistical error. Third, the growth in aggregate supply, often called the growth in potential output, cannot be measured with certainty." "In practice, as previously noted, monetary policy makers do not have up-to-the-minute information on the state of the economy and prices. Useful information is limited not only by lags in the construction and availability of key data but also by later revisions, which can alter the picture considerably. Therefore, although monetary policy makers will eventually be able to offset the effects that adverse demand shocks have on the economy, it will be some time before the shock is fully recognized and€”given the lag between a policy action and the effect of the action on aggregate demand€”an even longer time before it is countered. Add to this the uncertainty about how the economy will respond to an easing or tightening of policy of a given magnitude, and it is not hard to see how the economy and prices can depart from a desired path for a period of time." "The statutory goals of maximum employment and stable prices are easier to achieve if the public understands those goals and believes that the Federal Reserve will take effective measures to achieve them." "Although the goals of monetary policy are clearly spelled out in law, the means to achieve those goals are not. Changes in the FOMC's target federal funds rate take some time to affect the economy and prices, and it is often far from obvious whether a selected level of the federal funds rate will achieve those goals."

[edit] Opacity Some believe the Federal Reserve System is shrouded in what its critics call excessive secrecy. Meetings of some components of the Fed are held behind closed doors, and the transcripts are released with a lag of five years.

[69] Even expert policy analysts are unsure about the logic behind Fed decisions.

[70] Critics argue that such opacity leads to greater market volatility, because the markets must guess, often with only limited information, about how the Fed is likely to change policy in the future. The jargon-laden fence-sitting opaque style of Fed communication, especially under the previous Fed Chairman Alan Greenspan, has often been called "Fed speak."

[70] The Federal Reserve System has also been considered reserved in its relations with the media in an effort to maintain its carefully crafted image and resents any public information that runs contrary to this notion. Maria Bartiromo reported on CNBC that during a conversation at the White House Correspondents' Dinner in April 2006, Federal Reserve Board Chairman Ben Bernanke stated investors had misinterpreted his recent congressional remarks as an indication the Fed was nearly done raising rates. This triggered a drop in stock prices just when the market was about to close.

[71]

[72]

[73] In 1993, Rep. Henry Gonzalez confirmed that the Fed did have tapes and transcripts of the meetings and could have complied with the FOIA requests, but had misrepresented the existence of the transcripts and chosen to ignore questions from Congress.

[74] After the existence of the transcripts was revealed, the Fed agreed to release the transcripts on a five-year time lag. The time period has been extended, so that for example 1992's transcripts were not released until 1998.

[74] Some critics believe the Fed exacerbated this idea when the Fed decided to stop publishing the M3 aggregate of financial data,

[citation needed] which details the total amount of money in circulation at a time. The Fed said that economists did not need M3 when they had M2.

[75] However, a journalist from the Connecticut Journal-Inquirer disagreed and saw no reason (according to his own views) to stop posting the numbers other than to keep the amount of America's debt or a pending stock market crash or worsening economy hidden.

[76] In addition, Congressman Ron Paul questioned the action of discontinuing the M3 statistic, as the move would only save the Federal Reserve less than .001% of their annual budget.

[citation needed]

[edit] Business cycles, libertarian philosophy and free markets Economists of the Austrian School such as Ludwig von Mises contend that the Federal Reserve's operation amounts to an artificial manipulation of the money supply and has led to the boom/bust business cycle occurring over the last century. Many economic libertarians, such as Austrian School economist Murray Rothbard, believe that the Federal Reserve's manipulation of the money supply to stop "gold flight" from England caused, or was instrumental in causing, the Great Depression. See Austrian Business Cycle Theory. In general, laissez-faire advocates of free banking argue that there is no better judge of the proper interest rate and money supply than the market.

[77] Many libertarians also contend that the Federal Reserve Act is unconstitutional. Congressman Ron Paul (ranking member of the House Subcommittee on Domestic Monetary Policy), for example, argues that: "The United States Constitution grants to Congress the authority to coin money and regulate the value of the currency. The Constitution does not give Congress the authority to delegate control over monetary policy to a central bank. Furthermore, the Constitution certainly does not empower the federal government to erode the American standard of living via an inflationary monetary policy."

