The Federal Reserve uses its Hulk-like powers to make sure not too many monkeys are out of work, and that prices aren't too high (so that said monkeys can buy feces from each other in the economy).
Central bankers are the rock stars of the economics world, and the Federal Reserve is The Beatles. That's because they control the Fiat currency of the United Apes: dollar bills; benjamins; paypah. And the greenback is the reserve currency for most of the world, making it the most important currency on this here planet (for now...).
Central Bankers never miss an opportunity to remind you that they own your currency.
Wait, so they control the money? What the hell does that mean?
It's very simple, you see. The Fed typically raises or lowers the amount of money in circulation (the money supply) within the nation-state, er, nation-ape, by raising or lowering interest rates.
It's simple, really. Let's say that you're an ape who owns a business that manufactures and sells cars. It's a big investment to build the plants, pay the monkeys, etc. So you need to borrow money from a bank, which charges you interest for the loan. The interest rate this bank offers is pretty much set by the central bank to control how much money is out in the economy.
You can borrow this money to pay your monkeys, and other bills, and such.
If interest rates on this platter of money are low, your business will take out more loans (because you pay back less) so you can hire more workers so you can build more cars. If every business takes out more loans, there is more money in the economy, which helps the economy in its growth as the amount of money in circulation keeps up with the increasing amount of transactions taking place. Got it?
You see, the economy is like Oprah: it expands and contracts naturally on its own. This is due to things like businesses opening, strong consumer confidence, low interest rates, war, grand ponzi-schemes, etc. (expansion) versus businesses closing, low consumer confidence, high interest rates, peace, the collapse of grand ponzi-schemes, etc. (contraction). This is known as the business cycle.
Sometimes Oprah finds a buffet where the food is not that good for her and she grows too fast, sort of like a bubble. Her organs (different parts of the economy) can't take this malnutrition for long and eventually she gets severe intestinal contraction that induces diarrhea. Interest rates usually spike at this point as banks and lenders look to collect on their debts in order to remain solvent. In the midst of the other aforementioned consequences of contraction, angry, wealthy gorillas typically gobble up large chunks of capital. And they don't typically like to share the wealth.
"Where's my money!?"
When Oprah finally "clears" her intestines of all that malnutrition, i.e. when the recession is over, it is typically at much higher unemployment and lower wages, with lots of pissed off monkeys. And citizen insurrection is bad for the self-preservation of a nation-ape and the domestic tranquility that comes with a successful economy.
This guy is definitely unemployed.
So, if the economy, err, Oprah, is contracting to the point of bulimia, and then starts shitting all over everything because her organs (economic components) are all out of whack, the Fed steps in to the rescue with its magic pills.
PM me if you can photoshop this to "Pfedzer" that would be AWESOME
Lowering interest rates makes the food Oprah eats much less expensive, so she can eat again and grow once more.
This makes the transition easier on both businesses and workers. This is because with less money in the economy during the contraction (known as a credit crunch), putting more money in the economy helps to make up for this sudden loss. Businesses can borrow this money they otherwise would not be able to afford and may be able to remain open. Then they can continue to pay the monkeys. And the monkeys won't be all unemployed and pissed off.
And if you're tired of feeding Oprah because you feel that she doesn't deserve any more food, you'd need to find a new celebrity to feed (aka change the fundamentals of our economy, which is REALLY difficult 'cause, you know, lots of people like and depend on Oprah).
So the Fed lowers or raises interest rates to live up to its Congressional mandate to maximize employment while keeping inflation under control.
Without the Fed, Oprah would just keep shitting all over everything until the market, err, Oprah's intestines, "cleared." And that would mean she could be shitting for a long, long time.
The Fed supposedly came about as a proposed resolution to the existential dichotomy between private oligarchies and governmental manipulation of the money supply to curry voters.
