Before the Federal Reserve was founded, the nation was plagued with financial crises. At times, these crises led to “panics” in which people raced to their banks to withdraw their deposits. The failure of one bank often had a domino effect, in which customers of other banks rushed to withdraw funds from their own banks even if those banks were not in danger of failing. Banks needed a source of emergency reserves to prevent the panics and resulting runs from driving them out of business.
A particularly severe panic in 1907 resulted in bank runs that wreaked havoc on the fragile banking system and ultimately led Congress in 1913 to write the Federal Reserve Act. The Federal Reserve System, initially created to address these banking panics, is now charged with several broader responsibilities, including fostering a sound banking system and a healthy economy.
Although the need for banking reform was undisputed, for decades early supporters debated the delicate balance between national and regional interests. Nationally, the central bank had to make it easier to conduct financial transactions between businesses and individuals across regions of the country.
A stable central bank would also strengthen the United States’ standing in the world economy because foreign individuals, businesses, and governments have confidence in doing business within a country that has a responsible central bank and economic system. Regionally, the central bank would have to respond to the local needs for currency, which could vary across regions. A lack of available currency had caused the earlier banking panics.
Another important issue was creating a balance between the private interests of banks and the centralized responsibility of government. What emerged—the Federal Reserve System—was a central bank under public control, with many checks and balances.
Congress oversees the entire Federal Reserve System. And the Fed must work within the objectives established by Congress. Yet Congress gave the Federal Reserve the autonomy to carry out its responsibilities without political pressure. Each of the Fed’s three parts—the Board of Governors, the regional Reserve Banks, and the Federal Open Market Committee (FOMC)—operates independently of the federal government to carry out the Fed’s core responsibilities.
The Federal Reserve System was developed and continues to develop as an interesting blend of public and private interests and centralized and decentralized decision-making. As you continue reading, you will learn about the Fed’s structure and responsibilities—what the Fed is and what it does.
Who Runs the Federal Reserve?
At the core of the Federal Reserve System is the Board of Governors, or Federal Reserve Board. The Board of Governors, located in Washington, D.C., is a federal government agency that is the Fed’s centralized component. The Board consists of seven members who are appointed by the president of the United States and confirmed by the Senate. These Governors guide the Federal Reserve’s policy actions.
A Governor’s term is 14 years. It is possible, however, for a Federal Reserve Governor to serve a longer term. For example, William McChesney Martin Jr. served as a member and Chairman of the Board of Governors for nearly 19 years because he was appointed as Chairman to complete another person’s term and was then appointed to his own term.
Appointments to the Board of Governors are staggered—one Governor’s term expires every two years. Terms are staggered to provide the Fed political independence as a central bank, ensuring that one president cannot take advantage of his power to appoint Governors by “stacking the deck” with those who favor his policies. The Board of Governors must be nonpartisan and act independently. In addition to independence, the staggered terms enable stability and continuity on the Board of Governors. The seven Governors, according to the original Federal Reserve Act, should represent the nation’s financial, agricultural, industrial, and commercial interests. Geography is a factor, too, as every Governor must be selected from a different Federal Reserve District. Recently Congress directed that at least one of the Governors have experience in community banking. (In general, community banks can be defined as those owned by organizations with less than $10 billion in assets.) The seven Governors, along with a host of economists and support staff, write the policies that ensure financially sound banks and a stable and strong national economy.
Governors actively lead committees that study prevailing economic issues—from affordable housing and consumer banking laws to interstate banking and electronic commerce. The Board of Governors also exercises broad supervisory control over certain state-chartered financial institutions, called member banks, as well as the companies that own banks (bank holding companies). This control ensures that commercial banks operate responsibly and comply with federal regulations and that the nation’s payments system functions smoothly. In addition, the Board of Governors oversees the activities of Reserve Banks, approving the appointments of each Reserve Bank’s president and three members of its board of directors. The Governors’ most important responsibility is participating on the FOMC, the committee that directs the nation’s monetary policy.
Who’s The Boss?
Heading the Board of Governors are a Chairman and Vice Chairman, who are Governors whom the president of the United States appoints to serve four-year terms. The current Chairman of the Board of Governors is Jerome H. Powell. This is a highly visible position.
The Chairman reports twice a year to Congress on the Fed’s monetary policy objectives, testifies before Congress on numerous other issues, and meets periodically with the secretary of the Treasury. Other Board of Governors officials are also called to testify before Congress, and they maintain regular contact with other government organizations as well.
As the Federal Reserve’s centralized component, the seven members of the Board of Governors guide the Federal Reserve’s policy actions, study trends in the economy, and help forecast the country’s future economic direction. The Governors also participate in monetary policymaking on the FOMC. In addition, the Board of Governors is responsible for regulations to keep the banking system sound and for overseeing the operations of the 12 Reserve Banks.
The U.S. Currency
Did you know that Federal Reserve Banks place the currency you use to make purchases into circulation? Each bill has a number and a letter that denote the Federal Reserve Bank that accounts for that particular bill. For example, a bill with the number 8 will have the letter H (the eighth letter in the alphabet), which means it appears on the balance sheet of the Federal Reserve Bank of St. Louis.
For the recently redesigned $5, $10, $20, $50, and $100 bills, the letter and number that identify the Federal Reserve Bank are beneath the left serial number on the face of the bill.
Who Owns the Fed
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.