[78]

[edit] Congress Congressman Louis T. McFadden, Chairman of the House Committee on Banking and Currency from 1920€“31, accused the Federal Reserve of deliberately causing the Great Depression. In several speeches made shortly after he lost the chairmanship of the committee, McFadden claimed that the Federal Reserve was run by Wall Street banks and their affiliated European banking houses.

[citation needed] On June 10, 1932, McFadden said: Mr. Chairman, we have in this country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve Banks. The Federal Reserve Board, a Government board, has cheated the Government of the United States and the people of the United States out of enough money to pay the national debt. These twelve private credit monopolies were deceitfully and disloyally foisted upon this country by the bankers who came here from Europe and repaid us for our hospitality by undermining our American institutions...The people have a valid claim against the Federal Reserve Board and the Federal Reserve banks.

[79] Quite a few Congressmen who have been involved in the House and Senate Banking and Currency Committees have been open critics of the Federal Reserve. Senator Robert L. Owen, the Chairman of the Senate Banking and Currency Committee from 1913-19, was a sponsor of the Federal Reserve Act in 1913, but he criticized the system later in his life because he did not believe that the Federal Reserve directors were doing enough to maintain a stable price level.

[citation needed] Congressman Wright Patman, the Chairman of the House Banking and Currency Committee from 1963-75, spent his entire Congressional career criticizing the Federal Reserve's existence, saying that the Government should manage its own money system independent of the private banks.

[citation needed] Congressman Henry Reuss chaired the same Committee from 1975-81 and he echoed Patman's criticism that the system inherently favored the corporate and banking elite.

[citation needed] Congressman Henry Gonzalez also chaired the same Committee from 1989-95, and he was also an ardent critic of the Federal Reserve System.

[citation needed] Currently, Congressman Ron Paul is the ranking member of the Monetary Policy Subcommittee and he is a staunch opponent of the Federal Reserve System. During each Congress Paul introduces a bill to abolish the Federal Reserve System (H.R. 2755 - 110th Congress, H.R. 2778 - 108th Congress, H.R. 5356 - 107th Congress, H.R. 1148 - 106th Congress), although he has yet to have any hearings held on his legislation or even to gather any cosponsors.

[80] It has often been said that the Federal Reserve is a creature of Congress and it is the fluctuating opinion of that body that it answers to.

[81]

[edit] Conspiracy theories Various conspiracy theories accuse the Federal Reserve System of trying to manipulate the economy for the personal gain of the ruling class. These theories are detailed in movies such as The Money Masters and Zeitgeist, the Movie, where proponents claim that international bankers control the United States through the Federal Reserve System.

[edit] Other prominent banking institutions Bank of International Settlements International Monetary Fund World Bank Inter-American Development Bank Reserve Bank of Australia Bank of Mexico Bank of Canada Bank of England Bangko Sentral ng Pilipinas Banque de France European Central Bank Deutsche Bundesbank Bank of Japan National Bank of Poland State Bank of Pakistan Reserve Bank of India Central Bank of the Republic of China People's Bank of China (People's Republic of China) Banco Central do Brasil Bank of Scotland Central Bank of the Republic of Turkey Bank of Spain Reserve Bank of New Zealand Central Bank of Russia

[edit] See also Austrian Theory of the Business Cycle Cash-out Core inflation Central bank Discount window Economic reports Executive Order 11110 Federal funds Federal Reserve Act Federal Reserve Statistical Release Fort Knox Bullion Depository Free banking Greenspan put Gold standard Government debt Inflation Monetary policy of the USA Money market Money supply Repurchase agreement Term auction facility United States dollar

