The Federal Reserve Banking System | 123

Summary

Podcast Summary: Down to Business English

Episode 123 – The Federal Reserve Banking System

Hosts: Skip Montreux & Des Morgan
Release Date: December 4, 2017

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Overview

This episode of Down to Business English dives into the United States Federal Reserve System, summarizing its functions, history, and leadership. The hosts, Skip Montreux and Des Morgan, focus on making the intricacies of the Fed accessible to listeners improving their business English, using clear explanations, humor, and context.

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Key Discussion Points & Insights

1. Recent Events Prompting the Topic ([01:08–03:19])

• The conversation begins with a lighthearted exchange about President Donald Trump’s visit to Japan and then shifts to a “hugely important” but underreported event: Trump’s recent nomination of a new Federal Reserve chair.

Memorable Quote:

“President Donald J. Trump was here playing golf with Prime Minister Shinzo Abe, and then afterwards, they sat down together for a nice steak dinner.” — Skip Montreux [01:45]

2. What Does the Federal Reserve Do? ([03:40–04:03])

• Two Key Roles:
  • Sets US interest rates
  • Controls money supply

Des Morgan explains:

“Basically, the Federal Reserve does two things. Firstly, it sets the interest rates for the US and secondly, it controls the supply of money.” — Des Morgan [03:52]

3. How Interest Rates Work ([04:05–05:16])

• The Fed attempts to control inflation by adjusting interest rates. If borrowing is too easy (low rates), demand and prices rise.
• Example: Housing market inflation when loan rates are low.

Contextual Dialogue:

“If more people want to purchase the same house, the price will naturally rise as each buyer is willing to pay more for it.” — Skip Montreux [04:47]

• Raising rates can slow the economy, so it's a decision with consequences.

4. Controlling the Money Supply ([06:01–06:54])

• The Fed manipulates the amount of money in the system through the buying/selling of bonds:
  • Buying bonds: Increases bank reserves, money supply goes up.
  • Selling bonds: Decreases money supply.

“The Fed buys back their own bonds from the large banks, the result being that the banks have a greater amount of money to lend out.” — Des Morgan [06:34]

5. The Evolution of US Central Banking ([07:02–11:06])

• First two US central banks: Each had 20-year charters—disbanded due to public distrust (seen as favoring big business).
• Free Banking Era (1837–1862): Banks chartered by states, many could issue their own currency (over 700 by 1862).
• Civil War Era: National banks backing currency with federal bonds, but instability remained.
• Creation of the Federal Reserve (1913):
  • 12 regional Federal Reserve Banks established, overseen by a single federal body, intended to balance regional interests. In practice, the New York Fed dominated.

Notable Quote:

“The idea was that the Federal Reserve banking system would not be too heavily influenced by the northern states and that all regions would have somewhat of an equal say in the monetary policy.” — Des Morgan [11:10]

6. The New Fed Chair: Jerome Powell ([12:03–13:34])

• Background: Powell had been a Fed Governor since 2012, former Undersecretary of the Treasury for President George H.W. Bush.
• Policy Stance: Expected to maintain continuity if the economy remains strong, but may differ in response to crisis — less supportive of unconventional measures like quantitative easing used after the 2008–09 financial crisis.

Insightful Quote:

“Powell...has been a strong supporter of Yellen as she has unwound the assets the Fed acquired in the crisis of 2008-2009. At the same time, he has since been critical of the unconventional measures taken by the then chairman, Ben Bernanke.” — Des Morgan [12:42]

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Notable Quotes & Moments

• “Managing the supply and value of money is a tricky business.” — Des Morgan [07:02]
• “Both [first and second US banks] were 20% owned by the government and 80% owned by big business. And the feeling among the people was that the banks were favoring its majority owners. Big business over the man in the street.” — Des Morgan [08:15]
• “No apology necessary. It would take more than the occasional flippant behavior from you to create any animosity from my side. I knew you were just teasing.” — Des Morgan [19:42]

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Important Timestamps

• [03:52] — What the Fed actually does (roles summarized)
• [04:37] — Example of inflation with housing market
• [06:34] — How the Fed manipulates money supply with bonds
• [07:16–10:59] — Brief history of US central banking
• [12:03–13:43] — Profile and expectations for new chairman Jerome Powell

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Business English Vocabulary Segment ([14:32–18:30])

The hosts break down five key terms from the episode:

• Flippant: Not serious enough for a serious topic
• Animosity: Bad feeling or ill will; example from Apple & Microsoft rivalry
• Disbanded: To break up an organization (historically, the first and second US banks)
• Man in the street: Refers to the average person or public
• De facto: In fact or reality, without legal recognition (e.g., “de facto support”)

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Episode Tone & Style

• The conversation is friendly, accessible, and occasionally humorous, making complex economic concepts easy to grasp.
• The co-hosts often joke with one another, using business concepts as relatable, teachable moments.

