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The central bank of the United States
Federal Reserve System

The Federal Reserve System (also known as the Federal Reserve or simply the Fed) is the central banking system of the United States of America. It was created on 23 December 1913, with the enactment of the Federal Reserve Act, after a series of financial panics (particularly the panic of 1907) led to the desire for central control of the monetary system in order to alleviate financial crises. Over the years, events such as the Great Depression in the 1930s and the Great Recession during the 2000s have led to the expansion of the roles and responsibilities of the Federal Reserve System.


Austrian "Inflation," Austrian "Money," and Federal Reserve Policy, by Richard H. Timberlake, The Freeman, Sep 2000
Response to Joseph Salerno's Oct 1999 The Freeman article which critiqued Timberlake's essays in the April, May and June 1999 issues; discusses the words "inflation" and "money" and Federal Reserve policies, in an Austrian economics context
When bank panics occurred in earlier eras—1893 and 1907—private clearinghouse associations ... issued ... loan certificates to solvent but temporarily illiquid banks ... The Federal Reserve System came into existence on the presumption that it would make the clearinghouse issues official and legitimate. The 1929-1933 episode of bank fragmentation and destruction, however, emphasized the difference between privately operated clearinghouses and a regulatory government agency ... The governmental clearinghouse system ... failed because the decision-makers in the Fed faced no bottom line.
The Banker's Bank, by Sheldon Richman, The Goal Is Freedom, 8 May 2009
Reviews the pre-history of the Federal Reserve and its origins in the Progressive Era, with various quotes from The Mystery of Banking (1983) by Murray Rothbard
Several men associated with these interests ... gathered on Jekyll Island, Georgia, in late 1910 "in a top secret conclave to draft a bill for a central bank." As Rothbard commented, "There is no clearer physical embodiment of the cartelizing coalition of top financial and banking interests that brought the Federal Reserve System into being than the sometimes allied, often clashing Rockefeller-Kuhn, Loeb and Morgan interests ..." A plan for a central bank was drafted and, after modification, "introduced ... as the Aldrich Bill, which in turn became in all essentials the final Federal Reserve Act passed in December 1913."
The Case for the Barbarous Relic, by Llewellyn H. Rockwell, Jr., 26 Jul 2006
Argues for a return to the gold stndard by reviewing U.S. political, economic and monetary history; from talk presented in New York City on 21 March 2006
How is it that the federal government seems so uniquely immune from the limits imposed by economic scarcity? ... [W]here the heck does all this money come from ...? The answer is found in the powers that belong to that marble palace on Constitution Avenue called the Federal Reserve. Here is an institution that possesses the legal power to create as many dollars as it pleases, any time it pleases, and for any reason ... This power also depreciates the value of currency, which is why the dollar that was worth a dollar when the Fed was created is now worth less than 5 cents in real terms.
Crushed by the Fed, by Glenn Jacobs, Freedom Daily, Jan 2008
Discusses the role of the Federal Reserve in supposedly "controlling inflation and running the economy"
[O]n a major cable-news outlet ..., one of the economic "experts" made a startling statement. He said, "The Fed has two jobs: to control inflation and to run the economy." ... In 1913, Congress created the Federal Reserve System to provide ... an "elastic" money supply. The Fed does this by controlling the volume of money and setting interest rates. In other words, the Fed controls inflation only in that it has the ability to cause inflation. Believing that the Fed is necessary to control inflation is very much like thinking that criminals are necessary so that they can control crime rates.
Related Topics: Free Market, Inflation
Delete the Fed, by Sheldon Richman, 20 Aug 2013
Asks who should run the Federal Reserve after Bernanke's term expires and argues the Fed is unnecessary to stabilize the economy or to prevent unemployment, but harmful in other ways
But without the Fed, who would set interest rates to guide the economy? The first answer is that government policy and Fed manipulations can create the very recessions that the Fed then tries to reverse. If the politicians and their court economists would get over their hubristic belief that they are stewards of the economy, macroeconomic crises would disappear. Besides, the Fed cannot set interest rates, not even its narrow federal-funds rate for overnight interbank loans. At most, it targets that rate by buying and selling government securities, but it doesn't always hit its target.
Economic Fascism and the Bailout Economy, by Gary North, 7 Feb 2009
Discusses the fascist roots of the U.S. political system and events since September 2008 to extend government control of private institutions
Why should we think that a bunch of Harvard- and Yale-educated lawyers, who were recruited by New York City banks that were always protected by the Federal Reserve System, would have any idea of how to run an economy? ... [T]he monetary system ... is now completely and openly run by a cartel that is now trapped by the Federal government. The Federal Reserve System is soon going to have to bail out the Federal government. The Federal government is bailing out the commercial banks, and if the Federal government cannot bail out the banks, the Federal Reserve has got to do it directly.
The Federal War on Gold, Part 3, by Jacob G. Hornberger, Freedom Daily, Oct 2006
Describes Franklin Roosevelt's 1933 executive order confiscating gold held by U.S. citizens and the congressional act nullifying gold clauses in contracts, its constitutional ramifications and subsequent related history
[W]hen U.S. officials announced that the 1929 stock-market crash and the resulting Great Depression were all the fault of "free enterprise" and that ... the gold seizure and the New Deal were necessary "to save free enterprise," entire generations of public-schooled Americans had no idea that they were being misled. If Americans had known the truth—that the stock-market crash and Great Depression, along with all the financial devastation and unemployment—had actually been the fault of the Federal Reserve, there would have been considerable anger ... against the federal government.
A Forgotten Day & a Forgotten Country, by Harry Browne, 28 Oct 2003
Reflections on the United States in 1886, when the Statue of Liberty was unveiled, and the current (2003) status
