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Report: U.S. deficit to hit $2.29 trillion (pg. 3)
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| Trancer-X |
| quote: | Lewis v. United States, 680 F.2d 1239 (1982)
John L. Lewis, Plaintiff/Appellant,
v.
United States of America, Defendant/Appellee.
No. 80-5905
United States Court of Appeals, Ninth Circuit.
Submitted March 2, 1982.
Decided April 19, 1982.
As Amended June 24, 1982.
Examining the organization and function of the Federal Reserve Banks, and applying the relevant factors, we conclude that the Reserve Banks are not federal instrumentalities for purpose of the FTCA, but are independent, privately owned and locally controlled corporations.
Each Federal Reserve Bank is a separate corporation owned by commercial banks in its region. The stockholding commercial banks elect two thirds of each Bank's nine member board of directors. The remaining three directors are appointed by the Federal Reserve Board. The Federal Reserve Board regulates the Reserve Banks, but direct supervision and control of each Bank is exercised by its board of directors. 12 U.S.C. Sect. 301. The directors enact by-laws regulating the manner of conducting general Bank business, 12 U.S.C. Sect. 341, and appoint officers to implement and supervise daily Bank activities. These activites include collecting and clearing checks, making advances to private and commercial entities, holding reserves for member banks, discounting the notes of member banks, and buying and selling securities on the open market. See 12 U.S.C. Sub-Sect. 341-361.
Each Bank is statutorily empowered to conduct these activites without day to day direction from the federal government. Thus, for example, the interest rates on advances to member banks, individuals, partnerships, and corporations are set by each Reserve Bank and their decisions regarding the purchase and sale of securities are likewise independently made |
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| ogvh5150 |
| Thank you. I read it now that it wasn't cut up. A good read indeed. Hopefully others will read and gain some insight into the Federal Reserve System and the real economy. |
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| occrider |
| quote: | Originally posted by ogvh5150
Thank you. I read it now that it wasn't cut up. A good read indeed. Hopefully others will read and gain some insight into the Federal Reserve System and the real economy. |
That ruling applied to the 10 federal reserve district banks, not the main Fed. The main federal reserve that conducts monetary policy is a federal institution with appointments made by the executive branch. I'm an economist so I hope I have some insight into the real economy. |
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| ogvh5150 |
| quote: | Originally posted by federalreserve.org FAQ
How is the Federal Reserve System structured?
The Federal Reserve System has a structure designed by Congress to give it a broad perspective on the economy and on economic activity in all parts of the nation. It is a federal system, composed basically of a central, governmental agency--the Board of Governors--in Washington, D.C., and twelve regional Federal Reserve Banks, located in major cities throughout the nation. These components share responsibility for supervising and regulating certain financial institutions and activities; for providing banking services to depository institutions and to the federal government; and for ensuring that consumers receive adequate information and fair treatment in their business with the banking system.
A major component of the System is the Federal Open Market Committee (FOMC), which is made up of the members of the Board of Governors, the president of the Federal Reserve Bank of New York, and presidents of four other Federal Reserve Banks, who serve on a rotating basis. The FOMC oversees open market operations, which is the main tool used by the Federal Reserve to influence money market conditions and the growth of money and credit.
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Sounds like they are one and the same to me and that court ruling would apply to the whole "Fed" system. |
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| occrider |
| quote: | Originally posted by ogvh5150
Sounds like they are one and the same to me and that court ruling would apply to the whole "Fed" system. |
While the Federal Reserve Banking system is considered an independant central bank, it's actions are audited by the GAO and specifically, the Senate banking committee has oversight over the Federal Reserve Board, the Federal Advisory Council, the Federal Open Market Committee, and Federal Reserve banks and their branches should it feel that the Federal Reserve system's actions are not in line with its goals outlined by its charter.
http://thomas.loc.gov/cgi-bin/bdque...y:@@@L&summ2=m& |
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| ogvh5150 |
| quote: | 7. Examinations
As a condition of membership such banks shall likewise be subject to examinations made by direction of the Board of Governors of the Federal Reserve System or of the Federal reserve bank by examiners selected or approved by the Board of Governors of the Federal Reserve System.
[12 USC 325. As added by act of June 21, 1917 (40 Stat. 233), which completely revised this section.]
