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The Fed

Could you please help me with these questions?

What would abolishing the Fed really accomplish?
In your own words the position that we should no longer have a U.S. Central Bank.
In your own words the position that the U.S. Central Bank is critical to a stable economy.
In your own words, a look at what you see happening to the U.S. and world economy over a 10-year period if the Fed were abolished.

Solution Preview

Step 1
Abolishing the Federal Reserve will lead to financial chaos. The commercial banks will not have any custodian of cash reserves. There will be no authority to settle the claims of one bank against another. The commercial banks will feel very insecure. if they have financial problems they will not have any lender of the last resort. The banks will not have any bank. There will not be any custodian of the cash reserves of the commercial banks. A very important financial advisor to the Federal Government will be gone (a). The Federal Government's banker will be abolished. There will be no authority to issue dollar notes. The monetary policy of the United States will be in trouble.

Step 2
The position is that we should no longer have a US Central Bank. The goals pursued by the US Central bank are contradictory. The containment of inflation leads to an increase in unemployment and reduction in business growth. Also the monetary policy actions taken by the US Central Bank take a long time to have effect through the economy. Often the US Central Bank does not have the latest information on the current state of the economy trends, and this leads to poor decisions. Till now half of the TARP funds have not been returned. TARP was the US Central Bank's subsidy to the financial sector that enabled them to make money with cheap money and leverage. The US Central Bank has ...

Solution Summary

This posting gives you a step-by-step explanation of the functions and importance of the Federal Reserve. The response also contains the sources used.

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