The Federal Reserve, which is sometimes referred to as the fourth branch of the government, is an often misunderstood economic agent. It does not print money, this is by far the biggest misconception of the Federal Reserve. The United States Treasury is responsible for printing money, and it does it sparingly. About 95% of the money printed by the Treasury is to replace currency that is no longer fit for circulation. So what does the Federal Reserve do? Does it control inflation? Somewhat. The Federal Reserve controls the monetary base by conducting Open Market Purchases. These transactions involve either buying or selling bonds. Buying bonds means the Federal Reserve is expanding the monetary base; selling bonds means the Federal Reserve is shrinking the monetary base. The expansion of the monetary base can cause a price level rise, which is the definition of inflation. Though, that is not the only cause of inflation. When economies prosper we see a natural rise in prices, the Federal Reserve cannot really control this. When economies faultier, barring any intervention, we see the price level fall. The Federal Reserve is considered the “Lender of Last Resort.” This means it is the bank for the banks. This helps prevent bank runs, which can quickly cause a panic. From a historical perspective, this why we have no seen a “panic” in the last 75 years, yet the first 120 years of American History are littered with them. On an interesting note, some historians refer to the 1800s as the age of panics. Most developed nations have a Federal Reserve, some call them National Banks. In early American History, we had a national bank, but it was eventually killed by Andrew Jackson. The killing of the national bank actually brought upon the economic panic of 1837.