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As a general
rule, the most successful man in life is the man who has the best information
On the night of
November 22, 1910 a delegation of the nation’s leading financiers, led
by Senator Nelson Aldrich,
left New Jersey for a very secret ten day meeting on Jekyll Island,
Georgia.
After the
Jekyll Island visit the National Monetary Commission wrote the Aldrich Plan
which formed the basis for the Federal Reserve system.
After several
failed attempts to push the Federal Reserve Act through Congress, a group of
bankers funded and staffed Woodrow Wilson's campaign for President. He had
committed to sign a slightly different version of the Federal Reserve Act
than Aldrich’s Plan.
In 1913,
Senator Aldrich pushed the Federal Reserve Act through Congress just before
Christmas when much of Congress was on vacation. When elected president
Woodrow Wilson passed the Federal Reserve Act.
In the Federal
Reserve Act Congress established three key objectives for monetary policy:
- Moderate
long-term interest rates
The first two
objectives are often referred to as the Federal Reserve's dual mandate.
Over time, the
roles and responsibilities of the Federal Reserve System have expanded and
its structure has evolved.
According to
official Federal Reserve documentation today’s duties are:
- Conduct the nation's
monetary policy
- Supervise
and regulate banking institutions
- Maintain
the stability of the financial system
- Provide
financial services for depository institutions, the U.S. government, and
foreign official institutions
- Conduct
research into the economy and publish results ie
the Beige Book
The Federal
Reserve’s structure is composed of a Board of Governors who - including
its chairman and vice-chairman - are chosen by the President and confirmed by
the Senate, the Federal Open Market Committee (FOMC), twelve regional Federal
Reserve Banks, privately owned U.S. banks and advisory councils.
The only
stockholders of the 12 regional Federal Reserve Banks are the national banks
(the ones chartered by the federal government) and those state-chartered
banks that wish to join and can meet certain requirements. Roughly 38 percent
of the county’s plus 8,000 banks are members of the Fed system, and
they own the 12 Fed banks.
The FOMC is the
committee responsible for setting monetary policy,
the committee regulates the nation’s money supply and sets targets for
short-term interest rates. The FOMC consists of all seven members (a voting
majority) of the Board of Governors and the twelve regional bank presidents.
Only five of the bank presidents vote at any given
time - the president of the New York Fed is a permanent seat and four seats
are rotated among the eleven other regional bank presidents.
The US Federal
Reserve System is unique:
- According
to its Board of Governors "Its
monetary policy decisions do not have to be approved by the President or
anyone else in the executive or legislative branches of government"
- Also
unusual is that an entity outside of the US central bank - the United
States Department of the Treasury - creates the currency used
"When you
or I write a check, there must be sufficient funds in our account to cover
the check, but when the Federal Reserve writes a check, there is no bank
deposit on which that check is drawn. When the Federal Reserve writes a
check, it is creating money." Federal
Reserve Bank of Boston, Putting it Simply (1984)
The Fed is
highly profitable, since it can create the money that it needs at no cost the
return on its investments flows directly to the bottom line. Federal Reserve
banks are also exempt from state and Federal taxes.
The Fed's
investment portfolio grew in 2011, it’s now
approaching three trillion dollars. Almost 97 percent of the Fed’s
income is generated by interest payments on its investment portfolio - the
Fed is the largest single investor in federal government debt and securities
issued by the government owned mortgage finance companies Fannie Mae and Freddie
Mac.
Most of the
money flowing into the Fed’s coffers comes from US taxpayers and the
U.S. Government receives all of the system's annual profits, after a
statutory dividend of six percent on member banks' capital investment is
paid, operating expenses are paid (since no one audits the Fed its
operating expenses have never seen the light of day and are what the Fed says
they are) and an account surplus is maintained.
In 2010, the
Federal Reserve made a profit of $82 billion and transferred $79 billion to
the U.S. Treasury. This was followed at the end of 2011 with a transfer of
$77 billion in profits to the U.S. Treasury Department.
Consider:
The
Fed’s twelve regional bank are owned by
US Federal and State chartered banks - 100% of its shareholders are banks,
the stock is not publicly traded and none of its stock is owned by the US
government.
