The Federal Reserve and the Economy

Introduction: In the 19th century, no real banking system had really been developed in the US. This is to say that, though there were roughly 120 private commercial banks that had been chartered by new state governments, the so-called system was scarcely organized. It directly linked to the merchant banking practices of the pre-independence period. The years preceding the turn of the century were important because they brought a central banking authority onto the scene. The …

…were secure interrelated operations. The Federal Reserve Act worked because it eliminated the competition to hoard money between the banks and put the power into the hands of the government. Now, credit could be made available to expanding businesses, jobs could be created, and the banks would no longer have to worry about bank runs "running" them out of business. Because of the Federal Reserve Act, the economy could once again become expansionary with confidence.