What Is The Federal Reserve Doing?!?!

Posted by George Regal Categories: Editorials, US Economy

When economist Milton Friedman celebrated his 90th birthday, Ben Bernanke, the current Federal Reserve Chairman, said the following:

Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve System. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.

We did it!  Quite an admission isn’t it?  Well, they did it again!  Anatomy of a Crisis highlighted the policies and practices that lead to the housing bubble, and in this column I’ll discuss how it was the Federal Reserve (the FED) that made the bubble possible in the first place. The FED doesn’t manipulate the money supply directly,at least not very often, they do it by setting interest rates, altering reserve requirements (the amount of money banks must keep on deposit with the FED), and serving as a safety net for the fractional reserve banking system that I briefly discussed in “Big Trouble in Little Washington”. A fractional reserve system that couldn’t expand deposits to the extent that they do without the FED.

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