I should have specified that this is for a nationally chartered bank in the US. Nationally chartered banks are required to become “member banks”. They are all legally required to make a purchase of stock from their regional Fed bank.
However, state chartered banks can choose not to become a “member bank” with the Fed.
The Fed (and SEC) as we know them today could have shortened the Great Depression, and made it milder in its effects. These establishments were created specifically to prevent a future Great Depression…and they’ve succeeded in that. The same institutions shortened and partially relieved the Recession of 2007. We didn’t have to descend all the way to bread-lines and immense public works projects.
(My father did live through the Great Depression and was a staunch FDR/JFK liberal Democrat. He explained “Silver Certificates” and “Federal Reserve Notes” to me when I was a tad.)
Did you try starting with the Wikipedia entry on the Federal Reserve?
I think if you do, you’ll see that buying Treasuries and issuing money to 12 reserve reserve banks is just the tip of what the Fed does, and that half of what you started this thread with is just so much misinformation.
I probably would, since a great many people who lived through the Great Depression also lived through Bank Panic of 1896, and a great many of those also lived through the Bank Panic of 1893, and a great many of those also lived through Panic of 1884, and of 1873, and of 1857…
It’s certainly true that the Fed didn’t do the best job during the Depression. That doesn’t change the fact that routine bank panics in the United States have long-since been a thing of the past, and that a mandatory reserve system results in a vastly more stable currency.
OK, sorry. Pay attention:
(1) What sort of money would the U.S. government be issuing? Most countries today issue something best called “central bank money” — is that what you would propose? The U.S. might want to give a name to this new agency it sets up to manage this new central bank money … perhaps something like “Federal Reserve System.”
(2) The Federal Reserve System should be treated as wholly owned and operated by the U.S. government. The fact that, legalisitically, chartered national banks hold shares in the F.R. Banks is a technical detail that only confuses. Note that their shares pay only fixed dividends: 100% of any extra profit is paid into the U.S. Treasury.
Let me repeat the main point in a larger font.
The Federal Reserve System should be treated as wholly owned and operated by the U.S. government. The fact that, technically, chartered national banks hold shares in the F.R. Banks*** is a technical detail that only confuses***.
Once this ignorance is fought, you’ll see that (2) is rather silly.
(3) U.S. is out of debt? What about the U.S. Treasury bonds that I own? What about the trillions of dollars worth of bonds held by Japanese investors and by the Central Bank of China?
(4) See answer 1.
(5) See answer 2.
It appears you have one big misconception.
The Federal Reserve System should be treated as wholly owned and operated by the U.S. government. The fact that, technically, chartered national banks hold shares in the F.R. Banks is a technical detail that only confuses.
Does this help?
ikr! I thing the Chairman of the Fed should be impeached since we are not minting coins in a 16/1 silver/gold ratio.
In answer to the OP, I believe the Fed works as a stablizing effect. By being relatively independent they do not cater to the whims of a President seeking political gain or the “mandate” that a midterm-elected Congress always claims. While everything the Fed does could be taken over by government agencies or left to the free-market system, both of these situations would leave a lot to be desired.
Did he explain the reason for Kennedy’s United States Notes?
As to the question of whether or not I read Wikipedia, yes, I did. I am not claiming I understand it all, but clearly many people here don’t either.
To wit: from Wikipedia
That doesn’t sound like a government controlled entity. That sounds like an independent central bank, with a faux government role. The POTUS gets to nominate the fed chair, but only out of the candidates submitted to the POtUS by the federal reserve board, correct?
Also
From The Wiki page:
The wiki page says the GAO may request an audit. And if there are restrictions, how can the audit be transparent?
According to the Wiki page
Help me understand who actually receives that 6%. Because as I read it, if the transfer is subtracted from the $100.2 billion, the fed received a dividend of $2.5 billion. Who is actually getting that money?
The fed gets a 6% dividend and made a profit of
Condescend much?
