The Treasury & Fed’s “Symbiotic” Relationship
(Cross posted from Modern Monetary Realism):
It’s certainly not the most destructive myth in the USA (this is), but definitely one of the more pervasive ones – this idea that the Fed is entirely independent of the US government. But a new paper from the NY Fed sheds light on what they call a “symbiotic relationship”. A close look at the management of government funds during the financial crisis shows that this debate about independence is largely semantics. Operationally, the Fed is very much an agent of the government or as I often like to say – the other pocket in the same pair of pants as the US Treasury. But don’t take it from me. Take it from the Fed officials themselves:
“The U.S. Treasury and the Federal Reserve System have long enjoyed a close relationship, each helping the other to carry out certain statutory responsibilities. This relationship proved benefi cial during the 2008-09 fi nancial crisis, when the Treasury altered its cash management practices to facilitate the Fed’s dramatic expansion of credit to banks, primary dealers, and foreign central banks.
…Understanding the relationship between Federal Reserve credit policy and Treasury cash management is important because the relationship illuminates an important but sometimes unappreciated interface between the Treasury and the Fed. It also underscores the symbiotic relationship between the two institutions, in which each assists the other in fulfilling its statutory responsibilities.”
MMR views the world in a similar light. As an agent of the US government the Fed is essentially a partner in helping the US government achieves its objectives. In this regard it is very much a part of the US government. There’s no point denying it. Even the Fed knows this relationship is symbiotic and they’re explicit about it….
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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Cullen, this is off topic, but do you follow the CBO at all? I pulled this from a Financial Times link… http://www.cbo.gov/publication/42972. This sounds like an op-ed written by a political spokeperson:
“Over time, however, the proposals would reduce real output (relative to that under current law) because the deficits would exceed those projected under current law, and the effects of increasing government debt would more than offset the favorable effects of lower marginal tax rates on labor income. When the net impact of those two types of effects would shift from an increase in real output to a decrease would depend on various factors, including the impact of increased aggregate demand on output and the effect of deficits on investment. “
This is getting bookmarked for future “don’t take it from me, take it from the people involved” conversations.
Bernanke and Geithner clearly share membership in a very small club.
However, as the Treasury is part of the Executive Branch, while I believe the Fed’s authority derives from an act of Congress, could the Fed in theory be subjected to Congressional oversight (meddling, micromanaging) that could not be applied to the Treasury?
Both Fed and Treasury are subject to Congressional oversight. The Senate confirmed officers of each must testify before Congress when called. Congress can change the laws regarding monetary operations any way Congress sees fit to do so. All political appointees are subject to removal from office by Impeachment. The big difference between the Fed and Treasury is that the Fed has short term political independence, the Treasury does not. Fed governors have staggered 14 year terms and the Chairman has a 4 year term. They can be removed only be Impeachment. The Treasury Secy can be fired by the President at any time.
Are the federal reserve banks also subject to reserve requirements? Ie: when the treasury creates dollars and the dollars are ‘sold’ to NY Fed Bank, can they loan out everything, or do they have to keep 10%. I couldn’t find the answer online…
The Treasury does not create dollars. The Treasury issues bonds. The Fed creates the dollars which become bank reserves and which are used to purchase government bonds. The money used to buy the bonds is spent into the economy by the government. The Fed buys and sells government bonds in its open market operations as way of increasing or decreasing bank reserves (the money supply) in order to affect interest rates. Bank reserves are used as high-powered money, which is loaned out by commercial banks to you and me. One bank’s loan becomes another bank’s deposit. This deposit because another loan and so on throughout the banking system. The banks hold back a small amount as reserves. A single deposit can turn into about 10 times the amount of money. This is the multiplier effect. Before the Fed, the amount of money that could be created was limited, but the Fed added an extra layer of money creation for the entire banking system (a prime pump, if you will), allowing money to be multiplied even more than was possible before. The cash in circulation is a debt of the Federal Reserve. That’s why they are called Federal Reserve Notes (a note is a short-term debt obligation).
