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.

Articles

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."
An Empire Built of Paper, by Lew Rockwell, The American Conservative, 27 Mar 2006
A review of Empire of Debt: The Rise of an Epic Financial Crisis (2006) by William Bonner and Addison Wiggin
"They 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, particularly among Asian nations. ... 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."
Austrian "Inflation," Austrian "Money," and Federal Reserve Policy, by Richard 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 ... created and 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, the Federal Reserve System, failed because the decision-makers in the Fed faced no bottom line."
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
"... 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. The idea that the Fed can even heavily influence mortgage and other interest rates ignores important facts."
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
"At the very core of the free-market economy, as Mises said in 1912, is the monetary system. That 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."
Related Topic: Fascism
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. ... Fed Chairman Martin had angered Nixon because he hadn't created money fast enough to pay for his defense and social spending. ... He installed a new head of the Federal Reserve Board, 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 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
"... the Banking Act of 1935, was more momentous than the original Federal Reserve Act passed in 1913. ... The [former] changed the whole paraphernalia of monetary control. It 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."
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. ... the 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
"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."
Interview with Gary Becker, by Gary Becker, The Region, Jun 2002
Topics include the economics of crime, economics and law, banking discrimination, economic education, social security, behavioral economics, sociology, career choices and moral hazards
"Of course, the 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 the Fed 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—even if innocuous—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."
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
"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."
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
"Later, recognizing that central bank officials have no incentive to follow such a rule, [Milton 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 Salerno, The Freeman, Oct 1999
Criticizes Richard Timberlake's Freeman articles on U.S. monetary policy during 1920-39, contrasting the British Banking School vs. Currency School definitions of inflation
"During this period, 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—the Federal Reserve System—and its managers played in the catastrophe of the 1920s and 1930s is largely unknown and therefore unappreciated. ... the 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."
One Hundred Years of the Federal Reserve, by Sheldon Richman, Future of Freedom, Dec 2013
Examines the Fed's record since its inception, quoting the 2010 Cato paper "Has the Fed Been a Failure?" as well as Rothbard, Timberlake and Hummel
"It's a sobering thought that in the 100 years since the Fed's creation, the dollar has lost 95 percent of its value. Had the Fed never been created, America would be dotted with Nickel Stores (other things being equal) instead of Dollar Stores. ... Central banks like the Fed only messed money up, robbing the people of their purchasing power while facilitating warfare and welfare spending through irresponsible large-scale government borrowing."
Ron Paul: A Most Unusual Politician, by Murray Rothbard, 1981
Preface to Ron Paul's Gold, Peace, and Prosperity: The Birth of a New Currency
"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 the power to counterfeit 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
Synchronized Boom, Synchronized Bust: Bad U.S. monetary policy had global consequences, by Marc Faber, The Wall Street Journal, 18 Feb 2009
Examines how the latest boom/bust cycle came into being and 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."
Related Topic: Free Market
The Banker's Bank, by Sheldon Richman, 8 May 2009
Reviews the pre-history of the Federal Reserve and its origins in the Progressive Era
"There has hardly ever been anything we could call genuine free banking in America, even when a gold standard was in effect. States and the national government regulated the banks ... So, concerned about 'inelasticity' and the rivalry of state and private banks and private trust companies, the national banks (Wall Street), led by J. P Morgan, turned their attention at the end of the nineteenth century to the establishment of a central bank."
The Case for the Barbarous Relic, by Lew Rockwell, Mises Daily, 21 Mar 2006
Argues for a return to the gold standard by reviewing U.S. political, economic and monetary history
"How is it that the federal government seems so uniquely immune from the limits imposed by economic scarcity? ... 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 it pleases. ... 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."
The Mystery of Banking, by Joseph Salerno, The Mystery of Banking, Sep 2008
Foreword to the 25th anniversary edition published 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. ... the completely unforeseen eruption of the 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 Rothbard
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."
The Roots of the Great Depression, by Richard Timberlake, Navigator, Jan 2001
Topics discussed include 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
"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."
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 was not a trained economist but his 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."

Books

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

Videos


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 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.