Since its commencement in 1931, the Federal Reserve System has faced numerous criticisms. Great criticism amongst the general public was a key characteristic of the 2010 midterm elections and furthermore, they opposed the bailout of main banks, industrial, mortgage and insurance companies. Criticism has leveled on the Federal Reserve for its failure to control inflation (The New York Times, 2012). The particular area of concern has been the inflationary effects on savings and wages. This has witnessed the waning of the purchasing power of the dollar. As indicated in the Federal Reserve Act, its mandate was to stop such economic mishaps and its inability to provide antidote meant failure in its mission.
The Federal Reserve has been widely blamed for aggravating the 1929 economic depression. When the stock market collapsed, the Federal Reserve refused to cushion the banks and continued to constrict the money supply (Saxton, 1997). Prior to this depression, banks had ably dealt with economic crisis limiting the conversion of deposits to currency. The tight monetary policy adopted by the Federal Reserve has also been another avenue of criticism. Critics argue that lower rates of interest would have more positive impacts on the United States economy, as it would result in higher levels of employment due to the rise in demand for commodities (Reddy, 2010). According to this argument, the higher inflation rate would decrease the value of dollar, which is important to exporters and would go a long way in reducing the trade deficit (The New York Times, 2012).
Certainly, I agree with these among other views offered by critics regarding the Federal Reserve System. This is based on the fact that the measures and polices used by the Federal Reserve System are not efficient. The system should be more transparent and adopt efficient policies, which would assist in controlling various economic mishaps.
Related Economics essays
- The Global Financial Crisis
- Economic Protectionism
- Three Distinct Processes of Globalization
- Ecological Economics and Sustainable Development
- Microeconomics is Concerned with the Study of Behaviour
- Gross Domestic Product
- Adam Smith to Economics
- Opportunity Cost
- Democracy and Resource Curse by Michael L. Ross
- Encourage Economic Growth