The Federal Reserve, Essay Example

Various Ways the Federal Reserve Made Monetary and Economic Policies That contradict Biblical Ethics

The federal reserve plays a significant role in promoting the US economy. The federal reserve promotes a stable economy by monitoring risks to the US financial system, ensuring consumer protection and community development, and conducting monetary policy. In some cases, the federal reserve oversteps biblical principles leading to economic disasters such as inflation and the great recession. People with economic intelligence and who read the bible look at the economy from a biblical perspective, therefore, noticing when the government makes economic policies that contradict the biblical ethics.

The Background of The Federal Reserve

The federal reserve is a monopoly of money production and supply in the United States (central bank). The former President Woodrow Wilson established it on 13 December 1913. One of the roles the federal reserve plays is by safeguarding the financial system’s stability. The federal reserve promotes the financial system’s stability by everyday activities such as overseeing and regulating banks, conducting monetary policy, and providing payment services.

Another role the federal reserve plays is ensuring consumer protection and community development by supervising, reinvesting, and research to expound the knowledge of the effects of economic policies on communities and citizens.

The Role of the Federal Reserve

Inflation affects the economy of a country, leading the federal reserve to step in. Inflation can be generated by the federal reserve or by the demand for products. Inflation is a reduction of the purchasing power of the currency of a country. The federal reserve controls inflation by manipulating interest rates. In scenarios where inflation is way above, the federal reserve increases interest rates to decelerate the economy, therefore, bringing inflation down. In cases where inflation is way below, the federal reserve decreases the interest rates to accelerate the economy, hence, moving inflation higher. From the biblical perspective, the process of monopolizing the production of money and engaging in monetary inflation ethically violates the biblical principles of private property.

The current monetary system has no metal- backing(gold). Before 1933 citizens used a monetary system with a gold backing (could be converted into gold); this made the currency precious. With the establishment of a federal reserve, the quality of the currency(debasement) was reduced due to the lack of a metallic backing. The new currency was only backed up with the government’s assurance that is good and valuable.

This approach by the federal reserve made citizens give away their gold stocks. The process of the government confiscating all the stocks of gold citizens possessed is a form of disobedience and breaking a commandment (Ritenour). Exodus 20:15 clearly, states Do not Steal(Woods). The federal reserve issued the new currency, which lacked convertibility. Another scripture that condemns debasement is Isaiah 1.22a; Isaiah calls out Jerusalem for their sins naming debasement as one of the many sins. “Your silver has become dross; your fine wine is diluted with water.”

The federal reserve controls inflation which is beneficial to businesses sometimes. High inflation affects companies negatively because businesses might fail to increase the prices of products caused by high inflation leading to lower investments in businesses. Low inflation increases business investments. Entrepreneurs lack knowledge of whether the increase in costs of their products is associated with a rise in demand or inflation. According to the biblical point of view, inflation discourages financial stewardship, which acknowledges that it gives everyone what they have.

Inflation caused by the federal reserve leads to the redistribution of wealth. The redistribution of wealth is the transmission of wealth from one person to another in various ways, such as taxation and monetary policies. Inflation results in some people receiving the current money earlier than others. When the federal reserve generates inflation, it takes wealth from some people and gives it to others, violating the biblical principles.

Inflation decreases and increases the loan repayment rates; this could affect either the debtor or the borrower. Higher prices generated by inflation might result in people borrowing loans to survive in a society with high living standards; this positively affects creditors since they can lend their money to many borrowers with a high-interest return rate.

Low inflation lowers the prices of products and living standards, reducing the urge of people to borrow from others. According to the biblical perspective, debt is seen as a form of slavery, preventing borrowers from resting. According to Proverbs 22:7, “The rich rule over the poor, and the borrower is a slave to the lender.”

The federal reserve participates in fiscal developments via credit markets (as a form of economic stimulus) to lower interest rates. Interest rates are associated with savings and investments. The interest rates decrease when people save more. When the federal reserve artificially lowers interest rates, stockholders assume that citizens are likely to suspend spendings (Woods). Research shows that if the currency had convertibility, the federal reserve would not participate in a credit market that influences both the investors and the public, impacting the business cycle.

Works Cited

Ritenour, Shawn. “The Federal Reserve: An Economic and Ethical Disaster. The institute for principle studies.”Available from: https://principlestudies.org/wp-content/uploads/2017/02/IPS_Essay4_FederalReserve.pdf

Woods, Thomas. “Money and Morality: The Christian Moral Tradition and the Best Monetary Regime.” Religion & Liberty.Action Institute. 20 July 2010.Web. 20 April 2021. Retrieved from: https://www.acton.org/pub/religion-liberty/volume-13-number-5/money-and-morality-christian-moral-tradition-and-b