Explaining the Federal Reserve

Our Federal Reserve Bank is in the news this week. So are survey results that less than 30 percent of persons polled understand one of our nation’s most vigorous institutions. Let’s clear up a few misunderstandings.

Originating with Alexander Hamilton, a Constitutional Convention delegate and author of “The Federalist,” today’s version of the central banking system was established 100 years ago by the Federal Reserve Act of Congress. It was uniquely designed as a blend of government appointees and member banks to stabilize our growing yet volatile economy.

Is The Fed owned by “private banks?” Is it a “private corporation?”

Profits are deposited in the U. S Treasury. Commercial banks do not exercise proprietary control. The 12 Reserve Banks are private corporations owned by the member banks, but monetary policy is the responsibility of political appointees on the Board of Governors.

Fed Chairman Ben Bernanke served on President George W. Bush’s Council of Economic Advisors before being appointed by President Bush in 2006. Chairman Bernanke supports reducing budget deficit not “keeping us in debt.”

Does the Fed set “ridiculous interest rates?”

Those are set by your bank, which does keep its profit. The current rate at which your bank borrows money from the Fed is less than 1 percent and has been for several years.

How is the value of our money “set?”

Not solely by the Fed. Since Richard Nixon took us off the gold standard in 1971, value is determined by demand for the dollar in the international money market and supply of the dollar, which is stabilized by the Fed’s monetary policy.

Does the Fed print money?

Congress created the U.S. Mint in 1792 to coin money. Then, in 1914, the Federal Reserve note (dollar bill) was printed by the U.S. Bureau of Engraving and Printing. Money supply is controlled in two ways, by Congress through fiscal policy and by monetary policy.

To quote Alexander Hamilton from “The Federalist,” "the vigor of government is essential to the security of liberty."

Cynthia Bennett

Newnan



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