Is the Federal Reserve in need of monetary activism?




The Federal Reserve System regularly is in the news, and Ben Bernanke has become a household name. But of what importance is this to the ordinary Hoosier household?

From high school U.S. history we recall that President Andrew Jackson was suspicious of Eastern bankers and refused to recharter the National Bank of the United States. Seventy-five years later, in 1913, the Federal Reserve was created by Congress to operate 12 regional banks, each owned by a consortium of local banks.

The Federal Reserve System Board of Governors consists of seven members appointed by the president for 14-year terms. The present board chairman, Ben Bernanke, was appointed by President George W. Bush and reappointed by President Barack Obama; Bernanke’s second four-year term expires Jan. 31, 2014.

The Fed, although privately owned, is operated in the public interest and reports to the U.S.  Congress.

Nations pride themselves on the political independence of their monetary authorities, charged to maintain the value of their respective domestic currency by controlling inflation and providing an elastic money supply consistent with a growing economy. The Fed, which functions as the central bank of the U.S., acts as fiscal agent for the federal government.

When the federal government spends more than it collects in taxes, the Fed is required to place dollars in the government’s checking account in return for IOUs in the form of government securities. The Fed, then, either chooses to hold these securities or sell them in the open market to anyone willing to purchase them. The Fed plays a role, as well, in regulating certain financial institutions.

This story appears in the print edition of Daily Journal. Subscribers can read the entire story online by signing in here or in our e-Edition by clicking here.

All content copyright ©2014 Daily Journal, a division of Home News Enterprises unless otherwise noted.
All rights reserved. Click here to read our privacy policy.