The Federal Reserve Banking System
By Jan Tincher
Copyright 2008, Jan Tincher, All Rights Reserved Worldwide
http://www.tameyourbrain.com/blogbafi/
Lowering and raising federal reserve interest rates can have a far reaching impact on the nations economy. The Federal Reserve Banking System - a/k/a The Fed - is the central bank of the United States and one of the most powerful independent entities in the government. As they monitor and manage the purse strings of America, the Feds raise and lower the federal funds rate -- the rate banks charge each other in order to borrow money and maintain sufficient cash reservoirs.
U.S. banks are required by law to keep sufficient funds in store at the nations central bank to prevent running out of money and depleting the country's financial resources. Case in point, in 1907, America endured a severe financial crisis which caused depositors to panic and withdraw funds en masse. Banks failed and the national economy almost folded.
The Federal Reserve Act of 1913 addressed the issue of bank runs, better known as panic, by establishing the Federal Reserve Banking System and mandating that banking institutions keep excess currency at The Fed.
Sixteen years later, the stock market crash of 1929, labeled, Black Tuesday, put the Act of 1913 to the test. The stock market crash set off a panic as wealthy investors lost fortunes overnight and the country was plunged into what is known now as the Great Depression.
The Fed is responsible for regulating long-term financing charges, stimulating employment, stabilizing price structures, and ensuring consumer credit protection. To relieve U.S. banks from the heavy burden of delinquent and foreclosed home mortgages, the Fed loaned member banks 2 billion dollars and lowered federal reserve interest rates several times. Theoretically the $2 billion loan was to put more money in banks' coffers; while lowering interest rates allows more consumers to obtain financing at a lesser cost.
A lower federal reserve discount rate has a positive impact on banking institutions' ability to lend or borrow money. Lower interest rates encourage consumers and businesses to loosen the tight grip on cash and begin to spend more money, especially on big ticket items. When consumers can get auto loans, credit cards, and home mortgages at lower rates, they tend to borrow and spend more money. Increased consumer spending releases more cash into the market, stimulating the economy.
A stimulated economy is a happy economy. Keep your eye on The Fed. Learn how it affects many things in your life.
Thanks for reading.
Jan Tincher
Banks and Financial Institutions The Federal Reserve Banking System
-~~~~~~~~~
Publishers, you are welcome to reprint this article in its entirety provided you include this notice.
By Jan Tincher
Copyright 2008, Jan Tincher, All Rights Reserved Worldwide
http://www.tameyourbrain.com/blogbafi/
Lowering and raising federal reserve interest rates can have a far reaching impact on the nations economy. The Federal Reserve Banking System - a/k/a The Fed - is the central bank of the United States and one of the most powerful independent entities in the government. As they monitor and manage the purse strings of America, the Feds raise and lower the federal funds rate -- the rate banks charge each other in order to borrow money and maintain sufficient cash reservoirs.
U.S. banks are required by law to keep sufficient funds in store at the nations central bank to prevent running out of money and depleting the country's financial resources. Case in point, in 1907, America endured a severe financial crisis which caused depositors to panic and withdraw funds en masse. Banks failed and the national economy almost folded.
The Federal Reserve Act of 1913 addressed the issue of bank runs, better known as panic, by establishing the Federal Reserve Banking System and mandating that banking institutions keep excess currency at The Fed.
Sixteen years later, the stock market crash of 1929, labeled, Black Tuesday, put the Act of 1913 to the test. The stock market crash set off a panic as wealthy investors lost fortunes overnight and the country was plunged into what is known now as the Great Depression.
The Fed is responsible for regulating long-term financing charges, stimulating employment, stabilizing price structures, and ensuring consumer credit protection. To relieve U.S. banks from the heavy burden of delinquent and foreclosed home mortgages, the Fed loaned member banks 2 billion dollars and lowered federal reserve interest rates several times. Theoretically the $2 billion loan was to put more money in banks' coffers; while lowering interest rates allows more consumers to obtain financing at a lesser cost.
A lower federal reserve discount rate has a positive impact on banking institutions' ability to lend or borrow money. Lower interest rates encourage consumers and businesses to loosen the tight grip on cash and begin to spend more money, especially on big ticket items. When consumers can get auto loans, credit cards, and home mortgages at lower rates, they tend to borrow and spend more money. Increased consumer spending releases more cash into the market, stimulating the economy.
A stimulated economy is a happy economy. Keep your eye on The Fed. Learn how it affects many things in your life.
Thanks for reading.
Jan Tincher
Banks and Financial Institutions The Federal Reserve Banking System
-~~~~~~~~~
Publishers, you are welcome to reprint this article in its entirety provided you include this notice.
posted by Jan Tincher at 6:32 AM
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