How the Federal Reserve Works

How the Federal Reserve Works

Have you ever taken a close look at paper money? Each U.S. bill has the words “Federal Reserve Note” imprinted across the top.¹

But many individuals may not know why the bill is issued by the Federal Reserve and what role the Federal Reserve plays in the economy. Here’s an inside look.

The Federal Reserve, often referred to as the Fed, is the country’s central bank. It was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system.² Prior to its creation, the U.S. economy was plagued by frequent episodes of panic, bank failures, and limited credit.

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The Tax Man Cometh: Ever Wonder How He Spends Your Money?

Every year you repeat the same tired task. You collect all your receipts forms, and related tax information and either settle in for a marathon self-preparation session, or you hand it all over (along with a few hundred bucks, give or take) to your tax preparer. When all's said and done, you'll see exactly how much money the federal government took from your paychecks, but you certainly don't see an itemized list of where that money will go.

However, in his 2011 State of the Union Address, President Obama pledged to develop a new online tool that would allow every American to see precisely how the government spends his or her annual tax payments. The resulting and first-of-its-kind public website, “My Federal Tax Receipt,” launched last year and was just recently updated to reflect current spending. The tool is an online calculator, located at www.whitehouse.gov/2011-taxreceipt. Once there, you simply enter your income tax, Medicare tax Social Security tax, and a detailed calculation of how your tax dollars are allocated pops up on the screen.

Having a better understanding of what we pay for and how makes us stronger citizens, and let’s face it, its information we deserve to know.

But you don't actually have to do anything at all to satisfy your general curiosity — after all you could just simply scan the numbers and learn how much of the collective federal income tax is allocated where, as its all broken into categories and subcategories and measured by percentage. While the information on the site is incredibly informative, intriguing, and perhaps even a bit surprising, I'd be less than honest if I neglected the site's democratic political bent, but the information is still interesting, despite the occasional overt partisan prose.

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