In 1886 there was no Federal Reserve System. The U.S. government simply minted coins from gold or silver brought to the Treasury. All paper money was issued by private banks, who redeemed the paper money on demand with gold or silver. While there occasionally were bank failures, small panics, or crashes, there was nothing to compare with the gigantic failure of the banking system and the Great Depression that occurred after the founding of the Federal Reserve System in 1913.
George W. Bush's Nixonomics, by Gregory Bresiger, Mises Daily, 22 May 2006
Describes the various fiscal, monetary and economic policies during the Nixon presidency and compares them to those under George W. Bush
Nixon, who believed he had lost the presidency in 1960 because of the money-tightening policies of Federal Reserve Board chairman William McChesney Martin, wanted easier money policies for his re-election in 1972 ... Martin had angered Nixon because he hadn't created money fast enough to pay for his ... spending ... He installed a new head of the [FRB], Arthur Burns, who was given a mandate to go ahead with a politically motivated monetary expansion. He was committed to a "full-employment" budget, which was shorthand for running more red ink and making the economy look good in the short run.
Gold Policy in the 1930s, by Richard H. Timberlake, The Freeman, May 1999
Discusses U.S. government monetary policies during the 1930s, in particular, the Gold Reserve Act (1934) which allowed FDR to devalue the dollar, the Banking Act (1935) which reformed the FRS and the misguided policies of Treasury Secretary Morgenthau
[T]he Banking Act of 1935, was more momentous than the original Federal Reserve Act passed in 1913 ... The Banking Act of 1935 ... vested the Federal Open Market Committee (FOMC) with complete discretionary control to determine the stock of money in the United States. Regional Fed Bank presidents still had five of the 12 seats on the FOMC, but the Board was now a seven-man majority. From that time on, the FOMC has fashioned monetary policy by authorizing the purchase (or sale) of U.S. government securities in the open market, an operation that the Fed Bank of New York conducts week by week.
Hoover's Second Wrecking of American Agriculture, by James Bovard, Freedom Daily, Dec 2005
Follow-up to "How the Feds Took Over Farming", describes the policies of Hoover's Federal Farm Board, the Smoot-Hawley Act, the Federal Reserve and taxes as contributors to the Great Depression and particularly their effect on farmers
Farmers suffered during the Great Depression because of other federal policies as well. The Federal Reserve Bank reduced the money supply by one-third between 1929 and 1932, thereby causing a huge drop in price levels. Farmers with mortgages were hurt badly by the deflation, since the price of their crops fell sharply while their mortgage payments became much higher in real dollars. The deflation-caused mortgage crunch was a major cause of desperation in the farm belt.
Related Topics: Communism, Farming, Free trade, Taxation
How Gold Was Money—How Gold Could Be Money Again, by Richard Timberlake, The Freeman, Apr 1995
Examines U.S. monetary history, as it relates to gold, from the Constitution to the late 20th century, suggesting that rather than lobbying for a return to a gold standard, sound money advocates should insist on Treasury gold being returned to taxpayers
The Federal Reserve Act that Congress passed in late 1913 continued and aggravated the centralization of gold ... [T]he twelve new Federal Reserve Banks received the gold deposits of their "member" banks and gave them in return a bookkeeping reserve asset labeled "Reserve Bank credit." ... Some responsible Federal Reserve officials on the policy-making Federal Open Market Committee (FOMC) are currently trying to implement a policy of long-term price level stability, that is, a policy of zero inflation. However, they are constantly badgered by monetary "activists" in Congress and the Administration ...
How Much Do You Know About Liberty? (a quiz), The Freeman, Jun 1996
A 20-question quiz (with answers) on various topics related to liberty in the history of the United States
10. Which powerful U.S. government agency was established to assure monetary stability—but became a major factor responsible for the Great Depression? ... The Federal Reserve System was a key culprit responsible for the Great Depression. The Fed is subject to political influence ... Because the Fed has considerable impact over the money supply, its errors can have a traumatic impact on the economy, as they did during the 1930s. In general, the half-century following the establishment of the Fed was more unstable than the half-century preceding it.
In Defense of Bank Deposits: An Open Letter to Professor Omarova, by George Selgin, 12 Oct 2021
Criticizes The People's Ledger: How to Democratize Money and Finance the Economy (2020) by Saule T. Omarova
If the record of government credit allocation doesn't offer a compelling argument for having the Fed ... increase its role in credit allocation, neither do the Fed's emergency interventions in 2008 and 2020 ... during these episodes the Fed found itself more heavily involved ... in supporting particular markets (and, in 2008, particular firms), most of these extraordinary efforts were aimed at keeping financial markets liquid during an emergency, not at supplying credit to firms and markets ... And to the extent that the Fed appeared to prop-up insolvent businesses, its efforts were rightfully criticized.
Monetary Central Planning and the State, Part 32: Friedrich A. Hayek and the Case for the Denationalization of Money, by Richard M. Ebeling, Freedom Daily, Aug 1999
Shows the progression of Hayek's thinking on money from 1945 when he was agreeable to central monetary control to 1976 when he advocated a system of private competing currencies
In April 1945, ... in response to a question about whether the ... Federal Reserve System was consistent with a free society, [Hayek] stated, "That the monetary system must be under central control has never, to my mind, been denied by any sensible person. It is part of that [government] framework within which competition can work." And when asked whether the [Fed] was "socialistic in character," Hayek replied, "Do not make me responsible for all the nonsense which has ever been talked by anybody." ... [Thirty] years later, however, Hayek's views on money and monetary policy radically changed.
Related Topics: Banking, Government, F. A. Hayek, Money
Money and Banking, by Lawrence H. White, The Encyclopedia of Libertarianism, 15 Aug 2008
Discusses some of the issues regarding money, whether state- or privately issued, and banking, including central banks, such as the Federal Reserve, fractional reserve banking and free (fully unregulated) banking
[R]ecognizing that central bank officials have no incentive to follow [a rule to slow and steady growth in the money stock], [Friedman] suggested effectively abolishing the Fed by freezing the stock of Fed liabilities and sending the monetary policymakers home. Friedman's diagnosis of the Federal Reserve System's contribution to the Great Depression differed from that of the Austrian economists Mises and Hayek. The Austrians regarded the Fed's overly expansive policy in the mid- to late 1920s as fostering an unsustainable investment boom and thereby sowing the seeds of the 1929 downturn.