Should the Federal Reserve be Abolished
The answers here are provided under the condition that US monetary policy is reformed, and that means that the Federal Reserve Act of 1913 would be repealed, and other new legislature would then specifically outline the steps to be taken with ending the Federal Reserve, or 3rd Central Bank of the U.S.
The Monetary Act, or Monetary Reform Act, could be enacted by Congress, could reform the monetary system in two basic steps:
- Abolish the Federal Reserve by repealing the act authorizing it (Fed Act of 1913), which also has illegally contradicted the Constitutional power given to Congress to coin money and control the supply of money.
- Authorize the Treasury to print US NOTES, equal to the value of currency also known as “Federal Reserve Notes,” and also as “dollars,” currently in circulation. US Notes would then become “dollars” as the currency.
- Since the amount of money in circulation is roughly equal to the amount of the national debt, the creation of U.S. Notes as a replacement to “Federal Reserve Notes,” would simultaneously eliminate the national debt (approaching $19 trillion).
- The elimination of the debt would occur without inflation or deflation since the amount of Constitutionally mandated U.S. Notes printed to replace federal reserve notes would be equal, therefore, the money supply as a currency value would not change (hence, no inflation or deflation).
- The almost $450 billion dollar interest payments on debt also be gone and so tax revenues that are currently wasted to pay interest could actually be used for say, infrastructure, and other expenses which many believe that taxes “pay for” now, except with the existing system, not all the interest can be paid annually. Therefore, all tax revenues go to just paying interest, and more money must be borrowed as deficit spending (borrowing from banks) to pay off just the remaining interest due, and also cover the federal budgets.
- The US could cut all ties with the International Monetary Fund, The World Bank, The Bank of International Settlements, ending association with some of the institutions that propagate on-going famine and impoverishment throughout the world, and the unethical domination of already-poor countries that accepted “aid” or “relief” during times of crisis, but then found out that it was money lent to them as debt. This leaves the already worst-off in many countries in an even more desperate state because of intentional destabilization and subrogation results when countries do not or can not pay their national debts.
- The government would be controlled by the will of the people again, and not a group of independent bankers more powerful than the President, and the Congress. The lender is always more powerful than the borrower.
- People seem to constantly scratch their heads about why, even though we all know that “change” would be good. And why is it that nothing ever does change, or why is it that government doesn’t seem to serve the interests of the people, the voters, but the bureaucratic machine, and what has to be nameless, faceless others? Why is the US in a state of constant warfare? The actual dissolution of the Federal Reserve would make it abundantly more clear, why it would be beneficial to do so.
- Abolishing the Fed would put the money, provided for the needs of the people, would be back in the hands of the Congress, which is Constitutionally granted, and an illegal system that contradicts the mandates of the Constitution and the spirit of our national laws would finally be ended.
-The Bank of England called in their loans on King George III who then took away colonial money (Colonial script) and forced English coinage onto the colonists with increased taxation. This was the major catalyst for the war for independence.
-Thomas Jefferson ended the First Central Bank of the U.S. as they tried to recharter
-The War of 1812, an almost forgotten war, was the result of the U.S. government’s refusal to recharter another central bank.
-Andrew Jackson ended then Second Central Bank of the US. He was shot at by a “lone nutjob” house painter who missed with both pistols.
-Abraham Lincoln printed Greenbacks to fund the Civil War to maintain the union, and that money was highly successful, with some greenbacks in circulation till the 1970s. He was shot and killed by a “lone nutjob,” John Wilkes Boothe.
-James Garfield staunchly claims that he would not allow for the recharter of another central bank in the U.S. He was shot and died of his injuries a week later by “lone nutjob,” Charles Giteau, basically forgotten (See: The Unforgiven, film, Clint Eastwood, won Oscar for Best Picture).
-In 1913, the Third Central Bank of the U.S. is authorized by the Federal Reserve Act of 1913, which promises full employment, and was signed by Woodrow Wilson (duped), while banking proponents and their shills feign opposition to their own Act as if it was a threat to banking interests.
-John F. Kennedy signs an order to authorize Silver Certificates to replace Fed Reserve Notes. Only weeks later, he was shot and killed by a “lone nutjob,” Lee Harvey Oswald.
-Ronald Reagan appears on national television and claims in his address that the Federal Reserve poses the greatest threat to the future of the United States. A couple of weeks later, he was shot by a “lone nutjob,” John Hinkley Jr.
The secretive Federal Reserve has remained a mystery for more than 100 years. Reading its history above shows at its creation there was a definite need for it to stabilize the U.S. economy. But it has been questioned for a long time as being essential. In fact, its purposes have been continually questioned by many. It seems to simply be an entity to which the United States Government owes huge amounts of interest dollars to simply for printing currency.
That being said, most financial experts will agree that whether or not the Fed remains useful, it is time for the U.S. to get away from fiat currency and back to a currency that is just a representation of the actual hard, tangible assets owned by the U.S. and its citizens — like gold. For many, a dollar bill is just that: a dollar bill that means nothing.
I was in Zurich, Switzerland the day the Swiss shocked the world and held a press conference to announce their termination of a long-standing practice of pegging the value of the Swiss franc to the value of the Euro. Why? Switzerland owned more gold than necessary to back its issued currency notes — francs — with tangible value instead of setting an artifical value pegged to another currency’s value. Though it rocked the world, it stabilized Switzerland’s currency. In today’s economically up-and-down currency markets, having a currency that itself represents a real asset like gold would give that nation’s citizens confidence in their government and its economic policies.
It’s time we do the same thing here in the U.S.