The Federal Reserve Essay

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The Progressive Era, from 1901 to 1918, was centered on change. There were four main goals of Progressivism: protecting social welfare, promoting moral improvement, fostering efficiency, and creating economic reform. President Woodrow Wilson, elected in 1912, made the most important change of the early 1900s; he passed the Federal Reserve Act. American citizens have been wary of a government-controlled banking system since the formation of the country. The people did not trust centralized government action, and they were largely agrarian people, knowing little about the banking industry. Still, Alexander Hamilton, the first secretary of the Treasury, was determined to create a national bank. His efforts resulted in the establishment of…show more content…
Americans wanted to return to the gold standard. The financial crisis in 1907 occurred because there was no central bank. The New York Stock Exchange fell dramatically, and financial troubles in New York's leading banks led to bank runs throughout the city. The panic eventually spread nation wide, with many banks going into bankruptcy. Without a federal bank, the government had no way to stimulate the market by supplying liquidity. In 1913, the Federal Reserve Act was passed and created the Federal Reserve System. The system consisted of 12 Federal Reserve Districts each with its own Federal Reserve Bank and Federal Reserve Board. The member banks in each district had to deposit a set fraction of their assets as Federal Funds. This solved one of President Wilson's main concerns when passing the act: elasticity of currency. The amount of money in circulation needs to be able to “grow or shrink as required by economic policy” Had there been an elastic currency in 1907, the government would have been able to print more money, stimulate the economy, and reduce the panic. The Federal Reserve Banks issued Federal Reserve notes and provided members with easy access to liquidity. The Federal Reserve has four main responsibilities. It controls America's monetary policies. By influencing credit conditions, the Federal Reserve stabilizes prices and inflation. It also regulates the financial and banking systems in the United States, protecting the consumers' credit

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