Federal Reserve System

The First Bank of the United States was the first bank chartered by the newly formed United States to act as a central bank in 1811. The First Bank of the United States issued paper money called Continentals backed only by the trust of the people and is based on future tax revenues. Established European countries have currencies that are backed by metal such as silver and gold which is a common perception of value at that time. The value of the Continentals diminished dramatically because no metal is redeemable using the paper currency. In 1816 the Second Bank of the United States was formed by the government granting it a monopoly in printing the nation's paper currency only to be diminished in authority in 1836 by President Jackson. The years went on without a central authority to control the nation's money supply. The wake up call arrived in 1907 during a banking panic that threatened to destroy the stability of the US economy. No central authority can provide financial establishments the needed liquidity to keep them in business other than the private financier John Pierpont Morgan. As a result of the panic of 1907, the United States established a third national bank and called it the Federal Reserve System in 1913. The Federal Reserve acts as the lender of last resort during financial emergencies or as a provider of liquidity during economic contractions.

comments powered by Disqus

Stocks | Forex | Options | Economics | Bonds | History | Language learning | Technology | Technical Analysis | Fundamental Analysis
Copyright © 2014 econtrader | Risk disclosure | Terms of Use