Is the Central Bank a curse or a catalyst?

The Central Bank of the USA, or the Federal Reserve, began in 1913, after a series of financial panics that created fears among the general public to use their banks. So Senator Nelton Aldridge of Rhode Island submitted to make a central bank that would be able to loan money to banks whenever it was needed. So after a process of meeting with the top bankers and government officials, it was enacted into law. This created entity is now known as the Fed or Federal Reserve.

The federal reserve board has been (so) controversial because it may hurt people more than it helps. Simply, it is given the power to 1) inflate the economy, 2) bail out failing banks, and 3) control interest rates.

The first reason the Fed has been so controversial is that it has the power to inflate the money supply. In other words, it can split the dollar's value so that they keep a new part of the money supply while the rest of it (most of which, the public owns) loses value. Besides the question of whether this is moral, it also can lead to increasing poverty and even a dramatic loss of confidence in the dollar.

The second reason the Fed has been so controversial is that it can bail out failing banks. While this is not always the case, as the Fed has some power to let banks flounder into bankruptcy, we have seen it happen more recently than ever before. Some banks make risky financial decisions that end up falling into bankruptcy, and sometimes the Fed will swoop in and save them (like Bear Stearns and AIG during the 2008 crisis). Some argue that this leads to even less conservative spending, which hurts the economy in the long run.

The third reason the Fed has been so controversial is that it can control interest rates. It can loosen or tighten the economy’s spending at will with these rates, which some argue has led away from the general good and towards partisan favoritism, and ultimately a more restricted economy.

Bibliography

NPR. (2020). A secret meeting and the birth of The Federal Reserve [Video]. In YouTube. https://www.youtube.com/watch?v=2NSjbsWfmNM&t=37s

Segal, T. (2023, July 24). What is a central bank, and does the U.S. have one? Investopedia. https://www.investopedia.com/terms/c/centralbank.asp

The Federal Reserve Board. (n.d.). What is the Fed. In About the Fed. Retrieved August 2, 2023, from https://www.federalreserve.gov/aboutthefed.htm

Weinberg, J. (n.d.). Support for specific institutions. Federal Reserve History. Retrieved August 2, 2023, from https://www.federalreservehistory.org/essays/support-for-specific-institutions