First impressions of the Federal Reserve System

I’ve taken an interest in economics after struggling financially these past few years. After learning the basics, I turned my attention to the present economy. I found that the organization with the most influence over the US economy is the Federal Reserve. The following is a tentative assessment of the Fed. Feel free to correct me, preferably with citations.

The Federal Reserve functions to set national monetary policy and to supervise and regulate the U.S. banking system by controlling the supply of money and changing interest rates. Specifically, it’s mandated “to promote sustainable growth, high levels of employment, stability of prices to help preserve the purchasing power of the dollar and moderate long-term interest rates.”

How can the Fed make a profit when so much of the money in circulation is its own? I can see two or three ways. The first is by currency that existed prior to its inception. The second is by money gained from foreign trade and borrowing. I also recall hearing that commercial banks have the power to create money by employing something called fractional-reserve banking. That would be a third way the Fed can profit. But I don’t see how being paid back in money that it itself produced can be considered profit. Then again, it makes money without any backing. Perhaps it can make a profit because profit is literally what it makes.

The Fed has little government oversight or regulation. It’s only required interaction with congress is an annual report. Its 12 banks are privately owned and operated, and their shareholders are commercial banks. Overall it lacks transparency.

I think that an organization with this much economic power needs transparency and supervision, otherwise corruption would be easily concealed. Why allow the Fed so much secrecy? Am I supposed to expect them to be acting in the public’s best interest while they operate in private? No person is perfect. No person will always put public interests ahead of their own. That’s why transparency is essential: to keep watch over those in positions of power. The Federal Reserve is a system practically designed to be exploited.


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