[edit] Notes ^ Mishkin, Frederic S. (2007). The Economics of Money, Banking, and Financial Markets (Alternate Edition). Boston: Addison Wesley, 386. ISBN 0-321-42177-9.  ^ Johnson, Roger T.. Historical Beginnings ... The Federal Reserve. Federal Reserve Bank of Boston. ^ a b Flaherty, Edward. A Brief History of Central Banking in the United States. University of Groningen, Netherlands. ^ Herrick, Myron (1908-03). The Panic of 1907 and Some of Its Lessons. Annals of the American Academy of Political and Social Science. ^ a b c d e f g Whithouse, Michael (1989-05). Paul Warburg's Crusade to Establish a Central Bank in the United States. Minnesota Federal Reserve. ^ a b c d e f g h America's Unknown Enemy: Beyond Conspiracy. American Institute of Economic Research. ^ a b c d e f Born of a panic: Forming the Federal Reserve System. Minnesota Federal Reserve (1988-08). ^ a b c d e f g h Johnson, Roger (1999-12). Historical Beginnings€¦ The Federal Reserve. Federal Reserve Bank of Boston. ^ Pujo, Arsene, a brief biography. ^ U.S. Congress, Excerpts from the Report of the Committee Appointed to Investigate the Concentration of Money and Credit, House Report No. 1593, 3 vols. (Washington, D.C., 1913), III: pp. 55-56, 89, 129, 140.. ^ Wilson Upholds Glass Money Bill; But Senators Think His Statement Offers a Loophole for His Accepting Vanderlip Plan. New York Times (October 25, 1913). ^ Aldrich Sees Bryan Back of Money Bill; Socialist, Unconstitutional Measure, Says Ex-Senator. New York Times (October 18, 1913). ^ a b Page, Dave (1997-12). Carter Glass: A Brief Biography. Minnesota Federal Reserve. ^ Keleher, Robert (1997-03). The Importance of the Federal Reserve. Joint Economic Committee. US House of Representatives. ^ A Foregone Conclusion: The Founding of the Federal Reserve Bank of St. Louis by James Neal Primm - stlouisfed.org - Retrieved January 1, 2007 ^ Reserve Bank Organization Committee (April 14, 1914). Decision of the Reserve Bank Organization Committee Determining the Federal Reserve Districts and the Location of Federal Reserve Banks under the Federal Reserve Act approved December 23, 1913. U.S. Government Printing Office. ^ Arthur Link, Wilson: The New Freedom; pp. 199-240 (1956). ^ Bartlett, Bruce (2004-06-14). Warriors Against Inflation. National Review. ^ Source: A Monetary Chronology of the United States, American Institute for Economic Research, July 2006 ^ A Monetary Chronology of the United States, American Institute for Economic Research, July 2006 ^ a b c d e f g ebook: The Federal Reserve - Purposes and Functions:http://www.federalreserve.gov/pf/pf.htm for info on government regulatiosn, see pages 13 and 14. Addressing bank panics on page 83. Implementation of monetary policy on page 12 and 36. Board and reserve banks responsibility on page 12. Key laws affecting the federal reserve on page 11. Monetary policy uncertainties on pages 18-19. ^ a b c d e The Federal Reserve in Plain English - An easy-to-read guide to the structure and functions of the Federal Reserve System See page 5 of the document for the purposes and functions. See page 14 titled, "conducting monetary policy" for information about inflation as a measure of the Fed's success. See page 11 for how open market operations work. ^ Federal Reserve Act ^ a b c FRB: Mission ^ FRB: FAQs: Federal Reserve System ^ a b FRB: Federal Open Market Committee ^ a b c d e federal reserve education website - Monetary Policy Basics: http://www.federalreserveeducation.org/fed101_html/policy/basics_print.htm ^ FRB: Monetary Policy, Open Market Operations ^ FRB: Monetary Policy, the Discount Rate ^ FRB: Monetary Policy, Reserve Requirements ^ Repurchase and Reverse Repurchase Transactions - Fedpoints - Federal Reserve Bank of New York ^ EconTalk, Podcast Archive, Featuring Milton Friedman: Library of Economics and Liberty ^ Federal Reserve Bank San Francisco( 2004) ^ FRB: Monetary Policy, Reserve Requirements ^ Discontinuance of M3 ^ Federal Reserve Education ^ ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt ^ "These definitions make clear a commitment to low inflation. But they leave open whether, for example, the inflation rate prevailing today--about 2-1/2 percent for the core consumer price index (CPI) measure of consumer prices--is consistent with this definition." http://www.federalreserve.gov/boarddocs/speeches/2001/20010717/default.htm ^ FRB Speech, Bernanke-A perspective on inflation targeting-March 25, 2003 ^ What's The Fuss Over Inflation Targeting? ^ Bernanke, Ben S.: The Inflation-Targeting Debate ^ http://minneapolisfed.org/info/sys/faq/frs.cfm#3 ^ Federal Reserve Bank of New York. New York Times. ^ See generally 12 U.S.C. § 248. ^ See 12 U.S.C. § 241. ^ a b See 12 U.S.C. § 242. ^ 12 U.S.C. § 222. ^ FRBB: Federal Reserve Membership ^ http://www.bos.frb.org/bankinfo/members/100604.pdf ^ http://www.frbsf.org/banking/institutions2006/nat_bk3Q06.pdf ^ http://www.ca8.uscourts.gov/opndir/05/04/042357P.pdf ^ 12 U.S.C. § 247. ^ 680 F.2d 1239 (9th Cir. 1982). ^ Kennedy C. Scott v. Federal Reserve Bank of Kansas City, et al. ^ a b North, Gary (2007-05-30). My Recommended Federal Reserve Policy. Lew Rockwell.

