Federal Reserve System

Introduction

Over the course of one hundred years, America's central bank system has caused our citizens and government different reason to worry about the decision-making process toward handling our overall currency which was either deposited or loaned out. The primary reason for these concerns originally stemmed from bank runs, stock market failure, recession and international sovereign debt causing four major bank panics such as: Panic of 1837, Long Depression of 1873, Knickerbocker Crisis (1907) and 1930's Great Depression (Wicker, 2001). Therefore, these catastrophic events led to the formation of what is known today as Federal Reserve Bank (FED). Now you might be asking yourself several questions about "what caused these chains of events which led to the birth of FED"? What role does the Federal Reserve Bank play toward encouraging financial growth in America? How did FED become the "banker's bank" and why did the public lose faith in banking system? My main goal for this essay is to show that the Federal Reserve System has more importance within the American public than Governmental concerns.

Background

October 14, 1907, the worse economic disaster occurred changing the perspective of stock traders, citizens and governmental consultants about the ineffectiveness of central banks efforts to address responsibility for funds that were deposited by a valued customer. In this day, the Heinz brothers (Otto and Augustus) along with business partner Charles Morse plotted to mislead share buyers into investing their money on worthless borrowed stock for his brother company "United Copper Co". These business partners' created an elaborate strategy that worked by conducting three phases: 1) Corner the market share 2) determine the new price of share sold 3) influence brief sellers to fear that the stock would be lost (Crisiswatch.net, 2011). However, their calculated plan would send shockwave throughout the nation causing numerous banks / businesses to suffer from the lasting effects. In 1913, President Wilson signed an agreement which commemorated the birth of our finest economic achievement know as Federal Reserve Bank.

What is the Federal Reserve Bank?

Federal Reserve Bank (FED) was instituted as preventive measure to evaluate economic progression, decrease the inflation rate while controlling the unemployment status throughout America by manage the money supply, identify and determine macro-economic values (Paul, 2009). These three factors allows FED utilizing monetary policies, banking supervision and financial services to that helps navigate the financial system from dealing with reoccurring recession or inflation (Johnson,1999). This institution is governed by a collective board group made up of 7 elected members and 12 reserve banks ranging from the District of Columbia to California.

Monetary Policy

Monetary policy is referred as a procedure which creates balance for economic growth, minimal inflation and practical unemployment rate that redefines its true goal for a stable economy. According to (Brue, 2004 p. 252), there are three precise means that allows FED to control the flow of money: An open-market operation involves the public and commercial banks buying government bonds influencing the supply of money. The process of buying bonds on the open market improves the commercial institution money supply