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The Ultimate Power of FED

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shahriar33
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last yearSteemit3 min read

We all know that the Federal Reserve (Fed) is a privately owned company which is also acts as the central banking system of the United States, and it plays a critical role in managing the country's money supply.

The Fed has two main responsibilities: to maintain price stability and to promote maximum employment. One of the key tools it uses to achieve these goals is controlling the money supply. In this article, we will explore how the Fed prints money and reduces the excessive money supply.

Printing Money (producing black money)

The Fed can increase the money supply by buying government securities, such as Treasury bonds, from banks. When the Fed buys these securities, it pays for them with newly created money, which is credited to the bank's accounts at the Fed. This process is known as open market operations and is the primary way the Fed increases the money supply.

Reducing Excessive Money Supply (whitening black money)

When the money supply grows too rapidly, the Fed can take steps to reduce it. The Fed does this to control inflation, which is a sustained increase in the general price level of goods and services. High inflation can have negative effects on the economy, such as reducing purchasing power, hurting the value of savings, and distorting price signals.

To reduce the excessive money supply, the Fed can sell government securities back to banks, reducing the number of reserves in the banking system. The Fed can also raise the reserve requirement, which is the percentage of deposits that banks must hold as reserves. When the reserve requirement is increased, banks have less money to lend, which reduces the money supply.

Another tool the Fed uses to reduce the money supply is the discount rate, which is the interest rate at which banks can borrow money from the Fed. If the discount rate is raised, it makes borrowing more expensive for banks, which reduces their ability to lend money and slows down economic growth.

The Federal Reserve plays a crucial role in managing the money supply. By using tools such as open market operations, the reserve requirement, and the discount rate, the Fed can control the growth of the money supply, balancing the goals of price stability and maximum employment. Interestingly people who control money have the ability to determine anything in our life.

Thanks for reading my post. Hope that you have got something interesting here!

Best Regards
@shahriar33

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