The Treasury mints and issues coins in accordance with Congressional mandates.
Specie is just about the only money that is both created by the government and does not represent a debt. But what percentage of the money supply is made up of coins? Irrelevant.
Up until August of 1973, the NY Fed had to exchange one ounce of gold for every $34 U.S. Dollars to foreign central banks. Then Nixon closed the “Gold Window” and ended the fixed exchange system.
“Understanding the relationship between Federal Reserve credit policy and Treasury cash management” … this is still vague enough that the average citizen doesn’t understand the implications. It’s like saying that yellow fingers and lung cancer seen in patient X is more than a coincidence explained by random probability. The real statement is more powerful and clear …
Nowhere in that statement is there any evidence that the Fed is part of the government. The Fed is NOT part of the government. The Fed IS a banking cartel that colludes with the government in return for having been granted the legal privilege of issuing the currency. Greenspan himself admitted this. He said that no one has oversight over the Fed. And presidents and politicians have also admitted they have no control over the Fed.
The Fed and the government are partners in a monetary system that benefits them both. The government gets to expand its funding via monetary inflation (which is also a form of tax) and the banks get to profit from that monetary inflation by issuing interest-bearing debt that can never be paid off.
Cullen, you’re an intelligent guy. But just because the idea that the Fed is part of the government happens to align with MMT is no reason to turn off your brain and pretend that it’s so.
The Fed was created by an act of Congress. Its Governors and Chairman are appointed by the President with the consent of the Senate. They are as much a part of the US Government as is the FCC, FTC, or SEC.
You’re joking, right?
No, he isn’t joking. The Fed is an independent branch of government. That is a fact:
“The Federal Reserve System is considered to be an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive branch of government. The System is, however, subject to oversight by the U.S. Congress. The Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government; therefore, the description of the System as ‘independent within the government’ is more accurate.”
http://www.federalreserve.gov/pf/pdf/pf_1.pdf#page=4
See pages 2 and 3.
Note the .gov website for the Fed.
You’re joking too, right?
It’s nice to have little fantasies of how government works. Yes, technically, the Fed is answerable to Congress. And they even put on a nice show once in a while to make ‘we the people’ keep believing that. Yes, the government does have the ultimate authority to shut them down if they so choose. It was, after all, created by an act of Congress. But that’s not how things actually work.
Just as an aside regarding the authority of Congress: Congress is also the only authority that can declare war. Take a look at your history and see how many military actions in the later half of the 20th century and early 21st century were actually the result of Congressional declaration, rather than Presidential prerogative. Simple, just don’t call them “wars.”
Anyone who takes a serious look at financial history and the recent GFC would realize that the way things actually work is not the way they are legally structured. Money rules. Bottom line. Therefore, those who control the money make the rules. That is, until the people wake up and try to actually change this.
Another aside: The Bank of Canada is technically a government institution, which was nationalized decades ago by the Canadian government. However, the government of Canada does not borrow money from the BoC. Rather, it relies on the commercial banks, just like in the US. Meaning, that even though the BoC is the bank of the people of Canada, in reality the commercial banks have control and the people of Canada, rather than borrowing money from the BoC at little or no interest, have to pay market rates of interests and now are saddled with a huge debt and high taxes.
Come on guys, don’t be no naive. Learn a bit about how the system actually works. Laws are one thing. Reality is another. Did you know that when Citi wanted to merge with Travellers, their merger was technically illegal. So they change the law, after the fact, and gave Citi an exemption.
No matter how they try to make it appear that the Fed is a government agency, the functional reality is quite different. Deal with it. If you don’t like it, try to change it.
You seem to really believe that the Fed is this entity designed only to benefit the banks and is colluding to ruin all of our lives. Look, I’m not naive about the fact that commercial banks rule the system, but to argue that the Fed is part of this big banking conspiracy is just flat out ridiculous.
