So far in this blog, we’ve mostly been discussing matters that are very obviously directly related to the topic of investments and the stock market. However, it strikes me that there’s a very important topic to be covered that might at first seem a little bit out of place. With the Presidential election nearly over and all this talk of a crumbling economy and economic stimulus packages, it’s more important now than ever for anyone who cares about their investments to have a thorough understanding of the American economy and the forces that drive it.
The Federal Reserve
In particular, I’d like to talk about the singular entity that controls most aspects of the economy as we know it, including the regulation of the value of currency and the welfare of the banks. This entity of course is the Federal Reserve. Any investor who wants to be able to truly read any market accurately and do smart things with their money no matter how grim the forecasts might be needs to know everything they can about the Federal Reserve and the impact that it has on the market.
The Bank For The Government
To put things simply, the Federal Reserve is the bank that is used by the United State Government itself. Despite the title being the “Federal” Reserve, it’s important to note that this institute is not really a part of government at all, but rather was begun as and remains a private money-lending institution. It just so happens to be the case that they only handle the one client directly (the government), and have done exclusive business with them since their inception in the 1910s.
Woodrow Wilson’s Biggest Regret
The inception of the Federal Reserve Bank in 1913 was approved by the Woodrow Wilson government. This was Wilson’s regretful statement, in hindsight:
“I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world, no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men.” – Woodrow Wilson, President of The U.S.A.
Beginning with the next entry, we’re going to cover topics such as what the Federal Reserve is and what their duties are, as well as the monetary policy that they nominally use to guide their decisions. Lastly, we’ll discuss the Federal Open Market Committee, that aspect of the Reserve that probably affects us as investors most directly.
See you next week for part 2 of The Federal Reserve.
Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 – 2008
{ 5 comments… read them below or add one }
Great idea for a topic Sean!
Hi Sean,
Looking forward to the next instalment
Hi Sean,
The Federal Reserve Bank is completely independent of the government though right? The Federal Reserve makes its own decisions. The President doesn’t control any part of what the Federal Bank does.
So, who is in charge of the Federal Reserve Bank? It’ll be interesting to see who holds all this power.
It’s a bit like our Reserve Bank here. They are set up by governments, but not controlled by them – at least directly. Governments do though have strong influence – not least the fact that thye approve or not the membership of the boards. Look at how OBama has worked with it in the beginning of his presidency and his appointees.
I was very surprised when I found this out at the beginning of my stock market education.
Because of the word ‘Federal’ I always thought it was a government department, not a small group of ultra rich families.
Yes Woodrow, you made a big blunder old boy!