The Fed does
not look to Congress for annual appropriation. The Fed spends whatever it
wants on operations and its profit are whatever
remains after all expenses and dividends have been paid - in contrast to
ordinary corporate accounting.
The Fed
generates profits for its shareholders – six percent may not be
considered much of a profit but any business that covers all of its expenses
and gives shareholders a guaranteed tax free six percent return is a
"for profit" corporation.
In addition to
the guaranteed six percent, member banks get interest from the Fed, read
taxpayers, on their extra reserves. Of the $1.7 trillion dollars injected
into the banking system through two rounds of Quantitative Easing (QE) $1.5
trillion dollars is sitting in the Feds coffers and is collecting .25%
interest from the Fed for its member banks – it’s
shareholders.
“Between
August 11, 2008 and the end of 2011, the monetary base, which only the Fed
can produce, almost tripled with a Bernanke Fed injection of $1.7 trillion
dollars.
Most of the
money issued by the Bernanke Fed is parked in banks as excess reserves that
the banks are not required to hold.
The Bernanke
Fed has been paying banks interest on these excess reserves since October
2008. This is an incentive to hold the cash. At the end of 2011 the U.S.
banks were holding 88 percent of the monetary base issued by the Fed since
August 2008 as excess reserves they are not required to hold. The banks held
$1.5 trillion in excess reserves of the $1.7 trillion increase in the
monetary base.” Robert Auerbach,
Malpractice at the Bernanke Federal Reserve, huffingtonpost.com
Member banks
also borrow at the low Fed funds rate, then turn around and put this money
into longer term Treasury bonds earning an immediate return from taxpayers.
The US Congress
gave the Fed the right to print money at no interest to the Fed. The Fed
creates money from nothing, loans it out through banks and charges interest.
The Fed also buys government debt with money from nothing, and charges U.S. taxpayers interest. The Fed banking system collects tens
of billions of dollars in interest annually and distributes the profits to
its bank shareholders.
Ownership of a
piece of the Fed’s 12 regional banks, and their highly unusual business
model, “make money for free,” is extremely lucrative for the Fed
and it’s banker shareholders.
Conclusion
Is the Federal
Reserve Bank a privately owned company that controls, and whose shareholders
profit immensely, by printing money through the US Treasury and regulating
its value?
I’ll
leave that for you to decide, but there is no doubt that the Fed is, first
and foremost, looking out for the special interests of its shareholders, the
banks, insurance companies, and securities firms.
The ownership
question is moot, it’s nothing but splitting
hairs and simple misdirection.
The first
question we should be asking ourselves is; “What does taking care of
its shareholders special interests first, have to do with the Fed’s
official dual mandate: stable prices and high employment?”
The second
question we need to be asking has to be; “What do we replace, not just
the Fed with, but the entire global fiat monetary system with?”
A return to real money, gold and silver, has to be on everyone’s radar
screens. Is it on yours?
If not, maybe it
should be.
Richard (Rick) Mills
rick@aheadoftheherd.com
www.aheadoftheherd.com
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***
Richard is host of Aheadoftheherd.com and invests in the junior resource
sector. His articles have been published on over 400 websites, including:
Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse,
Lewrockwell, Uranium Miner, Casey Research,
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321Gold, Kitco, Gold-Eagle, The Gold/Energy
Reports, Calgary Herald, Resource Investor, Mining.com, Forbes, FNArena, Uraniumseek, and
Financial Sense.
***
Legal Notice / Disclaimer
This document is not and
should not be construed as an offer to sell or the solicitation of an offer
to purchase or subscribe for any investment.
Richard Mills has based this
document on information obtained from sources he believes to be reliable but
which has not been independently verified; Richard Mills makes no guarantee,
representation or warranty and accepts no responsibility or liability as to
its accuracy or completeness. Expressions of opinion are those of Richard
Mills only and are subject to change without notice. Richard Mills assumes no
warranty, liability or guarantee for the current relevance, correctness or
completeness of any information provided within this Report and will not be
held liable for the consequence of reliance upon any opinion or statement contained
herein or any omission.
Furthermore, I, Richard
Mills, assume no liability for any direct or indirect loss or damage or, in
particular, for lost profit, which you may incur as a result of the use and
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