When you understand how their operations are intertwined you can clearly see that the Fed and Tsy are essentially the same entity and that their operations could be seamlessly combined with a simple name change and act of Congress….Instead, we create this myth of independence to give the appearance that the Fed isn’t politically motivated….
I honestly can’t believe how misinformed some people on this blog actually are. Can’t make a case. No problem, just resort to ad hominem attacks and the tired old tactic of calling everything a conspiracy theory. I never said they are colluding to ruin our lives. C’mon, Cullen. Really? Oh, boy…
Of course the Fed and Treasury are intertwined. That’s actually the whole point. If they were not intertwined, their scheme wouldn’t work. They absolutely need the collusion of government. But to say that they are the same entity is, I’m sorry, a sad joke.
I’ll say it again. It’s a kind of partnership. The government gets to confiscate wealth from the people via monetary inflation, which is really just a form of hidden tax. Because monetary inflation erodes the value of a currency. So if the money supply grows 3% per year, it’s like a 3% aggregate tax. Remember, the only wealth (I mean real wealth, not currency) any government has is what it takes from its people.
The Fed, on behalf of the commercial banks, uses inflation to generate profits for the banks. Because the money comes first (inflation), and the wealth needed to collateralize the money comes after (hopefully), this creates an interest-bearing debt that reaps profits for the banks.
If the Fed was truly an agency of the government and not a banking cartel, the Treasury wouldn’t use the commercial banks as market makers for it’s debt. Since currency has no intrinsic value, the government could just create the money it needs and put into circulation, interest free. The money supply would be based on economic growth. That’s essentially how it happens now, only private commercial banks make what’s akin to a skim. Remember, a government does not need to market it’s debt like a corporation. It only does so because the banks have created a market for government debt. To them, it’s just another produce to make a profit from.
And I’m not against central banks. Central banks provide many benefits (clearing system, standardized national currency, etc.). But the current monetary and banking system is heavily skewed toward benefiting the commercial banks. The Fed was the agency they needed to insinuate themselves into a position of privilege with the government so that the system can be set up in such a way as to benefit them the most. Again. Money rules. Has always been this way.
BTW, the main privilege that I alluded to is the legal privilege to manage the nation’s currency. There’s a helluva lot of power that goes with that, as anyone whose studied financial history would know. The commercial banks essentially rigged the system to work in their favour. And the Fed is how they did it. They could not have done it without the Fed. Classic cartel dressed up to look like an agency of the government. Hell, the president even appoints the Chairman. Like it really matters who he appoints.
Actually and ironically, since you are the source of misinformation on this blog, you do have an idea of how misinformed it is.
Let me guess, thou hast dranketh from the well of wicked lies by these types?
http://www.amazon.com/The-Case-Against-Murray-Rothbard/dp/094546617X/ref=pd_sim_b_5#_
Time for your reeducation, and it started with this article as well as the additional bits of info I added.
Now like an honest person, I’d like to see you write the following and mean it: “The Federal Reserve is a government agency.” Come on, that shouldn’t be too hard to admit. Admit you were wrong. Since you are concerned about the truth, that shouldn’t be a problem. You’re not going to get to weasel out of this one with your red herring fixation on the Fed’s motives, how it allegedly operates, and value judgments about the actions they take. These issues are irrelevant to whether they are a government entity or not. Whether they are good guys or bad guys, whether they are to be loved or hated, the Fed is a government agency, period.
As if the litmus test for an entity to be a government agency is to have good moral values, only ever engaging in what’s in the public’s best interest…
For goodness sake, you wouldn’t think there would be an argument over something so petty and simple. I don’t know what it is about economics. People turn it into Christianity’s redheaded step child with their little cults and cliques. The only thing we need to concern ourselves with is the truth value of propositions.
