Too Hot in the Kitchen for the Fed?

Reporter: Annashaye Stiles

What Does the Fed Even Do?

Back before 1913 the US and banks had a lot of problems. At first their was the fact that we had so many types of currencies and then there was the fact that people thought that banks had way too much power. Finally the government had, had enough and created the national bank and this got everyone under control and everyone onto the same page. Therefore we come to here, the Fed. The fed is the Federal Reserve System. They were created to be a central bank. Some of the every day things that the fed can do is that then can give money to businesses that need to borrow some. Also banks can earn dividends by investing money into them. The over head of the fed is the board of governors. There is a particular part of the fed called the Federal Open Market Committee. There are 12 main districts of the fed. Of those 12 7 are permanent and the other 5 are rotated.

Functions of the Fed

Where Exactly Can you Find the Fed?

You can find the fed in places like commercial banks. This is because commercial banks have done really risky things in the past. Secondly the fed controls who they let borrow money. This is smart but could be annoying to someone borrowing. The only reason is because you wouldn't really want the bank on your case all the time. There are three points to my last example. The first one is that the fed acts as the government's bank because they hold their money. Next is that they sell bonds and treasury bills. Lastly the issue and control how much money comes in and out.

How Does the Fed Manipulate Money?

So how does the Fed manipulate money you see everyday? First of all the fed has the power to control how much money they give out and how much they take back. This is called monetary policy. This is one of if not the most important thing the Fed does. If there isn't a lot of business activity at the time than the fed will lower the interest rates. The two ways that I will be talking about are the most common but there are more. If they don't lower the interest rate than they'll buy government securities. Why exactly may they be doing this? They do this because it makes it cheaper for companies to borrow money and it also makes the process cheaper. Since these prices get people so interested it simulates the economy by creating more activity. If you are wondering what a government security is you are not alone. I was wondering the same thing by this point. Buying a government security is lending money to a bank that they didn't have before. The banks in turn will want to lend their money again.

When the fed thinks that there is possibly too much business than it will increase their interest rates and sell their government bonds. They do this because they are afraid that excessive inflation might occur. This process takes money out of the economy for businesses as well as people. If this money is no longer in flow than it makes it harder for people to get it.

So what should you do?

So to summarize the fed has a lot more control than we thought. They control a big portion of all the money that we all see every day. They were created for this purpose and have obviously done a great job of manipulating the economy. Without their help it would be hard to get money flowing when we are doing bad. Also thank them for creating 1 type of currency instead of the 70 types we had before the revolutionary war! Although it is somewhat fascinating that they can increase interest like they do, it is also sort of scary to think about. Especially if you were a big business and they raise the interest so high. Banks who get money from the fed should be happy that they can money from someone so easily. Another thing that is scary about the fed is that the government is the only one that controls these banks. What if the fed lost the money that was theirs and it puts us in tremendous debt? Having only one person controlling what goes or not is a bit concerning. If you're a person who owns a business and was thinking about maybe investing into doing work with the fed I hope that this has explained to you what all they do. Reading about their purpose and what all they do should be very informative. Even if you don't own a business I hope you have learned a little more about establishments in your own country.

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