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Summary

This episode offers a practical and comprehensible overview of the US Federal Reserve—its function, history, and importance under new leadership—while also serving as a valuable resource for business English learners.

For any listener looking for a clear, conversational breakdown of American central banking and enhancing business-focused vocabulary, this episode delivers well-structured, engaging content.

Transcript

[A]

Hi, everyone. Skip Montreux here. Can I ask you to do me a small favor? We are currently conducting a D2B listener survey. We'd like to know more about our listeners. Who are you, what are you interested in, and how do you feel about down to Business English in general? I promise it is a very short survey and would only take a few minutes of your time, but will help us out tremendously in bringing you better content. To help you improve your business English, just visit our website@downto businessenglish.com and click on the D2B listener survey link at the top of the page. Thank you very much. Now, on with the show.

[B]

From Tokyo, Japan and Abu Dhabi, uae, this is down to Business English Business News to improve your business English with your hosts, Skip Montreux and Des Morgan.

[A]

Des Morgan, you will never guess who recently visited Japan on a trip through Asia.

[C]

I don't know. A listener from Europe came all the way over there to discuss recent news and how to study English with you.

[A]

Very, very funny, Des. But don't be flippant. Let me just say that it was not someone I know personally, although in a strange way, I feel as if I do know him. Mostly from TV news and through his Twitter account.

[C]

Could it be the US president, Mr. Trump himself?

[A]

It could. And it was. President Donald J. Trump was here playing golf with Prime Minister Shinzo Abe, and then afterwards, they sat down together for a nice steak dinner.

[C]

It doesn't sound very Japanese.

[A]

Well, no, it doesn't. Welcome to the Trump era.

[C]

Hey, I think I can guess the size of the president's steak.

[A]

What would that be?

[C]

Huge. You would think so, wouldn't you?

[A]

Yeah, sure.

[C]

Huge. Well, a hugely important trip anyway, given the recent animosity between the North Korean leader, Kim Jong Un, and the president.

[A]

Yes, absolutely. And of course, trade and economic talks are always a big deal when any US President touches down in Asia.

[C]

One thing you certainly could not accuse Trump of, and that's shying away from attention.

[A]

That is an understatement.

[C]

However, there has been one appointment that Trump made recently that's not gotten a huge amount of attention.

[A]

And which appointment would that have been?

[C]

The appointment of the latest head of the Federal Reserve bank, commonly known as the Fed. This is one of the most economically powerful positions in the world.

[A]

I think I did read a bit about that, but I have to admit, I don't know a great deal about the Federal Reserve System or. Or its new chairperson.

[C]

So let's do it. Let's get D2B down to business with The Fed, what it does, its history, and who its new chairman is.

[A]

Anyone who listens to any financial news, or any type of news really has heard of the Fed. But Des, can you tell us what does the Fed actually do?

[C]

Basically, the Federal Reserve does two things. Firstly, it sets the interest rates for the US and secondly, it controls the supply of money.

[A]

I see. Tell me more.

[C]

Let's look at interest rates first. The Fed's job is to control inflation, or at least that's what they say they're doing. If it's too easy to borrow money, prices will rise. This is because there will be stronger demand on things, because many people have money, or at least credit to make purchases. So this stronger demand causes product values to rise.

[A]

Can you give me an example? Sure.

[C]

Take the housing market. If it's cheap and easy to borrow money, more people will do so and be able to afford a house.

[A]

And if more people want to purchase the same house, the price will naturally rise as each buyer is willing to pay more for it.

[C]

That's correct. Supply and Demand101. Now, if the Federal Reserve decides that people are borrowing too much money, they should raise interest rates to slow down inflation. By making it more expensive to borrow money, they prevent demand from pushing the prices up.

[A]

I noticed there, Daz, that you said the Fed should raise interest rates. Why should?

[C]

Oh, I did, didn't I? The problem is, of course, that everyone is happy if their house is going up in value. And I guess the Fed chairman wants to be popular.

[A]

Are you saying that the Fed doesn't increase interest rates because they want to be popular?

[C]

No, not really. It's more complicated than that. But raising interest rates to curb inflation can backfire and slow down the economy too much and lead to even greater problems. It's not something to do lightly, but they have a second option to keep prices high without raising interest rates.

[A]

That would be controlling the money supply.

[C]

Yes, that's the Fed's other option. If they want to keep prices high, they can either lower or keep interest rates the same, or they simply need to increase the amount of money in the system. If you think about it, if there's a lot of money around, then prices will rise because there's more money chasing the same amount of goods and services.

[A]

And exactly how does the Fed accomplish that? I mean, what kind of action can they take to increase the money supply?