You’ll recall you began your correspondence by suggesting, “Nowhere in that statement is there any evidence that the Fed is part of the government. The Fed is NOT part of the government,” thereby demonstrating you didn’t know what the hell you were talking about. The truth value of the statement “The Fed is NOT part of the government,” is false. There’s no question about this. You want to distract from your former claim and try to save face by saying, “Well I was referring to the Fed’s value to the public…” Uh huh…
And in Cullen’s defense, he made no ad hominem attack anywhere. There isn’t a hint of name calling. You’re bearing false witness, and that calls for medication or some Sunday Jesus. In either case, if you can’t be honest, I don’t imagine anyone will mind if you move on to “more informed, more honest” blogs. Might I recommend Peter Schiff’s? You’ll be received with open arms with that “honest” bunch.
And by the way, the case that was never made was the semitruck you never saw coming. It seems you’re still trying to figure out just what happened. “It’s okay son, you were run over, but you’ll survive.” And hopefully with a more informed future.
The Fed Chairman said this during his recent college lecture series a little over one month ago:
“So this is our topic today is origins and missions of the Federal Reserve. So let’s talk in general about what a central bank is. If you’ve had some background in economics you know that a central bank is not a regular bank, it’s a government agency, and it stands at the center of the monetary and financial system of a country.”
http://www.federalreserve.gov/mediacenter/files/chairman-bernanke-lecture1-20120320.pdf
Thanks to Matt Franko for hunting that down.
I don’t intend to argue with someone who holds his beliefs as unfalsifiable. The Fed is a government agency, period. There is no grey area, there is no debate, it is an empirically verified fact.
Leave the paranoid ghost stories in the refrigerator with the cool-aid, and try some truth for a change.
Come on. The Fed hands over 95% of profits to the US Tsy. You make that sound like some grand bargain for the Fed as if it’s raping and pillaging the US citizens. Sure, the banks get some benefits from this partnership, but so do us all. We get a functioning payments system….
Fascinating that such an arcane topic can invoke any emotional response! Of course the fed is part of the treasury. The whole point of money is to maintain a stable and steadily increasing amount of it to maintain a stable and steadily increasing rate of aggregate demand without exceeding the structural capacity of the economy.
Nice theory.
First argument I usually get is the o’l “It Says FEDERAL RESERVE NOTE right on the bill.”
At least they’re upfront about it. But here’s a question for you: What did it say on the nation’s currency BEFORE Federal Reserve notes? Here’s a hint: It had the words “United” and “States.”
and the words United and Sates is still on the US Dollar it also has the seal of US Treasury on it as well
I am not surprised when one appoints political hacks like Greenspan, who has a spine made out of jelly.
http://treasureislands.org/michael-hudson-the-man-who-once-fired-alan-greenspan
And the FED + US government are bought and paid for by Wall Street.
http://www.washingtonpost.com/wp-dyn/content/article/2008/02/13/AR2008021302783.html
http://www.globalresearch.ca/index.php?context=va&aid=8376
So here it is from the Fed’s own maw. Allow me to parse their double-speak:
“The Federal Reserve System fulfills its public mission as an independent entity within government. It is not “owned” by anyone and is not a private, profit-making institution.”
Very clever. Because the Federal Reserve System is not a bank, but a system. So they are saying that no ones owns the agency that oversees the member banks. In other words, it’s a meaningless claim. It’s like asking, who owns OPEC?
“As the nation’s central bank, the Federal Reserve [Note the removal of "System"] derives its authority from the Congress of the United States. It is considered an independent central bank because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government, it does not receive funding appropriated by the Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms.”
So Congress passed a law back in 1913 that made the creation of the Federal Reserve System possible. But once they got the keys to the kingdom, the banks locked the doors and said, “Go away and don’t bother us.” Those who say that Congress has some kind of authority over Fed actions should note that the “legislative branch” referred to above IS Congress (House of Reps and Senate). Also, it is not funded by Congressionally mandated appropriations. Really? Not even via a black budget? Congress dictates the funds of all government agencies don’t they?
