The Federal Reserve and our Economy.docx - The Federal...

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The Federal Reserve and Our Economy: Why it may be time for a make-over What is the Federal Reserve? With so much controversy surrounding United States economic policy, fewer topics have ignited more controversy than the Federal Reserve. Just the mere suggestion of abolishing “the Fed,” as it’s more commonly known, is one of the most polarizing topics when it comes to public opinion—right up there with immigration reform and whether religion should be promoted in public schools. Since its creation in 1913, the United States Federal Reserve has never been met with a shortage of public opinion on the matter. But what exactly is the Fed, what is its primary function, and do we even need it? Well, the answer is yes; we do need the Fed—just not the people who are currently running it. We currently have many people serving as board members within an organization (the Fed) that has the power to help their own businesses and corporations thrive. The problem is not that the Federal Reserve needs to be abolished— because it doesn’t—the problem is that it needs to be entrusted to people who have nothing to directly gain because of the decisions and policies that they themselves put into place while serving as an active board member. We need to eliminate the conflicts of interest within the Federal Reserve—not abolish it altogether. The United States Federal Reserve is a banking system that was put into place as a response to The Great Panic of 1907.From the 1790s and throughout the 1800s as well, our monetary system was disheveled at best—chaotic at worst. The only consistent form of currency that was reliable at the time was gold and silver. Paper money, however, was a different story. The paper money being used by banks to exchange with their customers was nothing more than pieces of paper printed by the bank in the form of bonds. By the end of the 19 th century, there were so many different bonds—even a druggist had some printed and issued from his store. Not all bonds could be used to pay for goods and services in all parts of the country, and the value of these bonds was never consistent. Unlike the $20 bill that many people carry in their wallet today, a bond from one person’s local bank may only be worth 50% of what they paid for it if they were to try and use it to pay for things outside of the town where their bank drafted it—and that’s if they could exchange it all. Many businesses and banks would refuse to accept bonds from outside institutions. This would be the modern-day equivalent of opening a line of credit at, say Wal-Mart, and trying to use it at a store with no affiliation to Wal-Mart whatsoever—like Macy’s. Suffice it to say, the lack of structure was creating a problem.
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Another problem that the old system had was the constant cycle of panic that would sweep the entire country. Every time a small bank failed, people swarmed to the other nearby banks, demanding all their money they had deposited. This was a problem because back then, whenever someone deposited their
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  • Fall '19
  • Federal Reserve System, United States Federal Reserve

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