[C]

The Fed buys back their own bonds from the large banks, the result being that the banks have a greater amount of money to lend out. Conversely, if the Fed wanted to restrict the Money supply. They would sell the same bonds to remove the money from the system, and that is it.

[A]

Those are the two tools the Fed has to influence the US Economy.

[C]

They are? Yeah.

[A]

I thought it was a lot more complicated than that.

[C]

Well, managing the supply and value of money is a tricky business. Now, interestingly, this Federal Reserve bank is the third central bank that the US has had.

[A]

Really? What happened to the other two?

[C]

The First bank of the United States from 1791 to 1811, and the Second bank of the United States from 1817 to to 1836. Both only had a 20 year charter, so once the charter was complete, they were disbanded.

[A]

And after 1836?

[C]

From 1837 to 1862 was known as the Free Banking area, where banks were chartered by individual states and they could lend out money and even issue their own currency.

[A]

Huh. So each state had its own bank then?

[C]

Oh, no, Skip. There were way more banks than that. Get this. In 1800, there were 24 banks that had been chartered or approved by the different states. By 1862, there were over 700.

[A]

Wow. And somehow that was progress.

[C]

Well, the first two banks of the United States were 20% owned by the government and 80% owned by big business. And the feeling among the people was that the banks were favoring its majority owners. Big business over the man in the street.

[A]

Hmm, I see. So that is why the U.S. president at that time did not renew the second U.S. bank charter in 1836.

[C]

Exactly. President Andrew Jackson did not renew the charter for the bank, so it was disbanded.

[A]

Not to sound pushy, but can we move this along? 1836 is pretty much ancient history. How did the US get to establishing their modern Federal Reserve Bank?

[C]

Okay, we're getting there. Starting in the 1860s.

[A]

1860s, the 1990s.com bubble is ancient history to me.

[C]

Ugh, patience, Skip. Yes. Starting in the 1860s, to finance the Civil War, the federal government of the Northern Union states created national banks that were chartered by the US Government rather than by each state.

[A]

Well, okay, that sounds like a step closer to the federal banking system.

[C]

It was. And each of these national banks could lend money and create currency. The difference being that the currency had the de facto support of the US Government. But there was a small problem with this system.

[A]

And what was that?

[C]

The problem was that the currency each national bank issued was based on the value of U.S. treasury bonds. So if treasury bond prices declined, the bank had to either recall loans and or refuse to issue new ones.

[A]

Hmm. Not exactly ideal for a growing economy.

[C]

Not at all. The banks typically lent money to farmers in the planting season and then reclaimed the loan after the harvest. In the meantime, they had very little money left in reserve. If it was rumoured that a bank's reserves were too low, people might panic and try to remove all of their money, which the bank could then not supply.

[A]

Causing a run on the bank. Everyone trying to get their money out at the same time?

[C]

Exactly. With the resulting panic, that would be sure to follow. So, after 50 years of this, in 1913, the Federal Reserve was created.

[A]

Finally.

[C]

Well, you mean finally in the US or finally in my lengthy story, a little of both.

[A]

So what specifically happened in 1913?

[C]

In 1913, 12 Federal Reserve Banks were created and set up real regionally across the US they were overseen by a single federal body. The idea was that the Federal Reserve banking system would not be too heavily influenced by the northern states and that all regions would have somewhat of an equal say in the monetary policy.

[A]

I'm guessing from your tone that that didn't quite happen.

[C]

No, it didn't. The Federal Reserve bank of New York became the first among equals, so to speak, and had a much greater say on policy. In many ways, this influence probably still exists today.

[A]

New York, the home of Wall Street. Yes, you would think so, wouldn't you? So can we Fast forward to 2017?

[C]

On November 2nd, President Trump nominated Jerome Powell to replace Janet Yellen as the head of the Federal Reserve.

[A]

Jerome Powell, and what are his qualifications?

[C]

Well, he's been a member of the Fed's Board of governors since 2012, but before that, he was Undersecretary of the treasury for George H.W. bush.

[A]

Bush 41.

[C]

That's right. So he's certainly familiar with the financial system and the landscape.

[A]

And is anything likely to change in the Fed policy with his appointment?

[C]

The general consensus is that if the US Economy continues to slowly prosper, then not much will change. However, if the economy falters, then this is less certain. Powell, in his role as member of the Fed's Board of Governors, has been a strong supporter of Yelland as she has unwound the assets the Fed acquired in the crisis of 2008-2009. At the same time, he has since been critical of the unconventional measures taken by the then chairman, Ben Bernanke.

[A]

So you were saying that if the economy hits a problem, Powell may be less likely to resort to policies such as quantitative easing than his predecessors.

[C]

Some critics feel that this could be a weakness of Chairman Powell, while more conservative critics see this as a strength.

[A]

You can't please everyone.