“However, the Federal Reserve is subject to oversight by the Congress, which often reviews the Federal Reserve’s activities and can alter its responsibilities by statute. Therefore, the Federal Reserve can be more accurately described as “independent within the government” rather than “independent of government.”
You can oversee us, but you can’t actually do anything, save for maybe pass the occasional amendment. So in the 30′s they created the FOMC. And in the ’70s’ they directed the Fed “to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.” What balls! But anyway, how’s that been working out? First, what is “maximum employment?” Second, “stable prices”? What a sick joke that is. How can prices be stable when the currency loses almost all its value under the management of the Fed? “Moderate long-term interest rates’? Check interest rate history in the US to see just how well they’ve been moderated. Now, go ask your Congressman, or any Congressman on a banking committee or sub-committee how much access they have to the Fed, its books, etc.
“The 12 regional Federal Reserve Banks, which were established by the Congress as the operating arms of the nation’s central banking system, are organized similarly to private corporations–possibly leading to some confusion about “ownership.”
Organized similar to private corporations? The first crack in the facade?
“For example, the Reserve Banks issue shares of stock to member banks.”
Now as far as I know, in every case where members have shares of stock of an organization, that means one thing: ownership. In cases where members are not owners, such as a club, members do not get shares, they pay dues.
“However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System.”
Could this be akin to the dues I mention above? But wait, the members own stock but not a piece of the actual enterprise? Then why issue stock? Also, if the Fed is part of the government, isn’t it kind of strange to own shares in a government? Hey, can I buy shares of Congress? I hear there’s good money in Congress.
“The stock may not be sold, traded, or pledged as security for a loan;”
So what? Savings bonds and many other investment assets are not marketable. That does not by any means preclude ownership. Besides, there are very good reasons why shares in Fed banks should not be marketable. At least they got that part right.
“…dividends are, by law, 6 percent per year.”
Ah, there we go. So, the reserve banks are not operated for profit, yet they do pay “members” a dividend.
But the real benefits of ownership comes not from any direct gains from the Fed itself. But from being a member in a system the Fed controls on behalf of the banks, but in collusion with government. Pay the Treasury it’s tribute. Who cares? The banks make their money from loans, which come from money the Fed creates out of thin air for them. Helluva system. Can I join?
Now the real facts. Last year member banks earned a grand total of 1.5B in dividends – that’s for ALL of the member banks….The Fed paid 79B (SEVENTY NINE OR FIFTY TWO TIMES THE AMOUNT OF DIVIDENDS PAID TO MEMBER BANKS) to the US Tsy last year. So let’s keep things in perspective. Now, does the Fed operate through the banks and have a responsibility to sustain a healthy banking system? Of course. But it’s not some great conspiracy theory….
Now the real facts? You speak as though you are accusing me of making it up. That text came directly from the Fed itself.
As for the amounts paid to the Treasury vs. dividends to the Fed bank owners, I addressed this in my comment. The real benefit of being a member bank comes from collectively controlling the issuance of currency in a fractional reserve banking system.
The member banks, under the auspices of the Fed, issue the very money from which they reap their own profits. It would be like me counterfeiting money in my basement and loaning it out at interest. I pay the police off to let me keep doing it. What do I care, it’s all free money anyway!
The tribute paid to the Treasury is a small piece of the action, compared to how much the banks collectively make in the markets. Here is an article from Felix Salmon which touches into this very issue: http://blogs.reuters.com/felix-salmon/2011/03/30/chart-of-the-day-us-financial-profits/
Does the Fed try to sustain a healthy banking system? Of course! That’s their NUMBER ONE priority. That’s what a cartel does. It protects its members’ interests.
Does this have benefits for the public? Of course. A well functioning banking system is vital to an economy. But a private cartel that controls the nation’s currency is not. That’s not a conspiracy, no matter how hard you try to label it so.
I accused you of no such thing. I am just trying to put things in perspective.
So what’s your solution? Should we nationalize the banks and eliminate the private profit seeking motive involved in the business? Honestly, I’d be interested in your perspective here. Thanks.
