How did the Federal Reserve, the world's largest monetary policy institution, which influences the ups and downs of the global economy, come to be?
The U.S. economy plays a pivotal role in the world, and if there is a number one decision-making body on the planet, there is no doubt that everyone will point to the Fed and shout "Daddy".
Therefore, some people compare that if the U.S. economy sneezes, then the global economy will catch a cold, and it is conceivable that when the Federal Reserve moves, the world will tremble.
But no one could have imagined that the Federal Reserve, which can influence the global economy, is a private central bank.
As we all know, after the end of the American Revolutionary War, the American people supported peace from the bottom of their hearts. But with the advent of the second industrial revolution in Europe and the United States, capitalism developed strongly in the United States.
However, the market economy does not have a closed loop, so the United States suffered a series of economic crises in the second half of the 19th century and the early 20th century.
Many people may not think that there was no national bank in the United States at that time, because in 1791, Alexander Hamilton, as the first secretary of the Treasury of the United States, once proposed to establish a private central bank like the Bank of England in North America.
This private bank is responsible for issuing money, and the majority of the shares are privately owned, with the government participating in a small share, and it can also borrow money from the government and charge the same interest.
This was the first bank in the United States at that time, in fact, it was a commercial bank, and the freedom of commercial banks was too great, and most of the shareholders were Europeans.
As the saying goes, the non-ethnic group must have different hearts, and the Europeans have influenced the U.S. economy through their controlling stake in the First Bank of the United States, which has led to a great deal of distrust in Congress of the First Bank. Subsequently, the First Bank collapsed under the cries and policies of various parties.
The first bank closed, and the second bank was opened, which coincided with the outbreak of the Anglo-American war, and because of geographical restrictions, the second bank became a tool for enriching a specific region, so it also collapsed.
The First and Second Banks collapsed one after another, and the country suffered from war, and the economy fell into a Great Depression in an instant. Although every state had independent banks at the time, and the United States encouraged liberal banks, countless banks sprang up all over the United States.
But too much freedom and no regulation caused a run on each other, but there were so many people, so much demand, and eventually because of the run, it led to a large-scale financial crisis, and a large number of banks failed.
Therefore, the American people urgently need an authoritative, centralized, but not centralized bank.
So in 1907, under the wave of financial crisis, the Americans finally reacted that it was necessary to establish an authoritative financial institution, which was protected by law, and at the same time had the function of stabilizing the financial market and solving the financial crisis.
A U.S. senator named Nelson Aldrich was the first to think of this layer, and he kept learning from European banks, and finally on December 23, 1913, an epoch-making institution was established, which was the U.S. Federal Reserve System, that is, the Federal Reserve.
Why does the Fed influence the global economy, and how does it do it?
Although the Fed is a private bank and the Fed keeps the identity of its shareholders secret, the Fed does have government involvement, so the Fed's departments are divided into three divisions, the Federal Reserve, the Federal Reserve Bank, and the Federal Open Market Committee.
These three departments have the functions of supervising the activities of financial institutions, formulating and deliberating monetary policies, and safeguarding the interests of customers in order to stabilize the financial system.
The Fed did not develop smoothly at first, after all, the government intervened in the Fed a lot, until 1971, because the oil crisis led to social and economic turmoil in the United States, and US President Nixon came up with a new economic policy in order to alleviate social contradictions, which accelerated the depreciation of the dollar.
A weaker dollar means inflation, which makes American society even more unstable.
And at this time, the Federal Reserve took up a chairman, and he was Paul Walker. As soon as Paul Walker came to power, he raised interest rates without saying a word. The so-called interest rate hike is actually a strategy of the central bank to raise interest rates, increase the cost of borrowing from banks, and make market interest rates rise.
At that time, inflation caused the unemployment rate in the United States to skyrocket, and interest rates had to be raised at this time, which made it impossible for the people at the bottom of the United States to live at all.
This policy led to a more fierce resistance from the whole of the United States, but Paul Walker insisted on this decision, and the miraculous thing is that this decision did relieve the pressure of inflation, stimulate the vitality of the market, and allowed capitalism to survive, so that the American economy gained a decade of prosperity.
Paul Walker's strategy showed the Fed to the United States and the world, and Nixon's new economic policy was to decouple the dollar from gold and protect the value of the dollar.
Paul Walker continued this policy while preserving the value of the dollar, and the Fed has since won global trust.
In the 21st century, the influence of the Federal Reserve can be said to be the lifeblood of the global economy.
And the Federal Reserve raises interest rates from time to time to harvest the global wool, which leads to weak global economic growth. In the face of the Fed's arrogance, the mainland had to actively respond and deepen the opening of the economy, thus dealing with the fangs of capitalism.
But economic growth will take a long time to succeed, and government intervention on the mainland is more calm and orderly than in the liberal system of the United States.
In the face of the Federal Reserve's interest rate hike policy, the mainland has continued to promote the virtuous cycle of commodities and production, people's employment and consumption, and I believe that in the future, we will be able to ease the Fed's monetary constraints on the mainland.