Who Owns The Federal Reserve Bank? Why is it shrouded in myth and mystery? (2023)

Who Owns The Federal Reserve Bank? Why is it shrouded in myth and mystery?
Professor Ismail Hussain-Zadeh
Global Studies, December 19, 2015

http://www.globalresearch.ca/who-own...teries/5496873

It is enough that the people of the country do not understand our banking and monetary system, because if they did, I believe there would be a revolution before tomorrow morning. (Henry Ford)

Let me control a country's money supply and I don't care who makes the laws. (M. A. Rothschild)

The Federal Reserve Bank (or simply the Fed) is shrouded in many myths and mysteries. These include its name, its ownership, its claimed independence from outside influence, and its presumed commitment to market stability, economic growth, and the public good.

The first major myth accepted by most people in and outside the United States is that, as its name: The Federal Reserve Bank implies, the Federal Reserve is owned by the federal government. But in reality, it is a private institution whose shareholders are commercial banks; it is the "bankers" bank. Like other corporations, it is guided by and committed to the interests of its shareholders, despite formal oversight by Congress.

Therefore, the choice of the word "Federal" in the bank's name appears to be a deliberate misnomer designed to give the impression that it is a public entity. In fact, there is more to the misrepresentation of its ownership than the insinuation or impression its name creates. More importantly, it also officially and clearly states on its website: "The Federal Reserve System fulfills its public mission as an independent entity within the government. It is not owned by anyone, nor is it a private, for-profit institutionª [ 1].

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To expose this blatant misrepresentation, the late Louis McFadden, Congressman and Chairman of the House Banking and Currency Committee in the 1930s, described the Federal Reserve as follows:

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Some people think of the Federal Reserve Bank as an agency of the U.S. government. They are private monopolies preying on these American people for their own benefit and that of their foreign clients; domestic and foreign speculators and crooks; and wealthy and predatory moneylenders.

The fact that the Federal Reserve is committed first and foremost to the interests of its shareholders, the commercial banks, explains why its monetary policy increasingly caters to the interests of the banking industry and, more generally, of the financial oligarchy. Widespread deregulation leading to the 2008 financial crisis, scandal-ridden bank bailouts in response to the crisis, continued influx of interest-free money from "too big to fail" financial institutions, failure to impose effective constraints on these financial institutions post-crisis institutions, Neoliberal brutal cuts to social safety net programs to pay for high financial gambling losses, and other similarly brutal austerity policies, can be traced to the political and economic power of the financial oligarchy, largely exercised through the Fed’s monetary policy.

This also explains why many early U.S. policymakers resisted entrusting the crucial tasks of money supply and credit creation to profit-oriented private banks:

The [private] Central Bank is an institution most mortal hostile to the principles and form of our Constitution. . . . if the American people allow private banks to control the issuance of their money. . . , the banks and corporations that will grow around them will strip people of all their property until their children wake up homeless on a continent conquered by their fathers (Thomas Jefferson, 3rd President of the United States).

In 1836, Andrew Jackson abolished the Bank of the United States, arguing that it had had an undue and unhealthy influence on the course of the national economy. From then until 1913, the United States did not allow a private central bank. For nearly three-quarters of a century, monetary policy was conducted more or less according to the U.S. Constitution: "Congress alone shall have power." . .minting money, regulating its valueª (Article 1 Section 8 of the United States Constitution). Shortly before the creation of the Federal Reserve Bank in 1913, President William Taft (1909-1913) promised to veto any legislation that included the creation of a private central bank.

However, shortly after Woodrow Wilson replaced William Taft as president, the Federal Reserve Bank was created (December 23, 1913), thereby consolidating the power of the Bank of Expansion, and (in a roundabout way) employment. It can also lend money to the government and earn interest, or a fee currency that the government can create for free. This led to the beginning of a gradual increase in the national debt, as the government henceforth relied more on bank borrowing than self-financing, as it had done before the power of money creation was delegated to the private banking system. However, three years after the Federal Reserve Act was signed into law, Wilson was quoted as saying:

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I am a most unfortunate person. I unknowingly ruined my country. A great industrial nation is controlled by its credit system. Our credit system is centralized. Therefore, the development of the country and all our activities are in the hands of a few. We have become one of the worst governed governments, one of the most completely controlled and dominated governments in the civilized world. No longer a government of free opinion, of majority belief and vote, but of opinion and coercion by a ruling few[2].

