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Federal Reserve

From dKosopedia

The Federal Reserve (Also known as the Federal Reserve System or The Fed) is the United State's central banking system. It was created in 1913 by the Reserve Act. It was initially created to smooth out a series of local financial panics and gradually evolved into a privately-held corporation that oversees national monetary policy, banking regulation, national financial stability, and as a lender for other banks, the U.S. Government, and foreign entities.[1]

Decisions made by the Federal Reserve are not subject to the Executive or Legislative branches of government. It's authority is, however, derived from the U.S. Congress. Board Members of the Federal Reserve are chosen by the President and confirmed by Congress. All profits made by the Federal Reserve System are transferred to the U.S. Government.


The vast majority of American history enjoyed sufficient economic growth, immigration diversity, civil tolerance, and technological advancement without the presence of a central banking authority. Nonetheless, the Founding Fathers debated consistently over the validity of forming a nationalized banking system. George Washington and Alexander Hamilton pushed to create a temporary charter for the First Bank of the United States, while Thomas Jefferson and James Madison opposed the action. [2] A oft-quoted description of Jefferson's feelings about banks: [3]

“And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; 
and that the principle of spending money to be paid by posterity, under the name of funding, is but 
swindling futurity on a large scale.”

Over the next 100 years, each time the nation's money supply contracted, a larger, less-regulated, and more powerful banking industry was seen as the solution. A Second and Third Central Bank were chartered with more autonomy to handle financial matters. [4]

At the beginning of World War I, the gold standard collapsed for the United Kingdom and the rest of the British Empire. The rest of the planet, no longer able to access a vast world of resources with the ease of a single currency, were left with the task of having to manage and monitor their own currency and exchange rates. The Era of Central Banking was born. [5]

In 1913, the John D. Rockefeller, Jr.'s father-in-law, Nelson Aldrich[6], began to lay the groundwork to establish a permanent Central Bank in the United States. The plans were initially rejected as they were seen by rural and western states as favoring the industrial East Coast at their expense. However, with the support of Democrats who wanted a banking system that could oppose Wall Street, the act was passed.


The Federal Reserve has the following powers:

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This page was last modified 00:13, 12 January 2011 by dKosopedia user Historian. Content is available under the terms of the GNU Free Documentation License.

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