The Federal Reserve

Alia Sondalle 1B

History

In the late 1700s, the first money was printed to finance wars. In the early 1800s, congress established the first bank, then in the mid 1800s congress chartered the 2nd bank! In the late 1800s, the National Banking Act was passed, but a banking panic sent the US into depression. In the early 1900s, President Wilson signed the Federal Reserve Act of 1913! This was their 3rd try, and it worked! The Fed was now in business! In the mid 1900s, the stock market crashed occurred in 1929 and the nation fell into the Great Depression where over 10,000 banks failed. Which led to the banking act to establish the FDIC in 1933.

What is the Fed?

The Fed is the central banking organization of the USA. It makes important decisions that affect our economy. The fed is NOT 100% owned by the government, but is also NOT 100% owned by businesses.

There are 2 parts of the Fed,


  • The Board of Governors-"Public"
  • District banks-"Private" (12 district banks)

What is the Fed All About?

The Fed's Goals and Responsibilities

The Fed's main goal is to stabilize the economy. Low inflation is a long-term goal of the Fed also.

Its 3 main responsibilities are


  1. To clear checks: They make sure the money goes to one bank to another
  2. To supervise banks: To make sure no bank worker steals money
  3. To supply money: Make sure they have money to supply to the people
They provide financial services, contribute to Monetary Policy, and supervise commercial banks.

Pyramid

District Banks (Reserve Banks)

District Banks are the private side of the Fed. There are 12 banks total and are placed in various cities in the U.S.. They were establish in 1913 with the Federal Reserve Act. They hold and reserve money, clear checks and supervise activities for all "members of banks." This is where the bank(s) get all their money from!

Some cities you'd find these banks in are... Chicago, Kansas City, Dallas, Boston, San Francisco, New York, Atlanta, St. Louis and more!

Board of Governors

The Board of Governors is located in Washington and is the public side of the Fed, they are appointed by the president and approved by congress (congress can oversee the entire Federal Reserve System). Let me remind you the president and congress are elected officials by the public! Each member can be appointed to serve up to a 14 year term. There are 7 who serve on the board, and one of them is appointed as chairman of the board. Currently holding that position is Janet Yellen, who is the 1st woman.

Bureau of Engraving and Printing (BEP)

There are 2 located in the U.S., in Washington and Texas. BEP prints all paper money that the people use. It prints over 26 million notes a day! It costs about 6.4 cents to make one U.S. currency.

U.S. Mint

There are several facilities around the U.S.. They produce all coin money the people use. The one in Kentucky stores all the United States's gold! Each year, the U.S. Mint makes between 14 billion and 20 billion circulating coins! Which most coins circulate for about 25 years.

FOMC

FOMC is the Federal Open Market Committee. The FOMC meets 6-8 times each year to discuss the monetary policy. All 7 board governors, NY district bank president, and 4 other rotating district bank presidents makes a total of 12 voting members! Their main job is to keep steady and sustainable growth in the economy. They are here to set the nation's monetary policy.

U.S. Money and Currency

Have you ever wondered which presidents are on each dollar bill? On the $10 bill, former President Alexander Hamilton is printed on the front. On the $50 dollar bill is former President Ulysses S. Grant. While the White House is on the back of the $20 dollar bill. Did you know on the back of the $2 bill, it shows the Signing of the Declaration of Independence? $2 bills are very rare, which is why this currency has the longest life span of 36 years! Since $2 bills aren't all the necessary, they are mostly kept for sentimental reasons, not so much because of the value of them. In 1913, there were over 30,00 different type of currencies being used in the U.S.! Thanks to the Fed, we were able to create only ONE type of money that everyone to use, so things wouldn't be so complicated!

Monetary Policy

The monetary policy for open market operations talks about buying and selling government bonds, and this is the most frequently used. The discount rate (or bank interest rates) potentially changes a few times a year, but usually doesn't. The reserve requirement means that cash is on hand at all times at each bank. So when people walk in and want their money now, the bank will be able to support that customer. The three tools the Fed can use for Monetary Policy include changing the interest rate, raising or lowering the reserve requirement, or simply using the buying and selling of treasury bonds. This policy is used to control the economy in order to keep us stable. There are different words used to describe the money status in our country. When the economy is in "inflation," this is when prices are rising quickly and people are spending to much money. Then there is "recession" which is bad. This is when we have a "sluggish" and slow economy. This means there is high unemployment. Then there is "depression" which is really bad! This is a severe recession, and is usually long lasting!
'The Federal Reserve' Rap