What Purpose Does Money Serve Today?

The Fed financially dominates the lives of nearly every American person and has a massive influence over their daily spending habits. An unsuccessful monetary policy can have substantially detrimental effects on an economy and the commonwealth that depends on it. These negative impacts include hyperinflation, stag-flation, high unemployment, recession, shortages of imported goods, inability to export goods, and even total monetary collapse and reversion to an ineffectual bartering system.

The current Fed's mandate is "to promote sustainable growth, high levels of employment, the
stability of prices to help preserve the purchasing power of the dollar and moderate long-term interest
rates," according to the Federal Reserve's website. This means the Fed has to make sure the US has a sound banking system and a healthy economy for its citizens.

The Federal Reserve Board harbors some powerful tools in its armory and works incessantly with all of them to meet this goal. The Fed's most common undertaking is to make money--and lots of it, with open market operations, with which the Fed is active in on a daily basis. The nation's money supply is easily manipulated by the buying and selling of government securities, like treasury bonds, from the public. If the Fed cuts back on buying securities (quantitative easing) it then lowers the amount of money circulating in the economy and therefore, forces consumers to spend less money. Other Fed revenue is generated through sales of financial services like cheque and electronic payment processing and discount loans to banks, taxation and tax breaks on imports or exports of capital into a country. However, the Fed doesn't keep any money it makes. The federal government receives all of the net profits generated. It's the regulation of interest rates and the availability of money that provides economic growth and prevents downturns. If the economy needs to see rapid growth and a large
increase in job creation, the Fed can issue additional credit and give the go ahead for banks to increase lending. It can also lower interest rates that banks use to borrow the money from the Fed, making it cheaper for banks to lend. This lowers the cost for consumers on essentials like homes and vehicles, as well as encourages them to engage in unnecessary expenditures, such as vacations.

This is referred to as the discount rate or the interest rate that an eligible depository institution is charged to borrow short-term funds directly from a Federal Reserve bank. The Fed can also lower banks' reserves—meaning banks would be permitted to carry less money on their books, which
in turn enables them to lend more to businesses and consumers as well as to other banks. This tactic also increases the flow of money into the economy.

Another facet of the Fed is to supervise and regulate banks to make sure they are safe places for people to keep their money, and to protect consumers' credit rights. In order to apply all of these important tools effectively, the Fed must conduct extensive, ongoing research. They, in turn, disclose their findings to the general public through published articles, speeches by board members, seminars, and websites.

Source of Information : Ask About Gold By Michael Ruge