8. Acceptance of State Examinations; Expenses; Reports of Examinations and Confidential Supervisory Information
Whenever the directors of the Federal reserve bank shall approve the examinations made by the State authorities, such examinations and the reports thereof may be accepted in lieu of examinations made by examiners selected or approved by the Board of Governors of the Federal Reserve System: Provided, however, That when it deems it necessary the board may order special examinations by examiners of its own selection and shall in all cases approve the form of the report. The expenses of all examinations, other than those made by State authorities, may, in the discretion of the Board of Governors of the Federal Reserve System, be assessed against the banks examined and, when so assessed, shall be paid by the banks examined. The Board of Governors of the Federal Reserve System, at its discretion, may furnish any report of examination or other confidential supervisory information concerning any State member bank or other entity examined under any other authority of the Board, to any Federal or State agency or authority with supervisory or regulatory authority over the examined entity, to any officer, director, or receiver of the examined entity, and to any other person that the Board determines to be proper.
[12 USC 326. As added by act of June 21, 1917 (40 Stat. 233), which completely revised this section; and amended by acts of June 26, 1930 (46 Stat. 814) and Nov. 12, 1999 (113 Stat. 1475).]
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| occrider |
And by the way, the key wording of that court decision is this:
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Lewis v. United States, 680 F.2d 1239 (1982)
John L. Lewis, Plaintiff/Appellant,
v.
United States of America, Defendant/Appellee.
No. 80-5905
United States Court of Appeals, Ninth Circuit.
Submitted March 2, 1982.
Decided April 19, 1982.
As Amended June 24, 1982.
Examining the organization and function of the Federal Reserve Banks, and applying the relevant factors, we conclude that the Reserve Banks are not federal instrumentalities for purpose of the FTCA, but are independent, privately owned and locally controlled corporations.
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The court case was brought by John L. Lewis who was injured by a vehicle owned and operated by a federal reserve bank, and brought action alleging jurisdiction under the Federal Tort Claims Act. The District Court dismissed the case by ruling that the federal reserve bank was not a federal agency within meaning of the Federal Tort Claims Act and the court therefore lacked subject-matter jurisdiction.
However, this does not imply, as so many wrongly interpret, that private individuals own the banks for the court also stated “Each Federal Reserve Bank is a separate corporation owned by commercial banks in its region. The stockholding commercial banks elect two thirds of each Bank’s nine member board of directors. The remaining three directors are appointed by the Federal Reserve Board. The Federal Reserve Board then regulates the Reserve Banks. And the Federal Reserve Board is by no means a private institution. |
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| occrider |
| quote: | Originally posted by ogvh5150
7. Examinations
As a condition of membership such banks shall likewise be subject to examinations made by direction of the Board of Governors of the Federal Reserve System or of the Federal reserve bank by examiners selected or approved by the Board of Governors of the Federal Reserve System.
[12 USC 325. As added by act of June 21, 1917 (40 Stat. 233), which completely revised this section.]
8. Acceptance of State Examinations; Expenses; Reports of Examinations and Confidential Supervisory Information
Whenever the directors of the Federal reserve bank shall approve the examinations made by the State authorities, such examinations and the reports thereof may be accepted in lieu of examinations made by examiners selected or approved by the Board of Governors of the Federal Reserve System: Provided, however, That when it deems it necessary the board may order special examinations by examiners of its own selection and shall in all cases approve the form of the report. The expenses of all examinations, other than those made by State authorities, may, in the discretion of the Board of Governors of the Federal Reserve System, be assessed against the banks examined and, when so assessed, shall be paid by the banks examined. The Board of Governors of the Federal Reserve System, at its discretion, may furnish any report of examination or other confidential supervisory information concerning any State member bank or other entity examined under any other authority of the Board, to any Federal or State agency or authority with supervisory or regulatory authority over the examined entity, to any officer, director, or receiver of the examined entity, and to any other person that the Board determines to be proper.
[12 USC 326. As added by act of June 21, 1917 (40 Stat. 233), which completely revised this section; and amended by acts of June 26, 1930 (46 Stat. 814) and Nov. 12, 1999 (113 Stat. 1475).]
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Ummmm yes the federal reserve board has discretion to submit examinations of reserve banks at its discretion since it is the regulator of the district banks. However, congress and the GAO have oversight over the entire federal reserve banking system along with the Federal Reserve Board. |
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| occrider |
Here:
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[img] http://www.house.gov/jec/rpt-mr97.gif[/img]
The Importance of the Federal Reserve
Executive Summary
The Federal Reserve — our Central Bank — is one of the country's most powerful economic institutions. The Federal Reserve is relevant for Congress not only because the Constitution gives monetary powers to Congress but also because Congress created the Fed and, therefore, has critically important responsibilities for Federal Reserve oversight.
This paper provides a brief overview of what Members of Congress should know about the Federal Reserve. It is intended to lay the groundwork for several subsequent papers surrounding issues related to congressional oversight of Federal Reserve monetary policy and the goal of price stability.
