True. The Fed conducts a mix of essential and non-essential operations: some of their regional research staff could also take a few days off without great harm. The trading desk / discount window should stay open though.
Moderator Note
Hellestal, let’s dial it way back. This level of snark isn’t warranted in GQ.
So maybe it doesn’t warrant this level of argumentativeness?
Colibri
General Questions Moderator
Tone aside, properly characterizing the Fed’s niche in the Federal government isn’t purely a matter of pedantics. Congress has ceded a great deal of independent authority to the Federal Reserves, powers they can yank away at any time. Saying it’s a quasi-governmental institution like (perhaps) Fannie Mae or Freddie Mac encourages calls to eliminate the Fed’s independence and fold it into the Treasury, like Britain did during the inflationary 1970s. Hey, there’s an argument for it.
But such arguments should be grounded in reality. It might be a good idea to take away power from the technocrats, or shift the mix of decision makers. But it’s dangerous to do so on the basis that the technocrats are cats paws for the big bankers, if that claim is buttressed by irrelevant peculiarities of the Fed’s formal structure. Discussion of revolving doors is different: at least such claims can be evaluated on a factual basis.
Look, some of what the Fed does can be ugly. Reasonable people (eg most of their staff I would guess) can say they’ve been misguided in the past. But in this case bad terminology can encourage red herrings.
Ok, here’s another POV, from the St. Louis Federal Reserve. Here’s some background though. The Federal Reserve System was created in 1913. Monetary policy is set in Washington DC by the Board of Governors, most of whom are appointed by the President and approved by the Senate. Monetary policy is implemented by the New York Fed.
The Fed has 12 regional branches, somewhat confusingly called Federal Reserve Banks. No, they don’t take deposits and they don’t issue bonds. They do regulatory work and have their chiefs sit on the Board of Governors on a rotating basis. Their research staff submits regional reports to the Board of Governors.
Anyway, here’s the St. Louis Fed’s characterization:
[INDENT][INDENT][INDENT] Who Owns Reserve Banks?
The Federal Reserve Banks are not a part of the federal government, but they exist because of an act of Congress. Their purpose is to serve the public. So is the Fed private or public?
The answer is both. While the Board of Governors is an independent government agency, the Federal Reserve Banks are set up like private corporations. Member banks hold stock in the Federal Reserve Banks and earn dividends. Holding this stock does not carry with it the control and financial interest given to holders of common stock in for-profit organizations. The stock may not be sold or pledged as collateral for loans. Member banks also appoint six of the nine members of each Bank’s board of directors. [/INDENT][/INDENT][/INDENT] I’m not entirely happy with that take – Fed salaries are more governmental than private sector for example-- but I won’t argue with St. Louis.
What’s perplexing about this thread is that the same points get made, repeatedly, again and again.
That’s not “another POV”. It’s the same thing again. That the 12 regional Fed banks are independently chartered, and can be considered “private”, is specifically mentioned in Post 7. It’s also mentioned in 6 in the cite from the Oklahoma Historical Society. Looking again, I’ve actually done that particular cite a disservice because every word posted here from that cite can be considered literally accurate.
The problem is the interpretation of what that means.
It was falsely claimed, on the basis of that cite, that the Fed is not a government agency, “not a part of the government”. Which simply isn’t true, as Post 7 explains: The Board of Governors of the Federal Reserve, where the authority and decision-making apparatus of the Fed lies, is a government agency. So what is the “Federal Reserve”? What are people talking about when they’re talking about “the Fed”? What are people like the OP talking about when they’re talking about the Fed controlling the US monetary supply, influencing interest rates, steering the nominal US economy, etc.?
When people talk about the powers of the Fed, they’re not talking about the 12 regional banks. This is in the same sense that when people talk about the US Air Force, they’re not talking about Lockheed Martin or Boeing manufacturing the planes. Private companies build the equipment of the US military, but the military itself is part of the government. The 12 regional banks build the administrative warplanes of the Fed, but the Fed itself – meaning the authority to practice the monetary policy of the nation, as decided by the Board of Governors, which is what people are actually talking about when they’re talking about the Fed – is still part of the government. It’s a government agency. The Federal Reserve that’s in the news, the one that is changing interest rates, buying assets with newly conjured money out of nowhere, administrating the monetary policy of the US, is part of the government.
That is the plain and simple GQ answer of the thread, as has been noted here since at least Post 7.
And there is simply no excuse for polluting a GQ thread with misinformation on that point, or any related points about the funding of government agencies in general. This is the place for factual answers, no matter how “unpleasant” those facts. If the 12 regional banks are to be considered “private”, which is fair enough as also previously mentioned, then it needs to be pointed out (again) that they’re not “private” in any usual sense of that word. Nationally chartered banks do not have a choice about buying shares in their regional bank. They are required by law to buy those shares. Unlike the shares of any other typical private company, the shares cannot be sold, cannot be traded, cannot be pledged. The shares must sit, forever, on a bank’s balance sheet, doing nothing. In addition, these “private” regional Fed banks must, according to federal law, pay precise dividends on a legally specified formula. And in fact, Congress recently changed the legally mandated formula that the regional banks must pay to their shareholder member banks. The new formula for paying dividends, mandated by Congress, reduces the dividend paid to larger banks. (Congress reduced the dividend to free up money for highway funds. A lower dividend means lower operating costs, which means the Fed remits more money to Treasury which can be used to pay for other things.)
Congress does not generally tell Apple or GE or Nike what their dividends must legally be. But the 12 regional banks have no such freedom. So are they “private”? Sure, if people want to consider them private. They are legally independent institutions, chartered separately from the agency in DC. But even the 12 regional banks sure don’t act like private banks in any usual sense.
And to say it again, the main decision-making apparatus in DC is not private in any sense whatsoever. It is a government agency, and it is this agency which decides the monetary policy of the US, not any of the 12 regional banks.
The reason this is all legally so confusing is history. The Bank of England? It was a private institution until just after World War II, when it was formally nationalized. The first and second Banks of the United States? Private institutions with 20-year charters, which were allowed to expire. Central banks were historically private institutions, which worked closely with the government. And when the Fed was created near the beginning of the century, it was created as 12 separate privately chartered banks, just like the other central banks in history. But just as the Bank of England was nationalized, the US Congress made a similar move not long before, creating the Board of Governors and nationalizing the powers of the Fed, even while technically leaving the 12 regional banks as “private”.
They pay mandated dividends, according to federal law, and remit all extra profits to Treasury, but sure, the 12 can still be considered private. They don’t really act like it, but whatever. Their legal status is still, technically, private despite the legal strictures.
But the “Federal Reserve” that people think about today is not those 12, but rather the national body that was created in the 1930s. When we talk about interest rates, money creation, monetary policy? We’re talking about the government agency.
This is the Federal Reserve that everyone talks about, and it is a government agency.
Wow, I definitely learned a frickin’ lot. Thanks to everyone for taking the time. Very concise. (I applaud the witty banter, as well.) 