While many independent thinkers and policymakers in the past thus viewed the unfettered power of a private central bank as an evil in allowing no intervention in national monetary/economic policy, most economists and policymakers today view the independence of central banks as Sex comes from the bank of the people and elected government agencies is a virtue!

Here lies another myth created around the Fed: that it is an independent, purely technocratic or impartial decision-making entity, entirely dedicated to the national interest and free from all outside influence. Virtually every college or high school textbook on macroeconomics, money and banking, or finance has a section or chapter devoted to the "advantages" of the "independence" of private central banks in determining the "proper" money supply levels, inflation, or the amount of credit an economy might need—always equate independence from elected authorities and citizens with general independence. In practice, however, central bank independence means independence from the people and elected government institutions, not from powerful financial interests.

Independence actually means that the central bank is captured by Wall Street interests, very large banking interests. It may be independent of politicians, but that doesn't mean it's a neutral arbiter. During and out of the Great Depression, the Fed took cues from Congress. Throughout the 1940s, the Fed was not actually independent. It took orders from the White House and the Treasury, and it was the most successful decade in American economic history [3].

Another major myth associated with the Federal Reserve is its purported commitment to the national and/or public interest. This supposed task is said to be accomplished through monetary policies that would mitigate financial bubbles, align the supply of credit or money with business and manufacturing needs, and inject purchasing power into the economy through massive investments in infrastructure projects, Thereby promoting market stability and economic expansion.

That was true right after the Great Depression and World War II, when the Fed had to follow the guidelines of Congress, the White House, and the Treasury Department. Because the regulatory framework of New Deal economic policies limited the role of commercial banks to financial intermediaries between depositors and investors, financial capital flowed in tandem with industrial capital as it essentially provided the lubricant for the wheels of industry or production. In those cases, where financial institutions primarily acted as conduits for funneling and funneling national savings into productive investment, financial bubbles were rare, temporary, and small.

Not so in the age of finance capital. Freed from the regulatory constraints shortly after World War II (which dictated the type, amount and scope of its investments), the financial sector effectively became one gigantic casino. So the Fed has turned monetary policy (since the days of Alan Greenspan) into a tool for further enrichment by creating and sustaining asset price bubbles. In other words, the Fed's monetary policy has effectively become a means of redistribution from the bottom up.

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This is not speculation or conspiracy theory: the redistributive effects of Fed policy in favor of financial oligarchs are supported by undeniable facts and figures. For example, a recent Pew Research Center study on income/wealth distribution (published December 9, 2015) showed that systemic and escalating socioeconomic polarization has led to a sharp decline in the number of middle-income Americans.
Research shows that for the first time, middle-income households no longer make up the majority of American households: ¦ Once an absolute majority, in 2015 middle-income households had as many adults as low-income households and high-income households combined. ¦ Specifically, while adults in middle-income households made up 60.1 percent of the total adult population in 1971, they now make up only 49.9 percent.

According to the Pew report, middle-income households’ share of national income fell from 62 percent in 1970 to 43 percent in 2014. Over the same period, the share of households with higher incomes rose from 29 percent to 49 percent.

Some critics argue that the financial oligarchs used their proxies at the Federal Reserve and Treasury to use the 2008 financial crisis as shock therapy, diverting trillions of taxpayer dollars into their deep pockets, further exacerbating an already crippling crisis. Resources are unevenly distributed. Pew research clearly confirms the plunder of national resources by the financial elite. It shows that the pace of rising inequality accelerated after the 2008 market crash, as asset reflation has since shifted almost exclusively to oligarchic financial interests.

Agents of the financial oligarchy, who preside over economic policymaking, no longer seem to object to the destabilizing bubbles they help create. They seem to believe (or hope) that the possible disruption of one bubble bursting can be offset by creating another! So, after the dotcom bubble, there was a housing bubble; after that, there was an energy price and emerging market bubble, and then there was a junk bond market bubble, and so on. For the same reason the Fed has re-inflated one bubble after another, it has also systematically redistributed wealth and income from the bottom up.

