What is the Federal Reserve? Is it a public entity that works for the government? Or is it a private entity that works for the banks (entities who serve one master and one master only – their owners)? You’ll get very different answers depending on who you ask. In one sense, the Fed exists to help serve public purpose by trying to steer the economy in a way that helps generate full employment and price stability (of course, things don’t always go as planned).
As I’ve explained previously, the primary purpose of this entity is actually to stabilize the payments system through the existence and oversight of the interbank market. It also serves the government through its symbiotic relationship with the US Treasury. On the other hand, the Fed’s very existence is designed as a support feature to the banking system. That is, the Fed works through the banking system and can only enact policy by directly supporting private competitive banks. So the Fed is a slave to the banks. But what does this make the Fed?
As we see the Fed shoot down the trillion dollar coin this becomes an increasingly intriguing question. According to Zeke Miller:
“it was the Federal Reserve that killed the proposal, the official told BuzzFeed, denying a purely political rationale for the announcement, saying the independent central bank would not have credited the Treasury’s accounts for the vast sum for depositing the coin.”
The most interesting thing about the coin idea is that the biggest threat of the coin was to the existence of private banking. I am actually surprised that a major bank hasn’t come out very publicly stating that the coin was ridiculous. Why? Because the coin exposes a potentially enormous change in the way the US monetary system functions. Instead of having a money system that is designed almost entirely around private banks (who issue most of the money) the coin threatened to expose the reality that government could self finance if it wanted to. In other words, the government could become the permanent primary issuer of money (as opposed to choosing to use private bank money).
So the Fed’s role is of particular interest here. And we must again ask ourselves. What is the Fed? Is it a public entity or private entity? It’s a bit of both. The Fed is a strange sort of hybrid public/private entity. But the coin decision has to make one wonder where they stand on this issue and whether the Fed has imposed its will on a potentially important debate. Is this merely a case of the Fed being apolitical and independent? Or is this a case of the Fed siding with its true master – the private banking oligopoly? I don’t know, but one thing we know for sure is that the Fed is not merely serving public purpose at all times. After all, its existence as a support feature for an oligopoly that serves private purpose (banks are slaves to their owners) renders the Fed compromised on public purpose to some degree.