Thursday, December 3, 2009

What Exactly Is The Federal Reserve?

The Federal Reserve or the "Fed", as it is more commonly known, was established in 1913.  It acts as the central banking system for the United States.  It is further divided into 12 district banks.

The Fed was created in order to accomplish the following: 

- conduct the management of the nation's money supply with the objective of price stabilization
- supervise banking institutions in order to ensure their soundness
- maintain stability of the financial system
- provide financial services to a variety of financial entities, such as banks and the United States

Sounds like they've done one hell of a GREAT JOB!

In fact, prior to the Fed's creation, consumer prices remained virtually stable.  Since 1913, the dollar has lost 97%, or so, of its value!  Our banks are a complete mess BECAUSE of The Fed and its utter mismangement of interest rates and creation of asset bubbles. Maintain stability of the FINANCIAL SYSTEM?  Uh-huh!

What most people DON'T realize, is that the Federal Reserve is very likely privately owned.  Now, in fairness, I can't prove this because the Fed is shrouded behind an incredible cloak of secrecy.  But, it CAN be proven that its 12 district banks are, as was the case in 1982, when a judge ruled so in  "John L. Williams vs United States of America".  So, it's logical to conclude that the Fed itself is privately owned.

The owners of the FED are believed to include some powerful entities, such as Goldman Sachs (GS).  Isn't it a wee bit coincidental that employees of this firm are constantly given senior government positions, like head of the Treasury, while departing senior government advisors are given lucrative positions at GS?

Finally, its important to point out that the Federal Reserve refuses to be audited.  In fact, Fed chief  Ben Bernanke has repeatedly warned of "catastrophic consequences" if one were to be conducted.  Given their  obvious ineptitude, it isn't too tough to speculate as to why.  The only conclusions I can draw are that either they are trying to cover up their ineptitude or, more likely, they have been involved in some nefarious activities. 

Ron Paul has introduced legislation to audit the FED. This legislation has a very high level of bi-partisan support.  However, the slowness of Congress and the unfortunate influence of a handful of congressmen has, so far, precluded the audit.  Nonetheless, I believe it ultimately WILL occur.

Thanks for reading.  I really appreciate comments, pro or con.  And, I hope you found this informative.

Marko's Take


  1. I arrived here via Boxer - great site. Have you read The Creature from Jekyll Island? My cousin, an anarcho-capitalist, send copies to everyone in our immediate family years ago. To almost everyone, the gift was akin to getting, say, a bag of concrete in the mail :o). I think I was the only one who read it. Even if one isn't a conspiracy theorist, the book is still a great history and a real eye opener.

  2. Hi Moi: (or should I say Tu or Vous?)

    Thanks and yes, I have heard of the book but not yet read it. It has been highly recommended. Just this morning, Senator Jim Bunning of Kansas delivered the most damning speech on the Fed and Ben Bernanke I have ever heard. It's on his website and I was blown away buy the grasp he showed of the Fed's utter incompetence and the guts he had to deliver what we all know is true in the first place. Finally, I love a great conspiracy theory, so I would get the book for that reason alone!

    Best, Marko

  3. Marko, you've encouraged me to give you honest and constructive feedback on the blog. I've read a number of things you've written over the years going way back to HLHZ, which I've enjoyed, and you know I think you are a very good writer. Having said this, I did not care for this piece on the Fed, for several reasons.

    First, you've reached your conclusion "Sounds like they've done one hell of a great job!" assuming that you don't need to make a case for this obviously sarcastic conclusion. Maybe the Fed has done a poor job, but it is incumbent on the writer to make a convincing argument. You may say that it's painfully obvious, however, that is also what Al Gore and his followers said about global warming, who very early on proclaimed that "The debate is over." Au contraire. Not only should you make a convincing case, but you should distinguish between the job the current Fed is doing versus the job past Fed chiefs/governors have done, so as not to implicate the entity, but rather those who set the Fed's policy. For instance, were all the Fed chiefs incompetent or corrupt, or are you talking principally about Bernanke, or Greenspan, or both? Would you throw Paul Volcker into the same boat? Now, I suspect you could make a compelling argument implicating the current and immediate past Fed chiefs (among others), citing (a) their easy money policies and linking these policies to the housing crises and (b) the alarming rate of increase in bank failures, etc. (You allude to the former point in the next paragraph when you mention the mismanagement of interest rates.)