[unreliable source?] ^ Paul, Ron (2002-06-10). Gold, Dollars, and Federal Reserve Mischief. US House of Representatives representative homepage. ^ Rockwell, Llewelynn (1996-05). Ending the Fed's Free Ride. Mises Institute. ^ a b MONEY RULES: The Role of the Federal Reserve date=2002-01-09. Hoover Institution. ^ a b Interview with Milton Friedman. Minneapolis Federal Reserve (1992-06). ^ Transcript of part 3 of free to choose titled, "anatomy of a crisis":http://www.freetochoose.net/1980_vol3_transcript.html ^ Friedman and Freedom, Interview with Peter Jaworski. The Journal, Queen's University, March 15, 2002 - Issue 37, Volume 129 ^ Greenspan voices concerns about quality of economic statistics. Stanford News Service (1997-09-09). ^ FRB Speech, Bernanke - On Milton Friedman's ninetieth birthday - November 8, 2002 ^ To Fill His Shoes, Mr. Bernanke, Learn to Dance ^ Federal Reserve Bank of Minneapolis - The Region - Book Review: The Great Wave: Price Revolutions and the Rhythm of History (September 1997) ^ FT.com / World - US real wages fall at fastest rate in 14 years ^ transcript of part 9 of free to choose titled, "how to cure inflation":http://www.freetochoose.net/1980_vol9_transcript.html ^ Monetary Inflation is the Problem by Ron Paul before the U.S. House of Representatives December 4, 2006: http://www.house.gov/paul/tst/tst2006/tst120406.htm ^ Poole, William (2002-07). Untold story of FOMC: Secrecy is exaggerated. St. Louis Federal Reserve. ^ a b Andrews, Edmund (2005-11-01). News Analysis: Fed in a fishbowl? An era of secrecy seems over. New York Times. International Herald Tribune. ^ FRB: Speech, Bernanke-Fedspeak-January 3, 2004 ^ Fed Speak

[rec.humor.funny] ^ Economist's View: Fed Speak from Atlanta President Guynn, Dallas President Fisher Muzzles Himself, and Greenspan Continues the Conundrum ^ a b Inner City Press' Federal Reserve Reporter. Inner City Press (1999-05-17). ^ Discontinuance of M3 ^ Levy, Harlan (2005-12-01). Federal Reserve money supply report is about to fall into the abyss. Connecticut Journal-Inquirer. ^ Three National Treasures author=Llewelyn Rockwell. Lew Rockwell (1986). ^ Paul, Ron (2002-09-10). Abolish the Federal Reserve. US House of Representatives representative homepage. ^ Louis T. McFadden's U.S. House Speech,10 June 1932 ^ H.R. 2755: Federal Reserve Board Abolition Act (GovTrack.us) ^ Wooley, John T. (1984). Monetary Politics: The Federal Reserve &The Politics of Monetary Policy, p. 153 . Cambridge University Press.