Not at all. But this is an enormous problem because the monetary system is fundamentally corrupt. It puts the creation of money before the creation of wealth. Therefore, the primary element is debt.
The banks use this debt to take wealth from the people. That on its own is not wrong per se. I am not against the issuance of credit. Credit is vital to economic expansion. But in our current system, the banks get to create the very money which is the source of their profits. In order for the system to keep functioning, the banks must continually create more money than the economy needs at a faster and faster pace––which is monetary inflation. This is why the Fed will do anything to prevent monetary deflation. The banking system would collapse.
If credit actually came from savings, rather than the creation of new fiat money/bank reserves, the money supply could grow in line with actual productivity, rather than productivity always trying to keep up with money creation. We would have more stable prices, more predictable currency values, and likely a more sustainable economy that relies less on continuous exponential growth and all the environmental problems that causes.
Now there are many entities that extend credit which is based on money already in circulation, but they are eclipsed by the power of the Fed and its member banks.
But let’s say you don’t want to change our debt-fiat money system. At least get the private banks out of the market for government debt. It’s simply not necessary, and it causes a huge untold burden on the tax payers. Some people claim we would not even have a federal income tax were not for the Fed and its system which is largely responsible for the national debt.
Let the government issue its own currency, not for the profit of private banks, but for the benefit of the people. Instead of paying banks interest on its own money, the government should use it all to create and maintain the foundations of the economy (infrastructure, research, etc) and to fund its operations. We would need strict controls, but history has shown that allowing private banks to intermediate the market for government debt has simply not achieved the kind of restraint it was supposed to in theory.
Let the banks freely operate (with proper regulation) in the private debt markets. Let them extend business loans and mortgages and car loans, etc. Let them charge market rates of interest and make money like any other business.
Have a central bank to manage the monetary and financial needs on the national level (e.g. national currency, clearing system, etc). But make it a true agency of the people, and use it to fund the governments needs at little or no interest.
In short, keep the banks out of government and let the banking system operate like any other industry. Maybe instead of debt money they would have to go to a “one dollar of capital” system where they would actually have to have the money they lend before they lend it.
I think such an approach as described works within the context of MMT.
Now, this issue is far greater than can be properly discussed and fleshed out here, but the bottom line is, the government should take control of its money on behalf of the people and use its spending and taxing power for the people first. Not the banks.
but the Fed does not control the The US dollar nor does it print it The US Treasury prints and contorl the money winch just like the Fed is part of the US Govrnment please stop drinking the kool aid
Did the discussion about the role/ownership of the Fed and the Treasury go in a circle?
@Ing Inv:
“I never said they are colluding to ruin our lives.” “The Fed IS a banking cartel that colludes with the government” “They absolutely need the collusion of government”
Saying “no collusion” followed by using the word “collusion” does not clarify your points..
“If they were not intertwined, their scheme wouldn’t work..”
SCHEME implies something not for out benefit.
“Greenspan himself admitted this. He said that no one has oversight over the Fed. And presidents and politicians have also admitted they have no control over the Fed.”
“Yes, the government does have the ultimate authority to shut them down if they so choose. It was, after all, created by an act of Congress. But that’s not how things actually work.”
Another pair of opposites: Actually courtesy of Ron Paul, congress DID at least partially require the Fed to answer to congress via an audit. It’s just that Congress has to have to cojones or the understanding to do so…
con·spir·a·cy/kənˈspirəsē/Noun: 1.A secret plan by a group to do something unlawful or harmful.
2.The action of plotting or conspiring.
car·tel/kärˈtel/Noun: 1.An association of manufacturers or suppliers that maintains prices at a high level and restricts competition.
2.A coalition or cooperative arrangement between political parties to promote a mutual interest.
Conspiracies and cartels share things in common, so there can be much discussion/confusion regarding the use of these words. The FED’s secrecy has not been to its credit, tho’ seeminly the Bernanke wants to telegraph his policies much more plainly that Sir Alan ever did.
