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Politics

The Federal Reserve



The Federal Reserve System or "The Fed" as it's commonly referred to, is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a series of financial panics led to the desire for central control of the monetary system in order to alleviate financial crises.

Is The Federal Reserve System a part of the U.S. Government? Well, yes and no. The explanation tends to get a little cloudy here (for me anyway), however, I'll tell you what I do know.

Over the years, I have heard that The Fed is an "arm" of the U.S. Government, implying that's really no different, except in it's mission, than say the Department of Defense or Homeland Security. Then, I learned, at some point that The Fed is owned by a small, influential clique of global oligarchs whose aim is to serve powerful financial interests. That's two different ends of the spectrum, wouldn't you say? So, which one is it? Actually, it's not either one.

The truth is, the Federal Reserve was established to serve the public interest and is not owned by anyone.

To fulfill monetary policy goals (full employment and stable prices, often referred to as our "dual mandate"), the Fed operates as an independent entity within the government. Simply put, the Federal Reserve Board of Governors in Washington, D.C., is part of the federal government, but it's not funded by tax dollars appropriated by Congress. (The Fed draws its income from open market operations, plus other fees and financial holdings.) The 12 regional Federal Reserve Banks are not part of the federal government but are accountable to the Board of Governors.

When Congress established the Fed in 1913, lawmakers did not want to concentrate all the central bank's operations and decision-making authority in the capital. So to put the institution closer to the people, they established the 12 regional Federal Reserve Banks as operating arms of the central banking system.

And as for ownership? Reserve Banks are organized similarly to private corporations. For example, the Reserve Banks issue shares of stock to member banks. In fact, the law requires member banks to invest 3 percent of their capital as stock in the Reserve Banks. These Fed member banks include all national banks (those chartered by the federal government) and state-chartered banks that wish to join and meet certain requirements. About 34 percent of the nation's 5,000-plus banks are members of the Fed system.

And about those global financial interests? By law, no foreign financial institution can own stock in a Reserve Bank.

To be honest, it's above my head in completely understanding how it all works. I do understand and support the concept (keeping political fingers out of it - my words) and elected to share it with you, simply as a "did you know" segment. I will admit that I found it interesting that The Fed is not funded by tax dollars. Wouldn't it be nice if a lot of pork projects could find their way to not depend on taxes and "borrowing" from social security?

I suppose that would be yet another reason that The Fed doesn't solely reside in Washington.



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