Money and Gold in the 1920s and 1930s: An Austrian View, by Joseph T. Salerno, The Freeman, Oct 1999
Criticizes Richard Timberlake's The Freeman articles on U.S. monetary policy during 1920-39, contrasting the British Banking School vs. Currency School definitions of inflation
During [the 1920s], it was the chosen policy of the Fed to lend liberally and continuously to all banks at an interest, or "discount," rate below the market rate. While the Fed was legally authorized to make such loans to its member banks, it was not mandated to do so ... The fact that the Fed chose instead to pursue a "continuous lending" policy meant that the increase in bank reserves that resulted from the origination of new Fed loans to member banks via the rediscounting of business bills or advances on collateralized bank promissory notes was under the exclusive control of the Fed.
Money in the 1920s and 1930s, by Richard Timberlake, The Freeman, Apr 1999
Attempts to set the record straight on the economic and monetary events of the 1920s and early 1930s, arguing against both the Austrian view (as expressed by Murray Rothbard) and those who put the blame on stock market speculation
The role that the central bank ... and its managers played in the catastrophe of the 1920s and 1930s is largely unknown ... [T]he regional Fed Bank would issue its own Federal Reserve notes, dollar for dollar, based on the gold it had received ... Of course, the Federal Reserve System did not come into existence to be a custodian of the economy's base money and nothing else. The Fed Banks also had the legal power to create bank reserves and currency. Using the gold and other legal tender they held as their reserves, the Fed Banks could themselves become fractional reserve institutions.
The Mystery of Banking, by Joseph Salerno, The Mystery of Banking, Jul 2008
Foreword to the 25th anniversary edition of Murray Rothbard's The Mystery of Banking (1983), republished in 2008 by the Mises Institute
The Fed has long been taken for granted in American life and, since the mid-1980s until very recently, had even come to be venerated ... Fed Chairmen Paul Volcker and especially his successor Alan Greenspan achieved mythic stature ... and were the subjects of a blizzard of fawning media stories and biographies ... [T]he wave of subprime mortgage defaults in the middle of this decade, followed by the Fed's panicky bailout of major financial institutions and the onset of incipient stagflation, ... has profoundly shaken the widespread confidence in the wisdom and competence of the Fed.
Related Topics: Money, Murray N. Rothbard
One Hundred Years of the Federal Reserve, by Sheldon Richman, Future of Freedom, Dec 2013
Examines the Federal Reserve's record since its inception, quoting the 2010 Cato Institute paper "Has the Fed Been a Failure?" by Selgin, Lastrapes and White, as well as Rothbard, Timberlake and Hummel
Two days before Christmas 1913, President Woodrow Wilson signed the Federal Reserve Act, creating America's latest and current central bank, the Federal Reserve System. It's a sobering thought that in the 100 years since ..., the dollar has lost 95 percent of its value ... The Fed was not America's first experience with banking regulations or a central bank ... But as the 19th century came to a close, the national banks, led by J.P. Morgan, were dissatisfied with the money and banking regime under the reigning National Banking system, and sought to regain their previous dominance.
Preface, by Murray N. Rothbard, Gold, Peace, and Prosperity: The Birth of a New Currency, 1981
Preface to Ron Paul's Gold, Peace, and Prosperity
[G]ive any man or group power, and it will tend to use that power. If the power is inherently abusive, then that power will be abused. Our present system gives to the federal government and its Federal Reserve the unlimited power to counterfeit. The problem is that if the Fed has the power to counterfeit, it will inevitably use that power. Why? Because [it] is too tempting. The power to create money means that it is far more tempting to print it than to work for it. It means that the counterfeiter can pay his debts, spend more money, give more money to his friends and associates.
Related Topics: Government, Money, Ron Paul
The Reserve Requirement Debacle of 1935-1938, by Richard Timberlake, The Freeman, Jun 1999
Delves in greater detail into the reserve requirement policy of the Federal Reserve during 1935-38, discussed in the previous article "Gold Policy in the 1930s"
Marriner Eccles, the new chairman of the Federal Reserve Board, was one of many Treasury and Fed officials who thought that the reserve overhang was dangerous ... In the next six months the continuing gold inflow raised total bank reserves to $6 billion, and excess reserves to $3 billion ... What the policymakers especially disliked was the fact that the banks, with all their excess legal reserves, could operate outside the control of the Fed. Once the excess reserves became required, Fed policymakers would have a tight rein on the banks ... The Fed Board ... raised reserve requirements by 50 percent in August 1936.
Synchronized Boom, Synchronized Bust, by Marc Faber, The Wall Street Journal, 18 Feb 2009
Examines how the 2008 boom/bust cycle came into being and the allegations that it was a "free market" failure
Following the March 2000 Nasdaq bust, the Federal Reserve began to slash the fed-funds rate from 6.5% in January 2001 to 1.75% by year-end and then to 1% in 2003. (This despite the fact that officially the U.S. economy had begun to recover in November 2001). Almost three years into the economic expansion, the Fed began to increase the fed-funds rate in baby steps beginning June 2004 from 1% to 5.25% in August 2006. But because interest rates during this time continuously lagged behind nominal GDP growth as well as cost of living increases, the Fed never truly implemented tight monetary policies.
Related Topics: China, Free Market
Who Is Garet Garrett?, by Jeffrey Tucker, Mises Daily, 25 Oct 2007
Biographical and bibliographical essay, including both his novels and non-fiction writing
[Garrett's] knowledge of economic forces was so profound that he wrote the first full and widely circulated explanation, in line with the Austrian School tradition, of the 1929 stock market crash. The Bubble that Broke the World (1932) placed the blame on an overextension of credit made possible by the Federal Reserve; this created, said Garrett, a false prosperity that led to a correction ... Garrett ascribes the crash to the pile up of debt, which in turn was made possible by the Fed's printing machine. This created distortions in the production structure that cried out for correction.


