What is the Federal Reserve?

If you've been watching the news recently, you've probably heard a lot about the Federal Reserve. So what is the Federal Reserve exactly, and why are people hyped up about it?

The Federal Reserve System, established in 1913 with the signing of the Federal Reserve Act by President Woodrow Wilson, is the central banking system of the United States. It was created to provide the nation with a safer, more flexible, and more stable monetary and financial system.

There are three parts to the system: the Board of Governors, the Federal Open Market Committee, and the 12 Regional Federal Reserve Banks.

Board of Governors - oversees the Federal Reserve System. It's made up of seven members who are appointed by the President and approved by the Senate, and lead by a Chairman and a Vice Chairman.

Regional Federal Reserve Banks - Under the Federal Reserve System, the U.S. is divided into twelve regions or districts. Each district has a Reserve Bank serving/operating in it. The twelve banks are named after the cities where they are located; Boston, NYC, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco. The picture up top shows the 12 different Federal Reserve Districts.

Responsibilities of "The Fed"

• Oversee and conduct the nation's monetary policy to help maintain employment, keep prices stable, and interest rates relatively low. (monetary policy - actions taken by the Federal Reserve to help encourage a healthy economy).
• Supervise and regulate banks.
• Provide financial services (including loans) to the U.S. government, and foreign national banks.
• Distributing money to the nation's banks, credit unions, savings banks, and loan associations.
• Distributing information about the local and national economy.

Common Misconception: The Fed doesn't print paper money, or produce coins.

FOMC - stands for Federal Open Market Committee. This committee consists of 12 members; the seven members of the Board of Governors, and five of the Regional Federal Reserve Bank Presidents (chosen randomly). It's purpose is to determine the nation's financial policy, and report it's conclusions to the public.

So why has the Fed been in the news recently?

Simply put it, the Obama administration has proposed a bill that would give the Federal Reserve System, and thereby the Board of Governors, more power in order to guard our economy against the types of risks that could bring down the entire system.
The administration wants the Fed to have the legal ability to regulate large companies such as General Motors. If these big institutions fail, they believe it could potentially ruin our economy. Through government regulation, the Obama administration intends to prevent this from happening.

So what's the problem? This sounds good.

It's true, this does sound like a great plan. However, there are some constitutional issues to consider. If the Fed is allowed to control large institutions, it means they are allowed to control major contributors to important consumer industries; health care, banking, automotive, and major commodities.

The question then becomes, is this consitutional? Some people say that this measure would ensure the success and recovery of our economy. Others say that government regulation of private businesses goes against the Constitution, which by its nature favors state's rights over federal power.

What do you think? Post your opinions, and join the national debate. Check out my opinion at AmeriKad.

-Kaydee

Bibliography:

"Federal Reserve: Kids Page." 10 May 2007. The Federal Reserve Board. 19 June 2009 <http://www.federalreserve.gov/>.

"Federal Reserve System." The Columbia Encyclopedia, Sixth Edition. 2008. Encyclopedia.com. 19 June 2009 <http://www.encyclopedia.com/>.

"Administration Pledges to Overhaul Financial System." 15 June 2009. FoxNews.com. 19 June 2009 <http://www.foxnews.com/politics>.