Lately, we’ve been talking about the Federal Reserve. In particular, we’ve discussed how it’s set up as a governing body, and why knowing about them should be of real interest to each conscientious investor out there. In this entry, however, we’re going to begin to discuss the particular actions that are said to be the duties and obligations of the Federal Reserve. In other words, their very reason for existence.
Balancing the Economy
In the Federal Reserve’s own words, their job is to “promote sustainable growth, high levels of employment, stability of prices to help preserve the purchasing power of the dollar and moderate long term interest rates”. What this means, essentially, is that their main mission is to regulate the banking system itself in order to ensure that the economy remains fair, balanced, and healthy. They prevent interest rates from climbing too quickly or moving too far out of accordance with how much people are actually earning.
( And during a Global Economic Meltdown, they seem to be running for the hills! )
The Federal Reserve also acts as a bank that other banks can make the use of. Just as you make use of your local bank, odds are that your local bank then makes use of the Federal Reserve in order to conduct the exact same type of business: making withdrawals, making deposits, and sometimes even taking out loans.
United States Treasury Account
Another distinguishing feature is that they also act as a bank to the government itself. The United States Treasury has an account with the Federal Reserve for the business of handling money transfers such as income from taxes, or making necessary government payments. In addition, the Federal Reserve also handles the issuing and redemption of government securities such as savings bonds and other such securities that you might be familiar with as an investor.
In addition, they issue all of the paper and coin currency that most of us make use of every single day. As you can see, if it’s related to the management and transfer of money, the Federal Reserve has their hand in it at some point along the process.
Next time, we’re going to discuss one of the Federal Reserve’s most important functions: the regulation of monetary policy.
See you next week for part 4 of Federal Reserve.
Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 – 2008
{ 3 comments… read them below or add one }
Hi Sean thanks for the ongoing de-mystifying of the financial systems around us and the world. Keep up the good work. Greatly appreciated
Hi Sean,
So, the Federal Reserve Bank is supposed to keep the banking system in check so that the economy remains healthy? What happened during the Global Financial Crisis? Do they not monitor the activities of the banks?
Thanks for the information. It’s really interesting.
It is a rather disturbing fact that the USA is indebted to the Federal Reserve.
Theoretically if you take the government out of the equation, the people of USA would have to rely on the Federal Reserve Bank.