Federal Reserve Bank? why the hell do we have it..?

Question

I am only 15 years old but i have been reading a lot on this subject. I do not understand why we have such a banking system in place.. why not have the government run it? Instead of a independent company running it...
Why not have the government be the bank, that way when we go to war we are not paying interest rates to an independent company bank, thus helping our debt problem.
Also, Section 8 of the Constitution states that Congress shall have the power to create money and regulate the value... wouldn't that be breaking the law with the system we have in place right now?
And if you think about it they are sitting on a monopoly! They have the entire United States in their hand controlling the economic structure, couldn't they bring us as a nation down to our knees if they wanted too.
FED creates money from nothing, and loans it back to us through banks, and charges interest on our currency. Wouldnt this make the United States always in debt, never being able to get out of it

Answer 1

It appears you may have gotten some misinformation from off the web.

One of the most circulated pieces of misinformation is that the Federal Reserve is private and not controlled by the government. That would be untrue.

The Federal Reserve System is a congressionally-chartered agency like the USPS and NASA. It is organized with a 100% government agency at the top (the Board of Governors), and branches beneath them that resemble corporations. (http://www.federalreserveeducation.org/fed101/structure/ )

The Board of Governors are all appointed for 14-year terms by the president and confirmed by congress. It operates per it's charter and laws set by congress. it is overseen by congress. There is no structure or mechanism for private ownership at this level. Board members are forbidden by law to have any economic interest in a private bank. (Ref: Title 12 chapter 3 of the U.S. Legal Code)

The 12 branches, however, are organized similar to private corporations. Member banks are required to buy shares in their branch. They can vote for 6 of their 9 board members. The shares get a standard 6% dividend. These shares cannot be sold on the open market. The Fed says 'No' (ref http://www.federalreserve.gov/generalinfo/faq/faqfrs.htm#5 ) though there is a certain duality of control at the branch level.

- Re: Interest on currency

This bit of misinformation comes from the fact that the Federal Reserve collateralized currency with interest-bearing T-Bonds it buys on the open market.

What theses sites don't tell you is that BY LAW, all 'profit' from the Federal Reserve branches are turned over to the Treasury at the end of the year. Over 90% of the interest is returned. That's not a bad deal for the tax payer who would have to pay 100% of the interest if the T-bill was owned by a private party,

- Re U.S. always be in debt?

Yes and no.

If the U.S. ran a balanced budget for 10 consecutive years (the length of time for 10 year T-Bills to fully mature), there would be almost no public debt.

T-bills owned by the Fed can be considered permanently as it is necessary to back up currency.

Brian: Keep asking questions! There is a lot of misnformation out there.

Answer 2

First, it is more a mixed system because it really comes down to the checks and balances because it operates as a private banking system where it sets interest rates for all private banks but it also sets monetary policy such as to control of money supply. It must adjust to economic fluctuations to kept unemployment low and inflation low as possible.

It is a independent agency because of the presidentially appointed Board of Governors of the Federal Reserve System and 12 regional banks to set fisal agendas for Treasury and federal committees.

If the government would be the bank, then it could spend and spend to no end without any responsiablity, which in turn there would be no use for taxes. The government would spend so much that deficits would be monumental. However, if this would occur, the U.S. currency would be worthless, because in the international economy, nobody would want to give the loans to the government because of the large deficits and ever increasing interest rates from any country.

In Section 8, the main section is about how congress can create taxes and etc. That section is how money is a standard thoroughout the nation and they regulate it.

The Fed does have control of the economic structure in a monteary policy by money supply and interest rates, but the purpose is not to bring the nation down. It is to stablize in way that brings it economic growth and prosperity.

There is a consirpacy theory that the Great Depression was caused by the Feds because the economy was in super high gear and the the Fed caused the depression because they kept feeding the economy with money, which causes investment and interest rates to go sky high if the money is already there because the economy is well, which resulted in mass panic. The economy didn't need the money. A good economy creates money by itself. The government is only to help and baby it. You should read Milton Friedman, a major adovcate on free economy while John Kaynes was more of a mixed economist.

Answer 3

I don't think you understand the purpose of a Central Bank, but that's why you asked your question right?

Before I explain anything, understand that the Central Bank is owned, operated, and interested in what's best for America. Why? Because the Fed IS America's Bank. It belongs to our country and is managed by people who are devoted to the prosperity of our country.

Now if you look at what the Central Bank does with regards to policy, you'll see that it's role is of monetary rather than fiscal priority. What this means is that it is not the Central Bank's responsibility to bail out the government should it get into trouble (although it may be OBLIGATED to do so). This is because the Central Bank focuses on characteristics such as money supply, inflation (to a degree), currency value, price indexes, money volatility, etc. What the Central Bank does NOT focus on is infrastructure, education, defense, and other civil programs which require funding.

So now you're probably wondering about issues such as unemployment, debt, wealth distribution, social security and the like. The fact of the matter is that economists discuss the bank's role in these issues everyday! The point being discussed though isn't whether or not the bank should take action at all, but rather WHEN the bank should help the government due to the interplay of economic forces. One of the easiest to explain here is the relationship between debt and inflation since the bank's role here is to buy and sell treasury bonds. Basically, when the bank increases interest rates, bonds become cheaper meaning that the money supply decreases and the dollar appreciates. Resultingly, credit lines tighten and debt becomes harder to handle for consumers and businesses. Conversely, when the Fed lowers interest rates, bonds become expensive which means that the money supply increases and the dollar DEPRECIATES (credit lines loosen and debt becomes easier to handle by consumers and businesses).

There are other conditions that need to be considered here to such as money volatility (how many times a dollar gets used within a certain time period), overseas competition for domestically produced products (cheaper currency makes domestic goods more competitive, but too much can make them worthless), and responsible financing (i.e. trying to induce responsible behavior such as seen with the Fed's attempt to prevent a sub-prime credit crisis from ruining debt owners).

There's a lot more to be explained beyond this, but the last thing I want to say is that practically EVERY country in the world has an independent Central Bank (although it may be called upon to support the government at times of crisis or corruption). Even countries like Russia, Venezuela, and Mexico who have many socialist practices have independent Central Banks.

Answer 4

The Fed is controlled by the Board of Governors, which is an agency of the federal government. So effectively, the government is running the bank. It isn't run by any "independent company". I have no idea what you've been reading.

Answer 5

You got it , the system is full of fraud upon the people. when the federal reserve act was passed only 3 voted on it,the secretary declaired it passed. Where is the quorum of Representatives at ?