The fed under alan greenspan Essay -- essays research papers

Bankers prior to the establishment of the Federal Reserve would establish lines of credit with larger banks. In the event of a run, the smaller bank would draw on the line of credit. In times of panic, large numbers of depositors would demand to withdraw their money, and only the largest Wall Street banks, with millions of dollars in reserve, could guard against this. In the early twentieth century, people were running to withdraw all their cash from their accounts, this may seem dramatic, almost theatrical to people today. Nevertheless, to people living in an economically unstable society, they were an expected occurrence. The banks were independent rivals, the amount of currency in circulation was fixed, and there was no element of trust between the depositor and the bank. However, in an attempt to avoid bank runs, they were storing their money for the inevitable, which meant they did not lend any money out, bringing the economy to a standstill. The credit system of the country ha d ceased to operate, and thousands of firms went into bankruptcy. Something had to be done that would provide for a flexible amount of currency as well as provide cohesion between banks across the United States. A large regulated bank, like the Federal Reserve, could make this happen which was to establish banks as a united force working for the people instead of independent agencies working against each other. By providing a flexible amount of currency, banks did not have to hoard their money in fear of a bank run, so there was no competitive edge to see who could keep the most currency on hand and a more expansionary economy was possible. President Wilson passed the Federal Reserve Act into law December twenty-third, nineteen thirteen, which created the Federal Reserve System and converted central banking into a government monopoly. All nationally chartered banks were required to maintain reserves with a regional Federal Reserve Bank. The regional reserve banks would be managed not for profit and in the "public interest," by political appointees. The Act divided the country into twelve districts, each district with its own banking "center." The banks within each district were then divided up with respect to size, so that small banks, medium banks, and large banks all have the same voting power. An appointed board of governors would oversee all bank operatio... ...coming out of a recession in the beginning of the twenty first century, the Fed had heavily dropped the interest rate to counter the increase in unemployment and jump-start the economy to meet its goal of a steady rate of economic growth. As the economy reacted to the low interest rate in expanding, the Federal Reserve has begun to raise interest rates accordingly. The Federal Reserve should continue to monitor the growth of the economy and not be shy in continuing to raise interest rates to prevent an over zealous economy. With a constant increase in the interest rates, The United States economy is slowing down by not investing as much, as well the consumer market is slowing down for the expected rise in interest rates. The economy has had its difficulties, and the Federal Reserve has done the best it could to handle it. The Fed has to understand that there is no one causes to a problem, and not handling the problem correctly may lead to an even bigger problem. As time progresse s, the Federal Reserve should acknowledge that controlling the economy is a learning experience, and what was used in the past to solve a recession is nothing more than a good place to start in the future.