The Federal Reserve System- How the Government Can Manipulate the Economy and its Effects on Your 1031 Exchange

What is the Federal Reserve System and how does it effect the economy? How does monetary policy effect real estate markets, and what effect can it have on my 1031 Property Exchange?

The Federal Reserve System monitors the U.S. economy and implements monetary policy in order to counteract inflation and deflation. The Federal Reserve is responsible for keeping employment high, values high, and the internal growth of the U.S. economy.

The Federal Reserve system was established in 1931 under president Woodrow Wilson and serves as the nations central bank. It is composed of twelve districts that are al directed and coordinated by the seven member board of governors in Washington D.C. The twelve districts are San Francisco, Minneapolis, Kansas City, Dallas, Chicago, St. Louis, Atlanta, Cleveland, Richmond, Philadelphia, New York and Boston.

All nationally chartered commercial banks must join the Federal Reserve and purchase a certain amount of capital stock in its district Federal Reserve bank. All banks that are members of the Federal Reserve must adhere to its strict rules and regulations of operation as well as maintain sufficient monetary reserves.

The Federal Reserve stimulates and slows the economy by issuing currency and lending to commercial banks, supervises the lending activities of member banks, assists in the collection of income taxes and collects and verifies checks.

The actions of the Federal Reserve that effect real estate markets the most are setting discount rates, open market operations, supervising the truth in lending act and regulating the actions of its member banks. Using its policy to manipulate the economy can have both positive and negative effects on taxpayers seeking 1031 Property Exchanges. If the FED raises or lowers the discount rate, it in turn raises or lowers the interest rates on loans that consumers can obtain from commercial banks. When the FED buys or sells government securities in open market operations it plays with the money supply in the economy. This can effect consumer spending which is directly correlated to the fluctuations in value of real estate. By supervising the Truth in Lending Act and by regulating the actions of member banks, the FED instills consumer confidence in the general public and reliability on our credit economy.