The History of The Federal Reserve

                The Federal Reserve was founded in 1913 to control inflation and the interest rate.  In 1913 a group of top bankers including JP Morgan and several congressmen went to an island to discuss the details of the creation of The Federal Reserve.  Then right before Christmas the bill to create the Federal Reserve was brought before congress and was voted on with little debate.  The president subsequently signed it into law.  Before the creation of the Federal Reserve we had a National Bank that was created by George Washington and Alexander Hamilton in 1791 to serve as a central repository for federal funds and congress voted to abandon the bank's charter in 1811.  The second National Bank was created in 1816 and it was dismantled by president Andrew Jackson in 1833.  The National Bank proved to be only helpful for the nation's wealthy. 
               The Federal Reserve has several instruments for controlling inflation and the interest rate.  Lowering the interest rate during a recession increases the flow of money and spending.  Raising the interest rate during prosperity is meant to reign in high inflation, tighten the flow of money, and decrease spending as to encourage saving.  The Federal Reserve can change the interest by changing the discount rate or the interest rate at which the Federal Reserve loans money to banks.  The Federal Reserve can also print money to buy United States Treasuries to lower the interest rate and sell them to raise the interest rate.  Lowering the interest rate tends to cause a bubble in the stock market.  Financial people tend to get concerned about an asset bubble when the Federal Reserve lowers interest rates while economist tend to want the Federal Reserve to keep interest rates low until the economy fully recovers.
               In the 2008 recession the Federal Reserve brought bonds to lower interest rates this program became know as quantitative easing (QE).  A few years ago the Federal Reserve began to gradually decrease the rate at which it was buying treasury bonds until it was not buying any.  Recently, the Federal Reserve has been slowly raising interest rates.  The Federal Reserve is meant to keep inflation and interest rates stable not help the overall economy.  Some economist say the Federal Reserve has a dual mandate of inflation and unemployment.  Those economists are technocrats and unfortunately the ideology of the technocrats are being used to formulate monetary and economic policy.  For example, in Europe when there was a recession caused by a debt crises in Greece the European Central Bank lowered the interest rate in an attempt to help the economy.  Debt was also severely high in other countries such as Italy, Spain, France, and Ireland.  Only productive activity in the real economy will lead to long term sustainable economic growth.