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Do you know the difference between the US Treasury and the US Federal Reserve? | The Mesh Report

Do you know the difference between the US Treasury and the US Federal Reserve?

the Mesh Report Staff August 18, 2010 0

Most people have heard of Tim Geithner and Ben Bernake and they know that the Treasury and Federal Reserve are parts of our government concerned with money.  However, I find that most people don’t know what exactly these entities do, how they are related, or how it affects you and your wallet.

Tim Geithner is the Secretary of the United States Treasury.  The Treasury was created in 1798 and is responsible for managing the government’s finances.  It collects taxes, prints currency, mints coins, and manages debt.  The Treasury oversees the IRS, U.S. Mint, Bureau of the Public Debt, and the Alcohol and Tobacco Tax Bureau.

The Secretary of the Treasury is appointed by the President of the United States.  As a member of the President’s cabinet he is a key advisor on all economic issues.  The Secretary also works with foreign federal institutions to “encourage global economic growth, raise standards of living and to the extent possible, predict and prevent economic crises.”

Ben Bernake is the chairman of the Federal Reserve, or “Fed” as it’s often called.  The Fed was established in 1913 and is the central bank of the United States.  Unlike the Treasury Department, the Federal Reserve is independent of the U.S. government.  Its responsibility is to regulate the U.S. monetary and financial system.  The Fed is comprised of 12 regional banks in major cities throughout the United States. Though the chairman of the Federal Reserve is appointed by the President he is not a cabinet member and he must be confirmed by the Senate.

The Fed’s mandate is to “keep our money valuable and our financial system healthy.”  To do this the Fed balances the access to money through adjustments of the federal funds rate and the discount rate. The federal funds rate is the interest rate on very short-term loans from one commercial bank to another in the United States.  The discount rate is the rate at which member banks can borrow money from the Fed.  This is the interest rate you hear about in the newspapers, which after the economic melt down of 2008 was lowered to 0-0.25%.

Though these 2 institutions have different responsibilities, they share the common goal of keeping the United States’ government and its citizens financially healthy.  As we have seen since 2008, they often work hand in hand in times of crisis.  Mainly, the Fed has been able to keep the Treasury flush in cash in order to fund stimulus programs such as TARP and PPIP.

As our economy continues to see challenges, we will see more cooperation between Mr. Geithner and Mr. Bernake.  Whether the Fed is buying Treasury Bills or we see quantitative easing, I want you to understand the different roles these entities play.  Understanding how our government operates economically is the gateway to figuring out how you should maneuver your finances in order to protect your money and how to profit.



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