    Next, the 97% drop in the value of the dollar in concerning, all right, but if we're going to go back almost 100 years, wouldn't you expect the value of the dollar to decline substantially - even if our monetary policy was managed prudently? I'd be interested in knowing what you think is a reasonable drop in the dollar's vaulue over a period of 96 years. Or, better yet, take the value of the pound, franc, lira or other currencies of industrialized nations over the same time period. Maybe we'd find that these currencies have dropped similarly - or not. Frankly, I don't know. But such a comparison would give perspective to your argument.

    Also, if we had price stability and a "reasonable" number of bank failures since the last financial crises (the S&L crises), does the Fed deserve any credit for the 20+ years of unprecedented wealth creation in this country? Maybe and maybe not. Just throwing out the question because I think your readers might be interested.

    That the Fed may be privately owned is of concern, but where do we go from here if it is, in fact, privately owned? In other words, would the Fed more appropriately be owned outright by the Federal government, or a quasi-private entity? Should the chief's appointment and/or oversight be something different than what it is? I think so because his appointment by the President poses political conflicts for the Fed chief which could interfere with sound policy decisions. (Not that the Fed's congressional oversight is without political conflict, too.)

    I agree that the Fed's adamant refusal to be subjected to an audit is, in and of itself, an indictment. Ditto for its overseer, Mr. Frank, who is also bound to look bad (along with Bernanke) if any improprieties are found.

    Marko, my comments are intended to make your future articles even more informative. Another way of thinking of all this is to assume you are not only reaching similar minded conservative or independent readers, but also liberal Democratic readers, who may not give you the benefit of your assumptions. Give them evidence and then give them well thought out conclusions, supported by that evidence. Even if they don't agree with you, I think you will gain credibility and traction - now and in the future. Louis

  4. Louis:

    First off, I want to thank you for putting all the effort that you did by writing such a thought-provoking response. For the sake of brevity, I'm unable to cover topics like the Fed completely, or my essay would turn into a virtual novella!

    One thing that needs to be kept in mind is that NO ONE really knows much about the Fed. All we can do is make educated guesses.

    It's virtually impossible to make any convincing argument since the Fed refuses to be audited, denies access as to the employment of bailout funds and the mechanisms it employs in free-market interferance.

    As to price inflation, I have very detailed records of inflation going back 200 years! And prices were fairly stable during that entire period UNTIL the creation of the FED.

    Do I think the FED deserves some credit for the 20 years of wealth creation? No. In my opinion, the wealth creation was a by-product of our demographic structure. During the period you speak of, "household formation" was booming and, as a result, so did our economy and the resulting good fortunes. I wrote about that very topic in yesterday's blog called "Baby Boomer Bust".

    I believe Paul Volcker was the absolute best Fed chief we've ever had. I only wish his age would allow him to occupy that post again.

    My intent was not to demonize the Fed. My intention was to raise questions when ANY entity refuses to open it books.

    To my knowledge, the Swiss Franc has been quite stable for an extended period of time.

    As to the alleged private-owner status of the Fed, I can't convincingly make a case as to its relevance. If the Fed, as a whole, has nothing to hide then I might have an entirely different perspective.

    The very point of this blog is "free speech", and the sharing of ideas.

    Thank you again, Louis for such a remarkable response and allowing me the opportunity to address some of your issues contained in my essay.

    I look forward to hearing any comments that you might have in the future in regards to this, or any other subject I write about.



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