Let me break that last bit down for you in the following section:
I'll make this very simple: without the Fed, interest rates can only be set by one of two groups: the government, or the free-market rate. Here's an absurd explanation as to why neither of these groups should control them:
Reasons why monetary policy is not totally controlled by GOVERNMENT:
Because of him:
George W. Bush
And him too:
Since politicians are merely chimps and thus cannot be held to divine standards, they're going to throw feces at each other all for the sake of reelection. To do this, they have to convince a shitload of monkeys that they are the best chimp for the job.
Now, remember when I told you that lowering interest rates increases the money supply, allowing business to hire more monkeys? (you didn't just skip to the pictures of chimps...did you?) Well, that would reduce unemployment, right? And if the monkeys like that, so would politicians, er, chimps, RIGHT?
So, if you put the chimps in charge of monetary policy, you're basically asking them to build a private buffet just for Oprah, turning her into a giant bubble. It's like putting Kanye West in charge of the Oscar speeches. They would not hesitate to print money just to lower unemployment temporarily and make the monkeys happy, particularly around election time. This would make Oprah so large that she wouldn't just take a fat shit...she would fucking explode.
And if it is taken too far, it can lead to runaway inflation, which is a slippery slope to hyperinflation.
Mbalak on his way to purchase a loaf of bread
Ok, so now we understand the basics of why politicians er, chimps, shouldn't control the money supply.
So why don't we leave monetary policy to the PRIVATE SECTOR?
Because of this guy:
John D. Rockefeller
And this guy:
As well as this guy:
You see, when big, powerful, angry gorillas like these get lots of power, for some reason they go beyond any caricature of themselves and become very, very drunk on that power. They organize gorilla cartels and, after buying out all the other apes, eventually control their whole industry and, if permitted, the whole economy, which is known as an oligarchy.
And even if oligarchies do not form, there is far too great an incentive for these private banks to raise interest rates to ridiculous amounts, sort of like the credit card companies of today (which are FINALLY being reined in by Congress). And despite what those Austrians say about free market competition making for fair market rates for both supplier and demander, unregulated private banks are like sorority girls: eventually they're all operating on the same period, and they all turn into dirty sluts--even the "good" ones.
So, by the early 20th Century, the United Apes was well on its way to becoming oligarchical because of the astounding success of a few wealthy gorillas (some argue that it was and still is, albeit intricately woven into legitimate institutions today). But the politicians er, chimps, grew some balls and started using some of their power to break up these oligarchies, splitting up businesses and also creating the Federal Reserve in 1913 to try and mitigate or resolve market panics, bank runs, and private concentration of wealth, among others things.
A pensive Alan Greenspan conjures solutions to the Internet bubble (c. 2000)
OK...only 50% of that title's sarcasm is warranted, b/c the type of "government" the Fed resembles is a dictatorship, or at least a corporate boardroom, which is actually really efficient...
Anyways, it turned out that independence from the chimp world and the gorilla world was no easy task, as they were both fucking each other since forever anyways. So they decided to sort of divide the power of the Fed: the Chimps would appoint the 7 Board of Governors (representing 7 regions across the United Apes), as well as the Chairman. The rest of the staff is hired economists or private banking gorillas who beat their chests over the course of their entire lives to get where they were.
A rare look inside a Federal Reserve Boardroom meeting in progress
So to say the Fed is "not government" is like saying the Supreme Court is not government because, like, who elected those honorable assholes? As with the Supreme Court, Fed governors are appointed and then left alone because otherwise the politicians would seriously fuck with the separation of powers because, you know, they're chimps.
So, these elite bankers and economists meet once a month to discuss the economy and figure out how to maximize employment and control for inflation, while publishing much of their analysis for investment and banking professionals to use. But honestly, they're way too elitist. I for one would rather see the country's economy decided democratically. Put it in the hands of the people, er, monkeys.
Yup, way better than a highly educated team of economic and banking professionals.
While this system may sound good on paper, or from the mouth of an articulate university professor, it is all just theory.
Stay tuned for the rebuttal to this system: (Anti) Federal Reserve.