How about United States Notes? (Like Kennedy issued with an executive order?). Straight from the US Treasury, interest free. Or did I misunderstand that, too? Isn’t it basically what Lincoln issued with greenbacks?
And yes, what I am asking is why that 6% dividend is paid. A US Central Bank, run by the Treasury, would pay out no fixed dividend. All money goes back to the treasury.
I would take a 6% fixed dividend. How can I get a piece of that pie? I’d happily pay 100% “extra profit” back to the treasury.
Repeating it doesn’t change it. This “technical” point is not insignificant. The shares receive dividends. That money is not coming back to the treasury. Unless I don’t understand the concept of a dividend, that money is paid out to the shareholders, and that isn’t the treasury.
They are still valid, payable by whatever currency the US adopts, backed by the “full faith and credit of the United States” (whatever that is worth)
I may have many misconceptions. That’s why I asked the question. You say “technically” like it doesn’t mean anything. But it does. They make a 6% dividend, paid out to private stockholders.
If it was a US Treasury owned bank, that 6% comes back to the government, not to private bankers, correct?
Your big paragraph doesn’t reflect what I am reading in the wiki page.
The issue of government control is highlighted throughout the Wikipedia article - various laws have been passed at different times that govern how the Fed operates. You can be government controlled even if the President isn’t micromanaging every decision you make. Congress directs the Fed by enacting legislation and the President directs it, in part, by appointing the chair.
Later on the same page, it states that the “GAO and an outside auditor regularly audit” so they are using their authority to conduct an audit.
As to the limitations, these are describe on Wikipedia as well. The limitations basically set it up so that the GAO does not audit international transactions or policy decisions of the Fed. Other than the international banking, I don’t see any limitations regarding domestic transactions; the other limitations are all policy-based.
The Fed keeps that money. Most of it went to fund its own operations - the Fed is not paid for by tax revenue.
Some of the difference may also be a matter of timing, such as money received 12/30/15 and then paid on to the Treasury 1/2/16
Money that’s actually backed by something like gold &/or silver and not by fiat. That is how our money was supposed to be and turning away from that is one of the reasons the country is in the debt it’s in.
In that case, your faith is in the idea that the bank will actually swap the green pieces of paper for shiny metal and that the shiny metal is actually worth something. (After all, you can’t eat gold or silver, or heat your house with them.)
Oh for fuck’s sake.
Okay, suppose that our money were backed by gold.
How do you know that when you take your paper money to the bank that they will, in fact, continue giving you gold for the paper? What’s the source of your confidence that this is a good system? Keep in mind that the last time paper money was convertible into precious metal, that promise was broken. And not just the last time. Every time. Every single convertible money standard in the history of this world has failed.
That’s a pretty unstable system. You seem to believe that such a money, backed by gold or silver, isn’t based on faith. I look at it otherwise. It takes a great deal of faith to believe such a system would somehow work again, when every single previous time it was tried it didn’t work.
That is plainly untrue.
Current US debt-held-by-the-public is about 75% of GDP. Great Britain was under a de facto gold standard before the Napoleonic Wars, but that didn’t prevent war spending from racking up a debt of over 200% of GPD. Of course, convertibility of Bank of England notes was suspended for the duration of the war. But that’s exactly the point. Metallic standards do not, in fact, prevent massive spending when the government deems such spending necessary, and any belief of the continued convertibility of that paper is ultimately just as faith-based as our present use of fiat money. At least our current fiat system is honest. No one is pretending that it is anything else than paper and digits on computers.
Let’s start with some numbers. There are about $1 trillion of U.S. banknotes (almost all F.R. banknotes) outstanding. All the rest of the “money” in the system is generated by the banking system. And even the $1 trillion of banknotes isn’t ordinary fiat money — it derives from the central bank’s balanced ledgers.
Are you proposing to clear $18 trillion of debt by issuing $18 trillion of greenbacks? Do you think that might cause inflation?
