Waching daily Feb 17 2018

money it certainly does make the world go round and the reason it's able to do so

is that we trust these little pieces of paper that's all of it, it's just a

piece of paper, but around the globe there is no piece of paper that inspires more

confidence, take this one for example we typically call it a twenty dollar bill

but officially it is a Federal Reserve Note and every Federal Reserve Note that

you spend or receive is part of a complex organization known as the

Federal Reserve System

Hello I'm Charles Osgood, the Federal Reserve System or the Fed as it's

commonly called is the central bank of the United States, since its creation in

1913 the feds essential mission has remained unchanged to establish and

maintain the public's confidence in our nation's monetary and banking system

over time that original mission has expanded to include responsibility for

providing a stable healthy and growing economy but the confidence that exists

today did not exist during much of our country's early history throughout much

of the 1800s almost any organization that wanted and

could print its own money as a result many states banks even one New York

druggist did just that in fact at one time there were over 30,000 different

varieties of currency in circulation imagine the confusion not only were

there multitudes of currencies some were redeemable in gold and silver others

were backed by bonds issued by regional governments it was not unusual for

people to lose faith both in the value of their currency and in the entire

financial system with many people trying to withdraw their deposits at once

sometimes the banks didn't have enough money on hand to pay their depositors

then when the funds ran out the banks suspended payment temporarily and some

even closed people lost their entire savings sometimes regional economy

suffered obviously something had to be done and in 1913 something was and that

year President Woodrow Wilson signed into effect the Federal Reserve Act this

Act created the Federal Reserve System to provide a safer and more stable

monetary and banking system

the Fed was designed to be a decentralized central bank the Fed

consists of two primary parts a Board of Governors which guides most of the

policies of the Fed and twelve regional Federal Reserve banks and their branches

which are the operating arms that provide services to banks and the public

in their regions the Fed has a unique public-private structure that operates

independently within the government but not independent of it the Board of

Governors appointed by the President and confirmed by the Senate represents the

public sector or governmental side of the Fed the 12 Reserve Bank's and the

local citizens on their boards of directors represent the private sector

this structure provides accountability while avoiding centralized governmental

control of banking and monetary policy the regional Reserve Bank's work with

the Board of Governors to establish and implement monetary policy for the nation

they provide a variety of financial services and they're responsible for

supervision of banks and bank holding companies

of course all three roles are designed to fulfill the feds main goal a stable

economy characterized by higher employment and production steady growth

and overall stable prices no small feat let's take a look to see how the Fed

accomplishes this

the foundation of the Fed rests upon developing and implementing a sound

monetary policy for our country a monetary policy whose primary focus is

on price stability but how does the Fed influence price stability large part of

the answer occurs right here this room, because if you see it's here that members

of the Federal Open Market Committee meet to make decisions that influence

financial markets both in the United States and around the world these

decisions affect the amount of money and credit that's available for our economy

all right you may be asking but what does the supply of money have to do with

price stability, why don't we see... As the supply of money grows and more money

becomes available the demand for goods also grows when the supply of money

grows faster than the production of goods and services prices usually begin

to rise this can lead to inflation on the other hand if the supply of money

decreases the demands for goods also decreases in the extreme case prices

could fall and manufacturers and businesses could begin producing fewer

goods we refer to this situation as recession the goal of the Fed's monetary

policy is to stabilize the nation's supply of money and credit and to

prevent both inflation and recession the primary way the Fed does this is by

buying and selling government securities securities in the form of Treasury bills

and bonds represent investments in the United States government and again it is

in this room that the Federal Open Market Committee sets guidelines for the

sale and purchase of these securities on the open market if the Fed determines

that there is too much money in circulation a situation that could lead

to inflation it will sell securities this takes excess money out of circle

it helps to stabilize the economy conversely if there is too little money

circulation which could lead to a recession the Fed buys securities this

puts money into circulation and again stabilizes the economy every business

day the Fed gathers information to determine just how much money needs to

be added or subtracted from the nation's money supply these traders then make the

actual sales or purchases of securities that affect the supply the result a

stable economy characterized by higher employment and production steady growth

and overall stable prices

Congress establishes rules that govern the supervision and regulation of banks

that operate in the United States the main purpose to promote the safety and

soundness of banks which in turn enhances the public's confidence in the

banking and financial system and it is the Fed together with other bank

supervisory agencies but has the responsibility of making sure these

rules are followed in its supervisory role the Fed monitors banks and bank

holding companies that is companies that own or control one or more banks and the

