Ending the Federal Reserve - Essay Example

Download file to see previous pages... The principal way that the Fed manages the economy and financial crises is to manipulate the money supply. The Fed does its work by adjusting three things: the reserve requirement, the discount/federal funds rates, and open market operations.
There are a number of positive outcomes that can result if the Fed was abolished. One positive outcome is the end of the yo-yo monetary policies that leads the country to move from recessionary to inflationary periods. A second positive outcome is greater competition and safer investment among financial institutions.
There are negative outcomes to ending the Federal Reserve. The principal negative outcome is that the business cycle will run unchecked. Financial crises will tear the nation apart even more than already do.
The United States has wrestled with the idea of centralized banking since its birth. After suffering through serious financial crises in the 1880s and early 1900s, the United States settled on the Federal Reserve system.
The country embraced central banks twice before creating the Fed. The country created the First Bank of the United States in 1791 and then let the charter lapse in 1811. Congress created the Second Bank of the United States in 1816 and then let that charter lapse in 1828 (The Federal Reserve, 2010). Both banks failed because they were seen as answering to big city money interests and not the ordinary agrarian citizen. (The Federal Reserve, 2010). Today the Fed is also associated by some with big financial conglomerates.
The United States created the Fed after enduring a series of financial crises. Several banking panics rocked the country in the late 1800s and early 1900s. The United States took action after the panic of 1907. In that year, the nation faced a dire banking crisis caused by speculation. Private industry, led by J.P. Morgan, had to step in to save the economy. The government created an independent government body, the Fed, in ...Download file to see next pagesRead More