Federal Reserve

1775-1791: U.S. Currency

1775 to 1791,the United States was under the American Revolution,the US needed the war expenditure,so for offering it, the Continental Congress printed the new nations first paper money, called continentals.And they issued a mass of the fiat money notes,but they led to inflation,then rapidly accelerated as the war progressed.Finally,the notes devalued,and the phraseNot worth a continental came to mean Utterly worthless.

1791-1811:First Attempt at Central Banking

In 1791, Treasury Secretary Alexander Hamiltonurged Congress to establish the First Bank of the United States,which headquartered is in Philadelphia,for the United States interests.It was the largest bank in the US,and it was dominated by big banking and money interests.But many agrarian Americans didnt like it.When the banks 20-year charter expired in 1811 Congress refused to renew it by one vote.

1816-1836:A Second Try Fails

1816, politicians inclined toward the idea of a central bank ,then Congress agreed to chart the Second Bank of the United States. But the new president in 1828,Andrew Jackson vowed to kill it. His attack on its banker-controlled power touched a popular nerve with Americans, and it was not renewed when the Second Banks charter expired in 1863.

1836-1865:The Free Banking Era

State-chartered banks and unchartered free banks issued their own notes that could be redeemable in gold or specie. In 1853,the New York Clearinghouse Association was established to provide a way for the citys banks to exchange checks and settle accounts.

1863:National Banking Act

During the Civil War, the National Banking Act of 1863 was passed, effectively creating a uniform currency for the nation. State banks continued to flourish due to the growing popularity of demand deposits,which had taken hold during the Free Banking Era.

1873-1907:Financial Panics Prevail

Although there is the National Banking Act of 1863, but it was not enough, bank runs and financial panics continued to plague the economy. In 1893,a banking panic triggered the worst depression the United States. It was clear that the nations banking and financial system needed serious attention.

1907:A Very Bad Year

In 1907, a bout of speculation on Wall Street ended in failure, triggering a particularly severe banking panic.Most Americans were calling for reform of the banking system, but there was a deep division among the countrys citizens. All Americans needed a central banking authority was needed to ensure a healthy banking system and provide for an elastic currency.

1908-1912: The Stage is Set for Decentralized Central Bank

The Aldrich-Vreeland Act of 1908 provided back up emergency currency issues. this act help to create the monetary commission to search the solutions to nation banking and financial problems. Senator nelson aldrich developed a banker controlled plan. others hated the acts such as william jennings bryan attacked the plan. they wanted the central bank under public control. 1912 election of woodrow wilson killed the plan and the stage was set for decentralized central bank.

1912 Woodrow Wilson Financial Reformer

Wilson was not knowledgeable too much about federal reserves. So he received advice from the Virginia representative Carter Glass, who later became the chairman of the house of committee on banking and finance. Also H. Parker Willis who was formerly a professor of economics. Glass and Willis worked on the Federal Reserve Act which they presented to Wilson

1913 The Federal Reserve System is Born!

Between December of 1912 and 1913 the federal reserve act was hotly debated and discussed. Finally in December 23 Wilson signed the federal reserve act making it into a law.

1914 Open Business

A new central bank was opening, the reserve bank operating committee had to work to build banks around the new law. By November 16, 1914 the 12 cities chose sites for the banks to open for business.

1914-1919 Fed policy during the war

World War has broken out and the US banks are still operating normally. Thankfully because of the emergency currency that was put away in 1908. Later the united states aided the trade of goods to Europe during the war, to help pay for the war until 1917. When the US declared war on Germany.

1920s Beginning of Open Market Operations

Benjamin Strong finally decided that gold is no longer needed to be the source to control credit. During 1923 there was a large purchase of government to have open markets operations to help the availability of credit.