[C]

You can't but maybe we can please some listeners by moving on to vocabulary.

[A]

Sure, let's do that. Let's get D2V down to vocabulary.

[B]

Down to business. English audio scripts are a great learning tool. Be sure to visit the D2B website and download your free audio script of today's podcast, DowntoBusinessEnglish.com. that's www.downtobusinessenglish.com.

[A]

I am going to start today's proceedings, but not very seriously, with the adjective flippant, which describes not being serious enough toward a serious situation or topic.

[C]

I hate to say it, Skip, but I'm kind of tired, so I don't want to finish the show.

[A]

Oh, stop being flippant, Des, and think of your responsibilities as a podcast host.

[C]

Oh, yeah, sorry. You're right.

[A]

In the show, I told Des to stop being so flippant when he made a joke about who had recently visited Japan.

[C]

And I did. Stop being flippant. Our next word is the noun animosity, which means a bad feeling or ill will. In the story, I mentioned the recent animosity between the US President and the North Korean leader.

[A]

It was always rumored that there was no love lost between Steve Jobs and Bill Gates. The animosity came when Gates worked on the operating system for the Apple and stole a lot of the technology.

[C]

Stole, Skip.

[A]

Yes, stole. Now, unless you want animosity between us, I suggest that you remember that Apple is the superior brand.

[C]

I do. I remember. Sorry.

[A]

Good. Next up is the verb disbanded, which means when a group or organization is broken up. In the story, Des explained how the first and Second Banks of the United States were disbanded. In other words, they were broken up or dissolved.

[C]

Hey, Skip, I heard that the Moose Jaw Ice hockey team were going to disband.

[A]

Oh, really? Where did you hear that? What about the Saskatoon Quakers? Did you hear anything about them?

[C]

Yeah, yeah, them too. Disbanding.

[A]

Really, Des? There's no such team as the Saskatoon Quakers. The team name is the Saskatoon Blades, and they are a very fine hockey team. Many of their members go on to play in the NHL. You had better not be joking about something as serious as hockey.

[C]

Sorry, I was just being flippant to the man in the street. Ice hockey is really not that important.

[A]

It is if that street happens to be in Canada.

[C]

I should explain. Our next expression is the man in the street. This refers to a normal person. In the story, when I said that President Jackson supported the interests of the man in the street, I meant he was supporting the regular people over the interests of. Of the rich.

[A]

I guess it is a bit of a sexist expression nowadays and probably would be better if we said the person in the street. But as we were talking about 19th century US history under President Andrew Jackson, the man in the street was more appropriate.

[C]

Okay, what's our next word?

[A]

Our final word today is the adjective de facto, which is Latin for in fact or in reality. This term is used to describe practices that exist in fact, even though they are not legally recognized.

[C]

In the story, I reported that the currency issued by the national banks had the de facto support of the US Government, even if the support was not actually legally stated. In other words, there was no law passed that proclaimed that the government supported the currency, although it was widely accepted and recognized that they did.

[A]

Do you know what the official language of the US Is, Des?

[C]

Well, of course it's English.

[A]

Actually, the US doesn't have an official language, but English is the de facto official language.

[C]

I think maybe I did know that. Do you know what else is de facto?

[A]

No, what's that?

[C]

Down to Business English is the de facto best podcast to improve your business vocabulary?

[A]

I would like to think so and I hope our listeners feel the same way.

[B]

Would you like to support down to Business English? Be sure to visit the D2B page in iTunes and subscribe to the show. While you are there, why don't you leave a rating and a comment. This will help D2B reach more people wanting to improve their business English skills. Down to Business English Business news to improve your business English.

[A]

Thank you Des for taking us through the history of the US Fed and explaining what it is they actually do.

[C]

My pleasure Skip. Sorry if I bored you a bit with all that history.

[A]

Not at all. I was just being a little flippant. My apologies.

[C]

No apology necessary. It would take more than the occasional flippant behavior from you to create any animosity from my side. I knew you were just teasing.

[A]

Okay, just before we finish up today, I'd like to remind our listeners once more to visit the D2B website and take our listener survey. So far we are getting a lot of great feedback on the show, but we would really like to hear from you too.

[C]

Yes, your input will help us bring you even better self study learning material to improve your business English. Just go to downto businessenglish.com and click on the D2B listener survey link at the top of the page.

[A]

We are looking forward to hearing from you. Thanks for listening everyone. See you next time.

[C]

Bye bye.

[B]

Have a comment or question about today's show? Don't be shy. Visit the D2B website or the Facebook page and post any comments, comments or questions there. Skip Des or Samat Bell will be sure to leave a Reply Want to get even more down to Business English? Sign up for the D2B Newsletter and receive updates on some of the stories covered on down to business English. That's www.downtobusinessenglish.com down to business English Business moves to improve your business English.