On the Ridiculous Notion that the Federal Reserve is a Private Bank and Concerning Those Persons Who Peddle the Nonsense – My Final Words on the Subject

Let’s talk.

I’m going to be brusk. In other words, I’m going to be blunt, harsh, and brutally honest. I have to be. God would agree! There is no other way.

There is not a thing wrong with a person if they lack an education. It is simply nothing to be ashamed of, for that person could make a conscious decision one day to become educated; either through a traditional university, or an online university. There is also not a thing wrong with a person who might be highly educated in one particular subject, be it medicine, history, archaeology, or engineering, but has no real education in economics. But frankly, if going to college or returning to college is not an option for these people, there is still another way to possess an education in economics. It is as simple as having a willingness to ask questions of those who understand the subject matter, to listen, learn and read valid material.

Now, listen to me, because I wish to be nice and sparkling clear: Books, magazines, blog articles, and TV documentaries about the Federal Reserve being a private bank, or the Federal Reserve being owned by the Rothschilds are not valid educational material – they are horseshit on a stick.

Am I clear? I hope so, because I will not respond to nonsensical statements again about the status of the Federal Reserve’s Board of Governors.

www.federalreserve.gov <– see the “.gov” part there? The US Government.

www.stlouisfed.org <– see the “.org” part there? Not the US Government.

“The Federal Reserve System is not “owned” by anyone. Although parts of the Federal Reserve System share some characteristics with private-sector entities, the Federal Reserve was established to serve the public interest.

The Federal Reserve derives its authority from the Congress, which created the System in 1913 with the enactment of the Federal Reserve Act. This central banking “system” has three important features: (1) a central governing board–the Federal Reserve Board of Governors; (2) a decentralized operating structure of 12 Federal Reserve Banks; and (3) a blend of public and private characteristics.

The Board of Governors in Washington, D.C., is an agency of the federal government.

The Board–appointed by the President and confirmed by the Senate–provides general guidance for the Federal Reserve System and oversees the 12 Reserve Banks. The Board reports to and is directly accountable to the Congress but, unlike many other public agencies, it is not funded by congressional appropriations. In addition, though the Congress sets the goals for monetary policy, decisions of the Board–and the Fed’s monetary policy-setting body, the Federal Open Market Committe–about how to reach those goals do not require approval by the President or anyone else in the executive or legislative branches of government.

Some observers mistakenly consider the Federal Reserve to be a private entity because the Reserve Banks are organized similarly to private corporations. For instance, each of the 12 Reserve Banks operates within its own particular geographic area, or District, of the United States, and each is separately incorporated and has its own board of directors. Commercial banks that are members of the Federal Reserve System hold stock in their District’s Reserve Bank. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. In fact, the Reserve Banks are required by law to transfer net earnings to the U.S. Treasury, after providing for all necessary expenses of the Reserve Banks, legally required dividend payments, and maintaining a limited balance in a surplus fund.” — The Federal Reserve

There it is in black and white, easily found if only these people were willing to invest a microscopic amount of the total energy that they expend reading hours and hours of conspiracy theory bullshit, into reading a short statement of fact. But they simply will not do that. Why, you might ask? I’ll get to that in a moment. First, a few words on the Federal Reserve.

Stocks

Stocks in the Federal Reserve are a holdover from days long ago. They are entirely useless today. So, what are these stocks that commercial banks have in the Federal Reserve system?

They are nothing more than savings accounts. Commercial banks, by law, are required to possess these stocks, which confer membership in the Federal Reserve system on the banks, not “ownership”. If you do not like the fact that the law requires commercial banks to have savings accounts, talk to Congress.

So, we can understand that these stocks are not like corporate stocks that you purchase from a broker. They cannot be transferred, or used as collateral for a loan. They are savings accounts. Deal with it.

Attachment of Commercial Banks to the Federal Reserve

The Federal Reserve is the nation’s central bank. The nation’s central bank is a US Government entity. Only the US Government can issue high powered money, and guess what? The Federal Reserve issues high powered money. It cannot run out of US dollars – ever. That’s because it is the US Government. The commercial banks that make up the 12 regional Federal Reserve banks cannot issue high powered money, precisely because they are not US Government entities – they are commercial. Hence, were they to attempt to issue actual US dollars, it would be an act that we call counterfeiting.