[edit] Bibliography

[edit] Recent Epstein, Lita & Martin, Preston (2003). The Complete Idiot's Guide to the Federal Reserve. Alpha Books. ISBN 0-02-864323-2. Greider, William (1987). Secrets of the Temple. Simon & Schuster. ISBN 0-671-67556-7; nontechnical book explaining the structures, functions, and history of the Federal Reserve, focusing specifically on the tenure of Paul Volcker R. W. Hafer. The Federal Reserve System: An Encyclopedia. Greenwood Press, 2005. 451 pp, 280 entries; ISBN 4-313-32839-0. Meyer, Lawrence H (2004). A Term at the Fed: An Insider's View. HarperBusiness. ISBN 0-06-054270-5; focuses on the period from 1996 to 2002, emphasizing Alan Greenspan's chairmanship during the Asian financial crisis, the stock market boom and the financial aftermath of the September 11, 2001 attacks. Woodward, Bob. Maestro: Greenspan's Fed and the American Boom (2000) study of Greenspan in 1990s.

[edit] Historical J. Lawrence Broz; The International Origins of the Federal Reserve System Cornell University Press. 1997. Vincent P. Carosso, "The Wall Street Trust from Pujo through Medina", Business History Review (1973) 47:421-37 Chandler, Lester V. American Monetary Policy, 1928-41. (1971). Epstein, Gerald and Thomas Ferguson. "Monetary Policy, Loan Liquidation and Industrial Conflict: Federal Reserve System Open Market Operations in 1932." Journal of Economic History 44 (December 1984): 957-84. in JSTOR Milton Friedman and Anna Jacobson Schwartz, A Monetary History of the United States, 1867-1960 (1963) G. Edward Griffin, The Creature from Jekyll Island: A Second Look at the Federal Reserve (1994) ISBN 0-912986-21-2 Paul J. Kubik, "Federal Reserve Policy during the Great Depression: The Impact of Interwar Attitudes regarding Consumption and Consumer Credit." Journal of Economic Issues . Volume: 30. Issue: 3. Publication Year: 1996. pp 829+. Link, Arthur. Wilson: The New Freedom (1956) pp 199-240. Livingston, James. Origins of the Federal Reserve System: Money, Class, and Corporate Capitalism, 1890-1913 (1986), Marxist approach to 1913 policy Mayhew, Anne. "Ideology and the Great Depression: Monetary History Rewritten." Journal of Economic Issues 17 (June 1983): 353-60. Meltzer, Allan H. A History of the Federal Reserve, Volume 1: 1913-1951 (2004) the standard scholarly history Roberts, Priscilla. "'Quis Custodiet Ipsos Custodes?' The Federal Reserve System's Founding Fathers and Allied Finances in the First World War", Business History Review (1998) 72: 585-603 Bernard Shull, "The Fourth Branch: The Federal Reserve's Unlikely Rise to Power and Influence" (2005) ISBN 1-56720-624-7 Steindl, Frank G. Monetary Interpretations of the Great Depression. (1995). Temin, Peter. Did Monetary Forces Cause the Great Depression? (1976). West, Robert Craig. Banking Reform and the Federal Reserve, 1863-1923 (1977) Wicker, Elmus R. "A Reconsideration of Federal Reserve Policy during the 1920-1921 Depression", Journal of Economic History (1966) 26: 223-238, in JSTOR Wicker, Elmus. Federal Reserve Monetary Policy, 1917-33. (1966). Wells, Donald R. The Federal Reserve System: A History (2004) Wicker, Elmus. The Great Debate on Banking Reform: Nelson Aldrich and the Origins of the Fed Ohio State University Press, 2005. Wood, John H. A History of Central Banking in Great Britain and the United States (2005) Wueschner; Silvano A. Charting Twentieth-Century Monetary Policy: Herbert Hoover and Benjamin Strong, 1917-1927 Greenwood Press. (1999) Mullins, Eustace C. "Secrets of the Federal Reserve", 1952. John McLaughlin. ISBN 0-9656492-1-0

