why do we need an outside financial instution called the federal reserve bank when we can make our own money?

Question

also why do we owe anybody anything when we can make our own money? who runs the federal reserve bank and who benifits from the interest of our national debt?

Answer 1

Following is from http://www.reformation.org/bank-of-england.html
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The Bank of England's strategy was to completely control the British Government. Then they could apply pressure on the colonies and force them to rebel. Lastly, they would impose a Bank of England type bank on the Colonies. This they did in the year 1791. It was called the Bank of the "U.S." General Jackson refused to renew the bank charter and it died an unnatural death in1836. The corrupt bank was re-chartered in 1913 under the name "Federal" Reserve Bank of the "U.S."
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http://en.wikipedia.org/wiki/Federal_Reserve#Historical_criticisms
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http://www.answers.com/topic/federal-reserve-banks
Federal Reserve Banks establish monetary policy along with the Federal Reserve Board of Governors, and monitor commercial and savings banks to ensure that financial institutions follow Federal Reserve regulations. Reserve banks act as depositories for member banks in their regions. Each Federal Reserve Bank is owned by commercial banks in its Federal Reserve district that hold stock in the Fed district bank. These commercial banks are Member Banks in the Federal Reserve System.

Answer 2

What you are advocating is the government to print money for expenses not covered by tax revenues.

This is not unheard of even within this country with the two most prominent examples being the Continental (to finance the Revolutionary War) and the Greenbacks (to help finance the Civil War). In fact, there are compelling reasons for the government to just print and distribute money in an underperforming economy just to get things going.

However, if the economy is not underperforming, there is a real danger in undermining your own economy.

When money is printed in excise of demand, this creates an inflation and price of goods go up -- which means the government has to print more money for the higher prices -- and the spiral continues.

When the government borrows, it is essentially reducing the spending power of the lender thereby keeping the money supply in balance.

Many economy's have been ruined due to reckless printing of money to pay for government expenses. From Wikipedia, hyperinflation "most often occurred because of excessive money printing" (ref: http://en.wikipedia.org/wiki/Hyperinflation#Root_causes_of_hyperinflation )

This is not to say that borrowing is a good thing. On the contrary, the government is borrowing so much, it needs to borrow more to pay the interest. It is a borrowing spiral and can similarly lead to economic strains on a nations economy.

A better solution would simply be for the government to stay within their budget.


- Who benefits from the interest earned by the Federal Reserve?

For the most part, tax-payers. Of the interest paid on a T-Bill to the Federal Reserve, about 98% of it is returned to the Treasury making it practically an interest-free loan.

If the Fed did not buy the T-bill, the U.S. would have to pay all the interest to someone else. only about about 25% of the T-Bills are eventually purchased by the Federal Reserve. Most of the rest is purchased by foreign entities of which the Treasury pays interest in full.

Answer 3

If we only created money and did not support the Federal Reserve Bank, our economy would collapse. We just can't keep 'making new money to spend'..