As for the 6% dividend; let’s take Wells Fargo Bank as an example. It has a Return on Equity of 13%, compared with 6% on that portion of its equity invested in FRB stock. I’m not sure what it gets in dividends on that stock but the TOTAL dividends paid by the FRB to all its member banks is only about $400 million per quarter. Wells Fargo profit is over $5 billion per quarter.
The 6% dividend rate was set in a different financial environment. It might make sense to lower it today, but if you’re concerned about rent-seeking behavior by U.S. financial institutions — and we all should be! — the FRB dividend is penny-ante compared with the real problems.
Your mention of “Kennedy’s United States Notes” makes me wonder if you’ve bought into a conspiracy theory. On the 'Net I can see claims that JFK was assassinated by the FRB because he was trying to put them out of business! :eek: Perhaps an expert will fill us in on monetary details from that era, but, to some extent, I think the printing of U.S. Notes in the 1960’s was NOT in lieu of Federal Reserve Notes but in lieu of Silver Certificates.
Potato, potato. It’s like the office of the NFL Commissioner. It isn’t a government role, but it is empowered by legislation (the NFL enjoys certain specific exemptions from anti-trust laws.)
The Federal Reserve is “government controlled” because Congress can change it, or eliminate it, by an act of law. The Chair has to report annually to Congress for an inquisition. The Senate has to confirm the chairman’s nomination. You might as well have said that the Department of Agriculture is not “government controlled.” Heck yeah it is!
That 6% dividend is paid to private banks – the various “shareholders” of the regional Fed banks – by the Fed. The Fed pays the automatic dividend to the private banks which are “member banks”. It was in the news not too long ago that this dividend paid to private banks has been reduced. If I’m reading this right, the larger banks no longer receive the full 6%, but instead receive the going rate on 10-year Treasuries. (The smaller banks continue to receive the 6%.)
I think part of the reason for the original 6% paid to banks was to attract those banks into closer cooperation with the Fed when it was originally created by Congress. This “6% dividend” means 6% of the total nominal amount of the shares of the regional Fed banks that the private banks purchase. Since the stock can’t be sold, can’t be traded, can’t be used as collateral, the cash that has been laid aside for those shares (partly given to the Fed and partly reserved on the private bank’s own balance sheet) can be used for literally nothing else. It would be dead weight if it didn’t pay a return. I believe the original authors of the act thought it was just and fair that the banks receive at least some compensation for those funds, since they weren’t allowed to use those funds receive a return in other ways.
Today, the 6% seems high, but it’s important to keep in mind that in times like the late 70s and early 80s, the dividends potentially represented a major loss for the banks. If the money set aside by private banks is only earning 6%, when in fact inflation is 10%, that represents a legitimate problem for them.
Why is gold or silver better than fiat? I really have no use for precious metals. I’m not a jeweler, I don’t make electronics. I can’t eat it. The only thing I can do with metal is to trade it to someone in exchange for something I can actually use. Then we have to agree on how much metal to trade for how much product. Who establishes the value of the metal? The government? That would be by “fiat,” right?
people seem to forget that the only reason gold is valuable is the stone/iron age man found it and said oohhh shiny and because he didn’t find it much decided it was worth more than the metal he already had and passed the thought process down through the ages …
I mean what if we have a fallout type of situation and post apocalyptic man decides that gold is worthless and bottlecaps and bread wrapper tabs is worth more ?
the above post was supposed to have pkbites quote in it also …
No, that doesn’t seem to be correct:
Structure of the Federal Reserve System:
Nothing in there about the President being required to pick the Fed chair from “candidates submitted to the POtUS by the federal reserve board”, only that the Fed chair must be a member of the Fed’s Board of Governors–if the President wanted to appoint someone as Fed Chair who wasn’t already a member of the Fed’s Board of Governors, that person would have to be “simultaneously appointed to the Board”.