To me, the question you are raising is..to whom is accruing the benefit of central bank policies?
Is the FED an evil system at its core in that it serves only the big commercial banks, or is it a gov’t institution that can be swayed/corrupted by power seeking people just like Congress, or the courts? I don’t agree that Jeff Emmelt who once advocated that GE could be best served by having NO american laborers, should become a top presidential adviser. Nor am I so sure that Goldman-Sachs should seemingly rotate so many people in and out of top gov’t economic and financial institutions. And if you’ve spent time hanging out at this site very long, you’ll know that Cullen has railed against TBTF and the financialization of our country to its detriment (FIRE industries including the banking system).
Who controls the money supply of this country has been an issue ever since our country’s foundation. The bankers went apes**t when Lincoln created the greenback cuz they wanted to lend to the US gov’t at 36% per annum.
I hope you can continue your discussion civilly and with greater clarity.
best,
rhp
Your analysis is rather semantic, but I’ll play along.
• Just because they are in collusion, does not mean the objective is to ruin the lives of the people. They are colluding to serve their respective interests. The idea that they’re objective is to ruin the lives of the people was an inference by Cullen. I never said that.
• Scheme does not necessarily imply something contra beneficial. However, I doubt the bankers had the benefit of the masses in mind when they planned the Fed.
• The oversight I refer to is in regards to their operations. Congress can’t tell the Fed what to do with regards to monetary policy, OMOs etc.. But, they do have the power to change the laws that govern the Fed’s mandate, or even abolish the Fed altogether. But, that’s speaking technically. In reality, I’m sure they actually do what the bankers “tell” them to do. Do you really think it was Congress that wanted to establish the FOMC? I doubt it.
• Much of the confusion about the Fed stems from the fact that the Federal Reserve System has both elements of government and private enterprise. It is not a monolithic institution. There is the Board of Governors, the Federal Open Market Committee, the various Reserve Banks, etc. etc. No one owns the Federal Reserve System. But private commercial banks do own the Federal Reserve Banks. We are not talking about a government agency that has been somehow taken over by private interests. It was set up by private interests with the help of a few key politicians.
he core of the System is the Reserve banks, with the New York bank holding the reins. These banks are owned by private commercial banks. What other part of the federal government is owned by private interests, or anyone for that matter except we the people? None that I know of. That’s because they are not part of the government. The System simply has a layer made up of a government appointed body. But that’s not where the real power lies. Jamie Dimon reaffirmed this fact just recently when he upstaged the FOMC, forcing them to release the results of their recent stress tests early. Who controls whom?
The brilliance of the Federal Reserve System is that it was set up all along to look like an agency of the government because the people of the United States had a deep mistrust of private central bankers after their experiences with the First and Second Banks of the United States. They wouldn’t call it the third Bank of the United States. They wouldn’t even call it a bank. They gave if some obscure sounding name: The Federal Reserve System. What branch or agency of government do you know of that is called a “System?”
I honestly don’t understand why some people cannot reconcile the fact that just because the Fed required a legal mandate from the government, that it is not a government agency. If I was a banker, and I wanted the government to grant me the privilege of controlling the nation’s currency, I would most certainly want them to pass a law making it so. The more laws the better. That way if anyone challenged my authority, I had the law and the imprimatur of government to back me up.
That said, the ultimate authority still rests with the government. Until the banks create their own armies, it always will. But the government (read, we the people) have to actually exercise that authority. Just because it’s written on a piece of paper, does not make it so in reality. But money, as the old saying goes, is power. And so, the banks run the show. And they don’t even have to tell you how they do it. Government indeed.
One more thing:
I have great respect for the work Cullen is doing on this blog. I agree with much and disagree with other stuff, but that’s besides the point. In no way are my comments intended for any other purpose but to engage in mutually beneficial, edifying discourse with like-minded individuals who give a damn about such matters covered herein.