The Federal Reserve System is the central banking system of the United States. Federal Reserve history begins in 1913 with the enactment of the Federal Reserve Act, and was largely a response to prior financial panics and bank runs. The most severe of which was the Panic of 1907. Over time, the roles and responsibilities of the Federal Reserve System have expanded and its structure has evolved. Events such as the Great Depression were some of the major factors leading to changes in the system. So how does the Federal Reserve control the monetary system? Its duties today, according to official Federal Reserve documentation, fall into four general areas:
There are presently five different parts of the Federal Reserve System.
To fully understand why the Federal Reserve was created you just have to look at what systems it protects.
One is that it allows governments to spend huge amounts more money than it has from tax revenue alone. Because the Federal Reserve can print as much money as it wants and loan it to the government, the government's spending has risen at an uncontrolled and unsustainable pace. As we all know nothing is free and every dollar they print and loan to the government makes the dollar you have worth less. By doing this it also steals from future generations. We are taking resources that should be for tomorrow and using them for today. Most politicians like getting re-elected and they are more than willing to take money from tomorrow to use for political agendas to make sure they stay in power. War is supposed to be avoided because it is so costly but when you can print as much money as you want and pay later, there tends to be much more willingness to enter into warfare that is not truly needed for our safety. This is a dizzying spiral that will come to a predictable end. We can either tighten our belts and manage its demise or let the chaos ensue when confidence in the system withers and dies.
The irony is that the Federal Reserve was sold to America under the idea of protecting citizens from runs on the bank or the failure of financial institutions. However, the reason you get bank runs has nothing to do with having a federal reserve but has everything to do with having a fractional reserve banking system. The Federal Reserve is just there to protect fractional reserve banking because banks and financial institutions can make far larger profits with fractional reserve than full reserve.
The final thing to note is that the Federal Reserve as well as all the prior incarnations of central banks both here and in other countries are pushed for and lobbied for by the big banking and finance industry. That is who gets rich from this system. At the end of the day it transfers money from 99.5% of the population to the business elites, connected politicians and the global finance industry.
For visual explanation of some of the concepts Federal Reserve Video