An Empire Built of Paper, by Llewellyn H. Rockwell, Jr., The American Conservative, 27 Mar 2006
Review of Empire of Debt: The Rise of an Epic Financial Crisis (2006) by William Bonner and Addison Wiggin
[The authors] show how the legal right to counterfeit—that's what the Federal Reserve grants the government—has changed the structure of the government and led to the loss of liberty and the rise of an imperial power ... The Fed's printing presses back every debt note issued by the Fed, and the new currency is sopped up by foreign central banks and private holdings around the world ... The Federal Reserve's monetary manipulations to finance World War I, and then the boom of the 1920s, led to the Great Depression and then the Roosevelt revolution towards massive statism.


UpdInterview with Gary Becker, by Gary Becker, Douglas Clement, The Region, Jun 2002
Topics discussed include the economics of crime, economics and law, banking discrimination, economic education, social security, behavioral economics, sociology, career choices and moral hazards
BECKER: ... [T]he Fed has to worry about contagions and runs on banks. But I do not believe the best way to reduce contagions is to bail out banks that fail ... The Fed should also make sure that banks can survive temporary liquidity problems by borrowing from the Fed and by selling assets. If the Fed does that, the too-big-to-fail argument is weak ... I can understand why [it] was concerned about the consequences of a collapse of LTCM, but it does not seem to me that this merited the Fed getting involved ... I do not like the Fed's involvement ... because there is too much room for politics.
Interview with James Buchanan, by James M. Buchanan, The Region, Sep 1995
Topics include The Calculus of Consent, public choice theory, monetary policy and the Federal Reserve
Region: If you were advising the Federal Reserve, what would you say are the unsolved economic problems of the day?
Buchanan: It's not the Federal Reserve's role to be solving the economic problems of the day. I think the Federal Reserve has enough to do, and it should target itself much more carefully toward keeping the value of the monetary means stable and quit doing other things. As far as the problems of the day, our political sphere and the governmental sector are too large ... We need somehow to get back to where our government limits itself much more ...
Mises's Bibliographer: An Interview with Bettina Bien Greaves, by Bettina Bien Greaves, Austrian Economics Newsletter, 1998
Topics discussed include: Ludwig von Mises, the Mises bibliography project, language knowledge, Leonard Read, Henry Hazlitt, Human Action, the business cycle and her husband's Pearl Harbor book
GREAVES: ... Of course there's been continual credit expansion since the creation of the Fed, with only a few interludes. Every step away from the gold standard has freed up the central bank to expand the money supply through the credit system, until we arrive at where we are today: no limits on what the Fed can do ... Every time there were bank failures in the nineteenth century, people would blame the lack of centralization. That's how we eventually got a Federal Reserve. It was attempting to provide the banking industry with more liquidity so that it could ride out bank crises.
The Roots of the Great Depression, by Richard Timberlake, Navigator, Jan 2001
Interview topics include the Federal Reserve policy during 1920-1939, the British attempt to return the pound to its World War I value and U.S. interventions during the Hoover and Roosevelt administrations
Timberlake: Until 1935, the Fed had its original structure—powers, operating procedures, and physical properties. However, the Banking Act of 1935, which should have been titled, "The Central Banking Act of 1935," radically changed the original Federal Reserve System. It converted the Fed from a system of regional super-commercial banks with powers to assist local banks to a true central banking system with complete control over the monetary system. The act vested the Board of Governors in Washington with greatly enhanced authority. It also made a sham of the gold standard.