1929-1933:The Market Crash and the Great Depression

During the early 1920s, Virginia Representative Carter Glass warned that
stock market go down and cause major shifts in economy. In October 1929, his predictions came to reality the stock market crashed, and the nation fell into the worst depression in its history. From 1930 to 1933, nearly 10,000 banks failed, and by March 1933, elected President Franklin Delano Roosevelt declared a bank holiday, while government officials gave unclear explanations to the economic decline. Many people blamed the Fed for giving too much money, and some also argued that inadequate understanding of the monetary commission. economics kept the Fed from pursuing policies that could have lessened the depth of the Depression.

1933:The Depression Aftermath

In reaction to the Great Depression, Congress passed the Banking Act of 1933,
better known as the Glass-Steagall Act, calling for the separation of commercial and investment banking and requiring use of government securities as collateral for Federal Reserve notes. The Act also established the Federal Deposit Insurance Corporation (FDIC), placed open market operations under the Fed and required bank holding companies to be examined by the Fed, a practice that is still used today, Also, as part of the massive reforms taking place, Roosevelt recalled all gold and silver certificates, effectively ending the gold and any other metallic standard.

1935: More Changes to Come

The Banking Act of 1935 called further changes in the Fed structure, including the creation of the Federal Open Market Committee. in 1956 the Bank Holding Company Act owning more than one bank, and in 1978 the Humphrey-Hawkins Act required the Feds chairman to report to congress twice every year on monetary policy goals & objectives.

1951: The Treasury Accord

The Federal Reserve System was committed to maintaining a low interest rate on government bonds in 1942 after the United States entered World War II. It did so at the request of the Treasury to allow the federal government to engage in cheaper debt financing of the war. To maintain the pegged rate, the Fed was forced to give up control of the size of its portfolio as well as the money stock. Conflict between the Treasury and the Fed came to the fore when the Treasury directed the central bank to maintain the peg after the start of the Korean War in 1950. President Harry Truman and Secretary of the Treasury John Snyder were both strong supporters of the low interest rate peg. The President felt that it was his duty to protect patriotic citizens by not lowering the value of the bonds that they had purchased during the war. Unlike Truman and Snyder, the Federal Reserve was focused on the need to contain inflationary pressures in the economy caused by the intensification of the Korean War. Many on the Board of Governors, including Marriner Eccles, understood that the forced obligation to maintain the low peg on interest rates produced an excessive monetary expansion that caused inflation. After a fierce debate between the Fed and the Treasury for control over interest rates and U.S. monetary policy, their dispute was settled resulting in an agreement known as the Treasury-Fed Accord. This eliminated the obligation of the Fed to monetize the debt of the Treasury at a fixed rate and became essential to the independence of central banking and how monetary policy is pursued by

1970s-1980s: Inflation & Deflation

The 1970s saw inflation as oil prices boosted and the federal deficit more than doubled. By August 1979, drastic action was needed to break inflations on the U.S. economy.

1980: Setting the Stage for Financial Modernization

The Monetary Control Act of 1980 required the Fed to price its financial services. Banks began offering interestpaying accounts. By 1999 the Gramm-Leach-Billey Act was passed, allowing banks to offer financial services.

1990s: The Longest Economic Expansion

Two months after Alan Greenspan took office, the stock market crashed on October 19 1987. He ordered the Fed to issue a statement before the start of trading on October 20 . He stated that the Fed was ready to serve as a source of support to the economic and financial system. Throughout the 1990s, the Fed used monetary policy on a lot of occasions. This decade has been said to be the longest peacetime economic expansion in our countrys history.

September 11, 2001

The Federal Reserve was put on test on September 11, 2001 as the terrorist attacks on New York, Washington and Pennsylvania. The Fed then issued a statements of its announcement in 1987: The Federal Reserve System is open and operating. The discount window is available. The Fed then loaned more than $45 billion to financial institutions to provide stability to the U.S. economy.

September 11th

January 2003: Discount Window Operation Changes

The Federal Reserve then changed its discount window operations so that they can provide loans to banks through interest rates.

2006-Beyond: Financial Crisis & Response.

Increasing the demand for housing and driving up house prices has made the housing boost from increased securitization of mortgages. Securitization of mortgages expanded rapidly.