The Federal Reserve of the US, or simply FED, is the most powerful banking institution in the world. It controls the banking and economic system of the most powerful country in the world – United States of America.
In 1913, the US Congress established the FED. The Fed, although the central bank of the United States, is not really one bank. It consists of twelve regional banks, so that no one region of the country can unfairly gain an economic advantage. The Fed is run by a seven-member team called the Board of Governors, whose main job is to control the money supply, or the amount of cash circulating through the economy. The Fed has to keep enough money circulating so that the economy expands, but not too quickly. Too much money in circulation drives down its value, leading to inflation, while too little money results in consumers having less to spend, leading to recession. The Fed controls the money supply, and thus keeps the economy relatively balanced, by buying and selling securities, printing money, and establishing interest rates.
How the Fed Keeps Track of Money Supply:
In my education to Robert Kiyosaki’s Rich Dad Coaching Program, Kiyosaki told about how Fed controls money supply:
If you take a look in your wallet, empty out your piggy bank, rummage for change between the sofa cushions, and count up everything in your checking and savings accounts, the amount you come up with is your own personal money supply. That’s what the Fed periodically does—tally the country’s money supply. Without such a count, it can’t know for sure how much money is in circulation and whether the economy needs more.
The Fed has a system for keeping track and it works like this:
M1 money, or narrow money, is money that people can spend immediately, such as cash and checking account balances. M2 money, or broad money, is M1 money plus any money that can’t be spent immediately but can be converted easily into cash, such as money in savings and certificates of deposit. M3 money is M1 and M2 money plus the assets and liabilities of financial institutions that can’t be easily converted into cash. Together, the three Ms are known as the monetary aggregates.
Source: Robert Kiyosaki’s Coaching Program