A Monetary History of the United States, 1867-1960
    by Milton Friedman, 1963
Partial contents: The Greenback Period - Silver Politics and the Secular Decline in Prices, 1879-97 - Gold Inflation and Banking Reform, 1897-1914 - Early Years of the Federal Reserve System, 1914-21 - The High Tide of the Reserve System, 1921-29
Related Topics: Money, United States


Follow the Money (A Rap Attack on Petrodollar Wars and The FED), by Dave Berzack, 17 Dec 2013
Questions the rationales given for the Iraq and Libyan invasions and argues that the Federal Reserve and petrodollar agreements are the real reasons
Related Topic: War

How To Be a Crook, by Larken Rose, 7 Apr 2012
A progression of seven methods to rob from your fellow human beings
Related Topic: Banking

Is Anyone Minding the Store at the Federal Reserve?, by Alan Grayson, 6 May 2009
U.S. Representative Alan Grayson (D-FL) asks Elizabeth Coleman, Inspector General of the Federal Reserve, about the $9 trillion credit extension by the Fed, reported by Bloomberg

Money, Banking and the Federal Reserve, by Mises Institute, Ron Paul, Lew Rockwell, Murray N. Rothbard, Joseph Salerno, 1996
Explains the origins of money and banking, how and why the Federal Reserve was created and the effects it has had on society. Dedicated to Murray Rothbard.
Related Topics: Banking, Money

The introductory paragraph uses material from the Wikipedia article "Federal Reserve System" as of 19 May 2018, which is released under the Creative Commons Attribution-Share-Alike License 3.0.