Forex - History Of Banking - Federal Reserve
Most people think that the Federal Reserve is a government organization. It makes perfect sense, doesn't it? It has the word "Federal" in it, it has a.gov website, and it controls our monetary policy and interest rates. It must be part of the government, right? The Federal Reserve is actually a private corporation. They've done an extraordinary job of hiding the fact that they are a private bank. The fact remains, however, that the Fed is a private corporation. It's stock is traded by non-government, private individuals and corporations. The Federal Reserve system was enacted on 23 December, 1913. It was voted on by a handful of legislators when most of Congress was out for the holiday season. The act was quickly signed into law by President Woodrow Wilson.
The Federal Reserve, also known as The FED, is the central bank of the United States. It controls the United States monetary policy and ultimately controls the value of the US Dollar. It controls this value by changing the supply of US Dollars in circulation and changing interest rates. Most traders have seen what happens to the markets when the Fed raises or lowers the interest rate. The Fed raises rates in an expanding economy so that it can soften the blow of a collapsing economy. You see, as interest rates increase, it becomes more expensive for traders to trade and for businesses to purchase goods and services. This has a slowing effect on the expansion. As the economy slows and begins to collapse, the Fed lowers rates, to make it less expensive to do business.
There are other methods the Fed uses to control the value of the Dollar. The Fed can just create money and distribute it through purchases of various assets such as mortgage backed securities, government and municipal bonds, etc. This increased supply lowers the value of the existing currency in circulation since there is no real change in production to back the new currency. This practice is known as Quantitative Easing.
The Fed lowers the value of the US Dollar because it makes United States exports more attractive to foreign purchasers. The reduced purchasing power also reduces the importation of foreign goods and services. Both of these impacts are good for the economy in theory.
The Fed consists of twelve regional banks. Each of these banks is privately traded. That is to say that they are not openly traded on an exchange. Currently, controlling interest in the Federal Reserve is reportedly held by two banks: Citibank and Chase Manhattan Bank. A deep dive into the ownership of these two banks could give you an indication of who really controls US monetary policy.
The Federal Reserve basically loans the government money that it does not currently have, then collects interest on that money from the government. If you or I did this I am nearly certain that we would end up in prison for fraud. However, on 23 December of 1913 our elected officials gave up their responsibility for our wealth over to a private, for-profit organization. They trusted this corporation. Do you?