This is an extremely ominous trend because, in addition to issues of social equity and economic insecurity for the masses, the policy of regularly creating and protecting asset bubbles is not sustainable in the long run. No matter how long or how much a financial bubble grows, like taxes and rents under a feudal system, it is ultimately limited by the amount of real value produced in the economy.
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Is there a solution to the damage done to the economies/societies of core capitalist countries by the accumulation needs of parasitic finance capital - largely fostered or fueled by private central banks in these countries?

Yes, there is indeed a workaround. The solution is ultimately political. It requires different politics and/or policies: politics that serve the interests of the vast majority, not a cabal of financial oligarchs.

There is little dispute that profit-oriented commercial banks and other financial intermediaries are a major source of financial instability. It is also well known that powerful financial interests, because of their economic and political clout, easily subvert government regulation, periodically recreating financial instability and economic turmoil. In contrast, public sector banks can do a better job of securing depositors' savings and helping to channel these savings into socially beneficial credit allocation and productive investment.

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Ending recurring crises in financial markets therefore requires bringing destabilizing financial intermediaries under public ownership and democratic control. It is logical that public rather than private institutions should manage people's money and savings or economic surplus. As the late German economist Rudolf Hilferding said long ago, the system of pooling people's savings and placing them at the disposal of profit-seeking private banks is a kind of perverse socialism, that is, it favors Socialism for the Minority:

In this sense, a fully developed credit system is the antithesis of capitalism, representing organization and control rather than anarchy. It originated in socialism, but adapted to capitalist society; it is a deceitful socialism, modified to suit the needs of capitalism. It socializes other people’s money for use by a few [4].

There are compelling reasons, both conceptually and empirically, for public sector banking and credit systems to be not only more reliable but also more efficient than private banks. Neighborhood savings banks, credit unions, and savings and loan associations in the United States, the Jusen Corporation in Japan, the Trust Savings Bank in England, and the Commonwealth Bank of Australia all served communities' housing and other credit needs well in the 19th century. Perhaps the most interesting and illuminating example is the case of the North Dakota Bank, which has been state-owned for nearly a century and is widely known for the state's budget surplus and economy that has remained strong amid a harrowing economic crisis. Acclaimed. The plight of many other states.

The idea of ​​putting banking, national savings, and the distribution of credit under public control or oversight is not necessarily socialist or ideological. In the same way that much infrastructure, such as public roads, school systems, and sanitation facilities, is provided and operated as an essential public service, the provision of credit and financial services can deliver day-to-day business transactions and long-term industrial projects on an essential public utility model.

Providing financial services and/or credit facilities on a utility model can reduce financial costs for both producers and consumers. Today, 35% to 40% of all consumer spending is misappropriated by the financial sector: bankers, insurance companies, non-bank lenders/financiers, bondholders, etc. [5]. By freeing consumers and producers from so-called financial overhead or rent, similar to ground rent under feudalism, the public option of credit and/or the banking system could revive many stagnant economies that would never Depression under the heavy burden of debt service obligations.

reference
[1] "Who Owns the Federal Reserve?"。
[2] This passage from President Wilson is quoted in several places. Many commentators felt that some of the curse words used in the much-quoted statement were either not Wilson's own or were taken out of context. Yet no one denies that, regardless of the exact language used, he has serious reservations about the formation of the Federal Reserve Bank and the misguided policy of entrusting the nation's money supply and/or monetary policy to a group of private bankers.
[3]. Ellen Brown, "How the Fed Repaired the Economy" and Why It Didn't,。
[4] Hilferding's book Finance Capital: A Study in the Latest Stage of Capitalist Development has been printed/reprinted several times. This quote is from Chapter 10 of the online version of the book, available at:。
[5]. Margrit Kennedy, Occupy the Money: Creating an Economy That Works for Everyone, Gabriola Island, British Columbia (Canada): New Society Press, 2012.
Ismael Hossein-zadeh is Professor Emeritus of Economics (Drake University). He is the author of Beyond Mainstream Explanations of the Financial Crisis (Routledge 2014), The Political Economy of American Militarism (PalgraveMacmillan 2007), and Non-Capitalist Development in the Soviet Union: The Case of Nasser's Egypt (Praeger Publishers 1989). He is also the author of Despair: Barak Contributor to Obama and the Politics of Illusion.
The original source of this article is Global Research
Copyright © Prof. Ismael Hossein-Zadeh, Global Studies, 2015