More Powerful than the Government? A Review of the Federal Reserve

When most people think of the Federal Reserve, they think of the national debt, inflation and bailouts. The Federal Reserve is charged with monetary policy as well as regulation. Starting with the Great Inflation, the Fed has played an increasing role in the economy. In response to the Great Recession in 2008, an independent Federal Reserve played its largest role yet in a financial crisis. Many have criticized the Fed's response and questioned their influence. Since its inception in 1913, the Federal Reserve has had a major increase in its power and role in monetary policy, is this power to great in one single entity or is there enough oversight in what it does?

The Federal Reserve came from humble beginnings. In the 1800's "bank runs" were normal. In times of financial panic, concerned consumers would withdraw all of their money. These mass runs would cause a shortage in currency. As a result many banks went under when they ran out of money and where unable to honor deposits. Following years of economic instability the Federal Reserve Act of 1913 was passed by Congress. The Federal Reserve was charged with control and regulation of the financial industry and monetary policy. The Fed would loan money to member or charter banks to make sure there was enough money available in the economy. Each member bank was also regulated by the Fed and required to hold a deposit with one of 12 Federal Reserve Banks. (Timberlake). The Federal Reserve was a lender of last resort for member banks and the Federal government. The intention was to alleviate fears and to stabilize the economy. The Federal Reserve also monitored the transition from the gold standard to a paper currency. It was necessary for the transition to be regulated since gold s...

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