First, commercial banks can go broke; the Federal Reserve cannot go broke, because it is the US Government. This is precisely why commercial banks “attach” themselves to the central bank: The US Government issues all of the US dollars, and commercial banks need dollars in reserve accounts to operate the payments system so that when you buy a box of Froot Loops with a check or debit card the damn payment will clear. Get that? Good.

Second, the Federal Reserve conducts monetary policy. In other words, it sets a target interest rate and then defends that rate. To do that, it must manipulate reserves. Since commercial banks maintain reserve accounts at the Federal Reserve, the Federal Reserve can manipulate the reserves of commercial banks to set and defend its target rate. Get that? Good.

Third, when a bank lends, it cannot and does not lend out reserves – ever. Banks issue an IOU which they then denominate in the US Government’s unit of account (the US dollar). In other words, Chase issues “Chase Bucks” when it lends. But, nobody wants Chase Bucks; they want US dollars. So, Chase denominates its Chase Bucks in US dollars. This does two interesting things. First, it makes the Chase Buck acceptable to clear tax liabilities owed to the US Government. Why is that interesting? Well, federal taxes are why people demand US dollars. If you don’t have US dollars then you cannot pay your federal taxes, and I’ll leave it to you to guess what happens when you don’t pay your federal taxes. So, people need US dollars to pay the tax. Whatever they have left over, they save or spend. Now that the Chase Bucks are acceptable to clear tax liabilities, they can act like “money” in the private sector.

Second, by denominating the Chase Bucks in US dollars, this also means that Chase agrees to exchange its Chase Bucks for US dollars on demand. And guess what? When you get a loan from Chase and then spend the loan to buy a car, you are demanding US dollars in exchange for the Chase Bucks. How does that work then, you ask?

When you spend the loan proceeds on a new car, the Chase Bucks shift actual US dollars held in Chase’s reserve account at the Federal Reserve to the car dealer’s bank’s reserve account also held at the Federal Reserve. End of transaction. The payment clears. Hence, you can buy a friggin car with a friggin bank loan from Chase. Now, let us assume the car dealer’s bank is Bank of America. When Bank of America lends, it also creates its own IOU too – Bank of America Bucks. They are not the same as Chase Bucks. So, what if Bank of America won’t accept 30,000 Chase Bucks as equal to 30,000 Bank of America Bucks? No problem.

Why is that no problem, you ask?

Because the Federal Reserve; the US Government’s damn central bank exists! Because the Federal Reserve exists, it ensures that 1 Chase Buck will clear on par with 1 US dollar. Unlike in the olden days where a Chase dollar might only be worth 50 cents to Bank of America; today, 1 Chase Buck is always worth 1 US dollar at any bank in the US, because the Federal Reserve exists, and because commercial banks attach themselves to the Federal Reserve, maintaining reserve accounts filled with US dollars that were issued by the Federal Reserve, to ensure that deposits between banks can be made, and payments, whether by withdrawals or loans, will clear. Get that? Good.

Lack of Any Real Understanding Breeds Fairy Tales

As promised, I will explain why people who believe that the Federal Reserve is a private bank are not willing to invest a microscopic amount of the total energy that they expend reading hours and hours of conspiracy theory bullshit, into reading a short statement of fact from the Federal Reserve.

These folks *want* and *need* to believe that the Federal Reserve is a private bank, or that it’s owned by the Rothschilds, because, firstly, they need drama. They do not care about actual evidence. Actual evidence is not real evidence if what that evidence demonstrates doesn’t square with your deep, inner need for drama and doom. The actual explanation is apparently just too boring for these people, you know. They need adventure. They cannot handle the Federal Reserve acquiring treasury bonds through open market operations to conduct reserve drains. Nope. That’s just too dull. For these people, it has to be: “Oh my God, look! Blofeld and Goldfinger have seized control of the Federal Reserve in a master plot to bankrupt the US Government by purchasing treasury bonds with fake monopoly money that they are printing! Where’s 007?” So, why then do these people have an intense need for drama? A lack of any real working knowledge of the subject matter.

