National Federal Reserve - Free Essay Sample

Introduction

The national Federal Reserve is an independent corporation that incorporates a national governmental agency and twelve regional Federal Reserve (Cecchetti, 2009). This Reserve ensures stability, flexibility, and safety of the nation´s monetary system. While the century-old institution has sufficiently served the country through economic tragedies, it has continuously been faulted by various agencies concerned with economic and social morality for violating various economic and ethical principles. Christians in the country have often constituted the majority of the moral forces instilling values and faith-based standards in the country. From recent history, Christians in the country have been engaged in criticizing governmental policy propositions that they felt overstepped biblical standings. This short essay describes the role of the Federal Reserve in the nation´s economic development and some instances when the Federal Reserve policies violated long-standing Christian principles (Louche et al., 2012).

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Role of the Federal Reserve

The Federal Reserve (Fed) was discovered in 1913 as the government´s means for controlling the quantity of money in existence (Cecchetti, 2009). The institution has grown into the most influential national central bank globally. Overall, the financial institution is often considered as independent of the central government. However, such independence is sometimes limited by congress´s oversight roles. As a crucial role of the institution, the Fed serves the purpose of moderating interest rates, controlling proper pricing, and enhancing maximum employment. To conduct the moderation role on the economy, the Fed buys and sells government securities, adjusts discount rates, and reserve requirements. As such, the Fed sets the ceilings for loan interest discounts and sets aside amounts that financial institutions should set aside in reserves. Through the mediation of the Fed over its one century of existence, it managed to increase money stock in the country one hundred fold since 1914. To ensure the circulation of finances through the economy, the Fed may increase the money supply to ensure price stability. During the 100-year existence of the Fed, however, the price stability control function appears to have been poorly done. From comparative evidence, economists determine that prices of goods have grown by up to 2100% (Cecchetti, 2009).

As already stated above, one of the crucial functions of the Federal Reserve is the increase of money supply to the economy to control prices. Therefore, the Fed is charged with effecting monetary inflation to the economy when necessary. The Fed has continued to effect such inflation to stabilize the prices of commodities. Furthermore, the fed has impacted commodity prices and interest rates throughout the entire economy of the country. While effecting such product and monetary regulation, the Fed determines the circulation rates of finances and the directionality of public investment (Meegan et al., 2018). For instance, when the Fed decides to reduce the money supply, investors may opt to alter their investment values and create unsustainable long-term savings drastically. Some investors may furthermore adopt savings measures that would, in turn, reduce financial and asset-based economic activities and reduce the overall economic growth. During inflation, the institution often takes myopic corrective measures to rectify the short-term economic dips. In the long-term, such inflation-based strategies lead to unsustainable price rises and unsustainable debt and interest situations. Financial analysts thereby discourage governments from resorting to inflation as corrective measures for unsustainable economic conditions. Most analysts even postulate that such unsustainable short-term economic mediation by the Fed alongside their failure to control unsustainable bank lending and reserve requirements resulted in the recession of the late 2000s (Meegan et al., 2018).

How the Fed Oversteps Biblical Principles

As implied above, the failure and irresponsibility of the Federal Reserve led to the 2008 global recession. The circumstances that led to the recession began from the lack of concern from the Fed to control banks from irresponsible lending and consumption of the recommended bank reserves (Louche et al., 2012). When the investors borrowed heavily, they engaged in high-risk investments that led them into substantial indebtedness. The government thereby had to bail the private investors. Furthermore, Fed effected unsuitable interventions like monetary inflation. Such interventions created a more significant vacuum in economic growth as the high placing investors acquired the increased money and continued to save them instead of allowing circulation of the money through the economy. Lack of investments and money flow led to unemployment and unsustainable finance. According to biblical teachings, irresponsibility, and not fulfilling one´s duties are highly condemned (Louche et al., 2012).

Economic policies that lead to multiple indebtedness are furthermore considered wrong in the bible (Exodus 22:26). The Federal Reserve thereby oversteps biblical teachings by allowing partial reserve banking and tampering with weights and measures. Further, the bank is indirectly government-owned. As such, the bank may sometimes watch as the government commits financial and economic fraud without decisive mediation. Again, we may point to the 2008 economic recession that resulted from non-mediated economic fraud and unethical practices by the banks (Schoen, 2016). Biblical principles overwhelmingly condemn non-action on fraud and dictatorial and selfish regimes. The overly exaggerated independence of the bank furthermore excludes it from accountability. Such a lack of accountability of financial and economic activities goes against biblical and ethical values of righteousness (Schoen, 2016).

Conclusion

During its 100-year existence, the Fed has served generously in controlling the flow of finances through the economy and minimizing financial crises. While the bank succeeded in its crucial purpose, there is still a lot to be done regarding the ethical and value-based service delivery. From this study, we observe that the Fed has violated a host of biblical and normative principles while encouraging greed and unhealthy financial trends.

References

Cecchetti, S. G. (2009). Crisis and Responses: The Federal Reserve in the Early Stages of the Financial Crisis. Journal of Economic Perspectives, 23(1), 51–75.
https://doi.org/10.1257/jep.23.1.51

Louche, C., Arenas, D., & Cranenburgh, K. C. V. (2012). From Preaching to Investing: Attitudes of Religious Organisations Towards Responsible Investment. Journal of Business Ethics, 110(3), 301–320. https://doi.org/10.1007/s10551-011-1155-8

Meegan, A., Corbet, S., & Larkin, C. (2018). Financial market spillovers during the quantitative easing programmes of the global financial crisis (2007–2009) and the European debt crisis. Journal of International Financial Markets, Institutions and Money, 56, 128–148.
https://doi.org/10.1016/j.intfin.2018.02.010

Schoen, E. J. (2016). The 2007–2009 Financial Crisis: An Erosion of Ethics: A Case Study. Journal of Business Ethics, 146(4), 805–830.
https://doi.org/10.1007/s10551-016-3052-7