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The Federal Reserve System

The Federal Reserve System is one of the most powerful and prominent of American national institutions. Financial markets closely watch the actions of "the Fed," and may plunge hundreds of points, with the extinction of hundreds of billions of dollars of nominal value, on the slightest action of the Federal Reserve, or simply in the wake of a speech by a member of the Federal Reserve Board, hinting at what the Fed may (or may not) do in the near future.

Presidents and their economic advisors routinely find themselves by actions or statements of the Federal Reserve that go contrary to their expectations or desires. The Federal Reserve is nowhere mentioned or even implied in the Constitution, and has no legal status save that of an Act of Congress. Another Act of Congress could, in principle, radically restructure or even abolish it. Yet no President or senior member of Congress dares even suggest any substantial threat to the independence of the Federal Reserve; simply to do so would be to risk triggering a major financial panic and therefore a national political crisis.

With respect to economic policy the Federal Reserve has taken on some of the qualities of an unelected fourth branch of government, an economic Supreme Court. (Even when it was first established, and long before its full influence was understood, President Woodrow Wilson referred to the Federal Reserve Board as the "Supreme Court of Finance."). Yet the United States existed for nearly 140 years without the Federal Reserve, and for the greater part of that period, the United States had no central bank of any sort. The functions associated with a central bank were either performed by the Treasury Department or else were left undone. The greater part of central banking functions fell into the latter class.

The absense of a central bank was not a sort of oversight; it was deeply engrained in American culture. A central bank had indeed been found...

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The Federal Reserve System. (1969, December 31). In LotsofEssays.com. Retrieved 19:46, March 28, 2024, from https://www.lotsofessays.com/viewpaper/1690200.html