Because these people have absolutely no idea how banking operations and central bank operations actually work; because the explanation is extremely complex; because they’ve devoted exactly zero hours of time studying the subject matter, they simply cannot understand how banks and the Federal Reserve work, so they literally make up stuff to explain it. Foregoing any effort to study what can be, at times, quite confusing, rather than engage in actual education, they engage in reading easy to understand tabloid journalism. As long as a person can read, they can understand the following sentence:

“The Federal Reserve is a private bank, which lends the US Government money, and taxpayers foot the bill, making the banksters rich!”

It’s an entirely bullshit statement, but still understandable for those who can read English. However, the following sentence is a bit harder to understand for some people, even though they can read:

“During the policy normalization process that commenced in December 2015, the Federal Reserve will use overnight reverse repurchase agreements (ON RRPs)–a type of OMO–as a supplementary policy tool, as necessary, to help control the federal funds rate and keep it in the target range set by the FOMC.”

So, which sentence takes less effort to understand? If you said the first sentence, then you understand why these people peddle the fairy tale that the Federal Reserve is a private bank. They don’t wish to invest lots of time in trying to understand a subject which requires effort on their part. They are lazy. Something that reads like a textbook is too hard and takes too much time and effort. They’d rather read something easy to understand in one sitting like a newspaper, or the National Enquirer.

These people could do like you and put forth the effort to learn. But no. They need it to be easy and they need it to be exciting. They’ve got to live “Skyfall”; they’ve got to live “Goldfinger”; they’ve got to live “Thunderball”; they’ve got to live “Moonraker”; they’ve got to live “Dr. No”. They need Blofeld, Goldfinger, and Draxx to be real. They need James Bond to be real in their lives. They need to pretend to be the undercover CIA operative, living a clandestine life, uncovering nefarious plots to bring down the US Government. They need to be a real life James Bond who knows inside information about the Federal Reserve private banking cartel plot that others do not know. Well, allow me to let those of you who believe that the Federal Reserve is a private bank in on some more inside information concerning this need to believe that you have, Mr. Secret Agent Man and Woman – You’re killing people.

That’s right. By perpetuating mindless, ridiculous notions concerning the Federal Reserve that a six year old child can make up in his or her mind, you are obstructing progress; you are preventing federal deficit spending for full employment and the public purpose; you are helping to move GDP to capital; you are leaving people homeless in sub-zero weather; you are perpetuating poverty and hunger; you are keeping us idle while the climate declines; you are killing people by refusing to ask questions, listen and learn, and instead, preferring to live a life of pretense. A lack of an overall education, or a lack of education in monetary theory and macroeconomics is no excuse for making up explanations that you are able to understand. The correct course of action is to educate yourselves, and as I said, if the cost of a university makes attendance impossible, then you can always ask those who do know, then listen and learn.

Frankly, if you’d stop peddling economic bullshit that you hear from politicians, the media and Federal Reserve conspiracy theory books, magazines, websites and documentaries, we all could have tuition-free education tomorrow. But no – you’d rather peddle nonsensical explanations concerning what the Federal Reserve is and how the Federal Reserve works; explanations that any six year old could make up; simply because you lack the education or determination necessary to go out and actually understand it.

Now, I have said all there is to be said. I do not care what these people *want* or *need* to believe. If they still believe that the Federal Reserve is a private bank or that it is owned by the Rothschilds, and they outright refuse to listen to reason and wish to argue with me, then they do not deserve an education – they deserve ridicule. I will no longer respond to these people, nor will I respond to requests to help debate these people. Call me harsh or arrogant if you will. Yes, I am being harsh, but no, I am not arrogant. Those who know me know for certain that there isn’t a single arrogant bone in my body.

I am simply being blunt and upfront with the truth.

Those of you who are willing to ask questions, listen and learn, I congratulate you. I would urge those of you who are willing to learn, and those of you who are currently learning, to ignore these people who peddle the fairy tale that the Federal Reserve is a private bank. It’s 100% crap. They are wasting your time with pure fantasy and madness; precious time that you could be spending to further your own understanding. Ignore them.