[edit] External links

[edit] Official Federal Reserve websites and information The Federal Reserve in Plain English - An easy-to-read guide to the structure and functions of the Federal Reserve System ebook: The Federal Reserve System - Purposes and Functions Board of Governors of the Federal Reserve €” Official website "The Federal Reserve System in Brief." €” at the Federal Reserve Bank of San Francisco. Decision of the Reserve Bank Organization Committee Determining the Federal Reserve Districts and the Location of Federal Reserve Banks under the Federal Reserve Act Approved December 23, 1913, April 2, 1914; With Statement of the Committee in Relation Thereto, April 10, 1914. 27 pages. Government Printing Office, Washington, D.C., 1914.] Historical Beginnings ... The Federal Reserve by the Federal Reserve Bank of Boston Federal Reserve Districts and Banks Federal Reserve Education Federal Reserve Financial Services

[edit] Open Market Operations NY FED: Open Market Operations

[edit] Repurchase Agreements NY FED: Repurchase and Reverse Repurchase Transactions

[edit] Discount Window The Official FED Discount Window information website

[edit] Economic Indicators http://www.federalreserveeducation.org/fed101_html/policy/indicators_print.htm Consumer Price Index Calculator

[edit] Other websites describing the Federal Reserve "How 'The Fed' Works" €” at HowStuffWorks.com "Federal Reserve Update" €” money-rates.com Macroeconomic Effects of Interest Rate Cuts, by Jason Cawley, The Wolfram Demonstrations Project, 2007.

[edit] Sites critical of the Federal Reserve Ludwig von Mises Institute: "The Founding of The Federal Reserve" (video) "Money, Banking and the Federal Reserve" (video) €” According to the Mises Institute, this video shows "what the

[Federal Reserve] does to the economy . . . how and why it was founded . . .

[and explains] the sound money and banking that could end the statism, inflation, and business cycles that the Fed generates." v €¢ d €¢ e United States currency and coinage Topics Federal Reserve System · Federal Reserve Note · U.S. dollar · U.S. Mint Current coinage Penny (1¢) · Nickel (5¢) · Dime (10¢) · Quarter dollar · Half dollar · Dollar Paper money $1 · $2 · $5 · $10 · $20 · $50 · $100 · Larger denominations See also Bicentennial coinage · Commemoratives · Confederate dollar · Fake denominations · Obsolete denominations · Coin production · In God We Trust v €¢ d €¢ e Federal Reserve System Structure Federal Open Market Committee · Chairman of the Federal Reserve · Federal Reserve Banks Banknotes: Federal Reserve Note · Federal Reserve Bank Note Reports: Monetary Policy Report to the Congress · Federal Reserve Statistical Release · Beige Book Federal funds: Federal funds · Federal funds rate · Fed Funds Probability History: Federal Reserve Act · Depository Institutions 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of Russia · National Bank of Serbia · Central Bank of Turkey · Reserve Bank of Zimbabwe Policies: Expansionary monetary policy · Contractionary monetary policy · Monetary policy of the USA · Monetary policy of Sweden · Capital requirement Implementation: Open market operations · Capital control · Discount rate · Money creation · Interest rates Bretton Woods system: World Bank · International Bank for Reconstruction and Development · International Finance Corporation · International Development Association · Multilateral Investment Guarantee Agency · International Centre for Settlement of Investment Disputes Retrieved from "http://en.wikipedia.org/wiki/Federal_Reserve_System" Categories: All pages needing cleanup | Articles with unsourced statements since January 2008 | Articles to be split | All articles with unsourced statements | Articles with unsourced statements since April 2007 | Articles with unsourced statements since October 2007 | Articles with unsourced statements since 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