US operations of foreign banks federal examiner's look at such items as

financial records the potential risk of the banks investments and they also

check to see if the bank is following applicable laws this supervision may be

done either off-site using automated screening tools or on the bank's

premises in either case the bank receives a rating if a potential problem

is discovered the Fed will require that the bank take corrective action but

whether in its supervisory role or in its regulatory role the feds aim is once

again to maintain a stable and healthy banking system capable of supporting

economic growth

from its beginning the Fed has provided a number of services to our country's

financial institutions the Fed plays a vital role in the nation's payments

system that is transferring funds or payments from one bank to another this

is done either as cash or checks and electronic transfers because of this

role the Fed is often referred to as the bankers bank one of its roles is to act

as the fiscal agent or as the bank for the United States it maintains the u.s.

treasuries accounts pays checks drawn on the Treasury facilitates the collection

of federal taxes and is responsible for issuing servicing and redeeming Treasury

securities have you ever thought about how much currency is actually in

circulation believe me it's a lot almost half a trillion dollars including the

amount of our currency used in other countries and it's up to the Fed to make

sure that there's always enough money in circulation

this means issuing currency and coin to banks and working with banks to ensure

that the currency that is in circulation is genuine and in good condition the Fed

transfers funds from bank to bank in the form of checks and electronic payments

when you write a check drawn on your bank account the business receiving the

check will then deposit it in their bank but the check by itself has no real

value in order to have value the funds from your bank have to be transferred to

the bank receiving your check for deposit the transfer of the value from

one banks account to the other banks account is called settlement 24 hours a

day six days a week the Fed is busy clearing checks the Federal Reserve

System handles over one-third of all the checks that are cleared in the country

checks may be scanned for important information that the bank requests the

Fed provides two types of these services the transfer of funds service is used to

move large monetary balances between nearly 8-thousand institutions the

automated Clearing House or ACH service is used to move smaller and recurrent

in financial transactions, like monthly bills, instead of having to write a check

to the mortgage or insurance company for example the proper amount from your

account is electronically deducted and then added to the account designated by

the mortgage or insurance company many businesses use direct deposit for their

payroll payments to employees and the federal government makes many payments

through direct deposit including those to Social Security recipients and

military personnel monetary policy Banking Supervision

and financial services once again these are the three primary responsibilities

of the Fed responsibilities that determine how the Fed helps to establish

a strong economy

from 1913 until today the purpose of the Fed has remained unchanged to instill

confidence in our monetary and economic system but as the economy and financial

system have evolved and new laws and practices have come about the way these

goals are achieved has changed dramatically today the Fed clears over

20 billion checks a year and you imagine clearing them like this, it's almost

impossible but with electronic scanners and automated equipment the process is

not only faster and more accurate it's also less costly it's safer today the

Fed is continuing to develop new and more efficient ways of conducting

business ways that depend on the use of evolving technologies here for example

the Fed uses an advanced data communications network and the latest

data processing systems to handle electronic payments well as you've seen

that the Fed has been around for a long time during that time a lot of things

have changed things will continue to change but as you've also seen the Fed

adapts to the times it does what's necessary to foster a healthy growing

economy emerging democracies from around the world use the Fed as a model model

to help them develop their own monetary policy to provide for price stability

economic growth and better living standards for their citizens because

when it comes right down to it the real purpose of the Fed is to provide trust

in our nation's money this requires price stability the foundation were

stable but vibrant and growing economy, to keep prices steady as we've mentioned

already keep jobs and production both coming, the job of a Fed all's done and

said is to keep the economy humming I'm Charles Osmond

thanks for watching