The Federal Reserve act, passed in 1913, marked the creation of the Federal Reserve. The Federal Reserve now acts as the United States central bank, and was intended to create stability in the U.S. economy, prevent widespread bank failures such as those that occurred during the Panic of 1907,a and control inflation or deflation. In order to accomplish these goals the Federal Reserve was given the power to regulate the money supply, and act as a lender of last resort in order to bail out failing banks. Rather than regulate the money supply, the Federal Reserve has overseen its massive expansion, creating inflation which as stolen value away from the dollar, and rather than creating stability in the economy, the Federal Reserve has instead destabilized it, resulting in incredible “booms” and disastrous “busts”.
To understand how the Federal Reserve’s effect on the economy, it’s intended effect must also be understood. The Federal Reserve was given power over the money supply, and given the responsibility to act as a lender of last resort for failing banks. The Federal Reserve controls the money supply by adjusting interest rates. Interest is the price of money. When interest rates are lowered, the demand for money increases. Just as a car manufacturer lowering the price of its vehicles will cause increase the amount of vehicles that consumers will be willing to buy, when central bank lowers interests rates, the amount of money that consumers will be willing to borrow increases, and just as the car manufacturer will increase the amount of vehicles being produced in order to accommodate the increased demand, the central bank will increase the amount of money being printed to accommodate the increased demand for mo...
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...ruth can be applied to the foundation to a nation’s economy. Whether it a building, faith, or economy, every structure is only as strong as the foundation it is built on, and for an economy that foundation is it’s money. When money is weak, the economy will soon collapse, as was shown in the 18th century by the destruction of the continental in America, and 20th century by the destruction of Mark in Germany. If a nation’s economy is founded on paper, it is like building a foundation on sand. In truth, money would be stronger if backed by sand than the fiat money being issued by the Federal reserve since 1971. Sand, at least, has intrinsic value, even it is miniscule, and a finite amount, even if it is immense. Fiat money, on the other hand, has no intrinsic value, and the its amount has only been growing. Over the course of U.S. History the average inflation rate was
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