Ch. 16 Reflection: The Monetary System

Ch. 16 Reflection: The Monetary System

The phrase "printing money" tends to be tossed around in discussions about the money supply.  How important is cash to the overall money supply?  In our system the Federal Reserve Board has at least some control over the money supply.  How are they related to the Federal government? Recently the FRB has been pushing up interest rates. Why? The Federal Reserve Bank (aka the Fed), is a private corporation that acts as the central bank of the United States and is advised partly by the government through the Federal Reserve Board. The Fed can print money and add it to the US money supply by buying US treasury bonds. This is a profitable for the Fed although supposedly the Fed returns all profits to the US treasury after all expenses are paid each year, even though this sounds fishy to me. The Fed can also shrink the money supply in the US by selling the bonds it holds and keeping the cash. What complicates this more is where the money that the Fed prints goes? Does the US Government loan it to banks who then use fractional reserve banking to make bigger profits? Most likely the answer is yes. I am skeptical of the fractional reserve banking system in the US and what to know how other governments and banking systems like the Swiss run? In a recent article that came out, said that the Fed in not going to push up interest rates any further and that is good for the average American. It will allow people like myself to once again afford loans for property and business.

Here's a political question to consider (you don't need to answer, but you can) - how insulated is the FRB from politics? The Fed is somewhat insulated by politics, for instance board members are elected to 12-year terms so that they aren’t as affected by changes to the Presidency and congress. In my opinion, the US public should own the central bank of the US and as it is set up currently we don’t and that hurts Americans.How insulated should they be? President Trump is rumored to want to fire Jerome Powell. He doesn't have that ability. Should he? Why or why not? This is a tough question, currently Jerome Powell is the President of the Fed, it’s probably a good thing that President Trump can’t fire Powell. If Trump did this he would most likely put one of his cronies in Powell place and that person would do whatever Trump wanted him to do. Would the FRB be better managers of the economy of they had more accountability to Congress? Yes, it the American people owned the Fed and the Fed was looking out for the average American’s best interest, we the people would be better off and wealthier. Instead, the Fed is set up to make Wall Street and the big bank wealthier and not the average American. I sure do hope that monetary policy in the US gets reformed sooner than later.

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