Congressional oversight of the Federal Reserve and monetary policy is important because:
Monetary policy can dominate fiscal policy in certain circumstances.
Inflation is determined by monetary policy.
The Federal Reserve influences interest rates.
The Federal Reserve stabilizes the financial system.
This paper briefly summarizes the structure and operating procedures of the Federal Reserve and comments on the significance of congressional oversight.
The Importance of the Federal Reserve
Introduction
Although the Federal Reserve—our Central Bank (or monetary authority)—is one of the country's most powerful economic institutions, it is also one of the most misunderstood. For Congress, the Federal Reserve is relevant because (1) the U.S. Constitution (Article I, Section 8) explicitly gives Congress the power over money and the regulation of its value and (2) this responsibility was delegated by Congress to the Federal Reserve; the Federal Reserve was created by an act of Congress. Accordingly, Congress has important responsibilities for overseeing the Federal Reserve and monetary policy.
This paper provides a brief overview of what (and why) Congress should know about the Federal Reserve. A broad-brush overview, it is intended to lay the groundwork for several subsequent papers addressing issues related to congressional oversight of Federal Reserve monetary policy and the goal of price stability.
Our Central Bank: The Federal Reserve
As the Nation's Central Bank, the Federal Reserve is granted special privileges and so assumes the responsibilities and characteristics of such a bank. It monopolizes the issuance of paper money, serves as banker for both the government and commercial banks, and acts as lender of last resort. The latter, in turn, calls for bank regulatory responsibilities. Since Federal Reserve operations work to centralize reserves (Federal Reserve notes and deposits form a large portion of bank reserves), they entail responsibility for reserve management and hence monetary policy. Two critically important macroeconomic functions of the Central Bank, therefore, are the maintenance and achievement of price and financial system stability (i.e., stable monetary policy and the provision of lender-of-last-resort services).
Why Federal Reserve Functions are Important
The importance of congressional oversight of the Federal Reserve cannot be overemphasized. These functions are important, for example, because they imply that the Federal Reserve controls and hence is responsible for the management of total spending or aggregate demand as well as inflation. In carrying out its monetary policy management (via manipulating reserves), the Federal Reserve influences interest rates—especially short-term rates—as well as foreign exchange rates and other financial market prices. And in times of financial crisis, the Federal Reserve's lender-of-last-resort function stabilizes the entire financial system. The significance of these important considerations is briefly summarized in turn.
Management of Aggregate Demand: Monetary Policy Dominates Fiscal Policy.
Most economists recognize that total spending or aggregate demand is determined more by monetary policy than by fiscal policy. In other words, if Congress passes tax or spending legislation intended to affect total spending or aggregate demand, these effects can be fully offset or outweighed by changes in monetary policy. Indeed, accurate counter-cyclical fiscal policy—altering budget deficits to manage economic activity or aggregate demand—is now seen as neither possible nor desirable. Economists no longer agree on even the direction of the economic effects of changing budget deficits,[1] yet all agree that changes in monetary policy do have predictable and potent effects on aggregate demand and economic activity.
This implies that changes in monetary policy are often a major factor in movements of the business cycle; many booms and recessions are directly related to changes in monetary policy. Conversely, stable economic activity is often the result of appropriate, stable monetary policy. For example, in recent years the Federal Reserve deserves credit for instituting a restrained, non-inflationary policy, which not only has helped to stabilize the economic cycle but has helped to stabilize most financial markets as well.
Inflation is Determined by Monetary Policy.
Federal Reserve monetary policy is also the key determinant of inflation. It is well known that, among other economic effects, inflation can adversely affect savings, distort investment decisions, and be used by government to enhance its tax revenue and reduce its real debt. Inflation works to distort the signals of the price system, the signaling mechanism of a free market economy. Partly for this reason, recent research has shown that higher inflation is associated with lower economic growth. Accordingly, the only lasting contribution monetary policy can make toward fostering long-term economic growth is to promote price stability. Consequently, there is a growing consensus among experts that price stability should be the key objective of monetary policy. Congress can, of course, mandate this objective to the Federal Reserve.
Interest Rates Are Influenced by the Federal Reserve.
The Federal Reserve also influences interest rates which affect key interest-rate sensitive sectors of the economy such as housing, autos, and investment. More specifically, the Federal Reserve influences interest rates by manipulating reserves. Short-term rates are more directly influenced by Federal policy because its reserve operations involve purchases and sales of short-term government securities which influence bank reserves. Nonetheless, long-term rates are also influenced by monetary policy. Among other influences, for example, long-term rates are affected by changes in inflationary expectations as well as expectations of Fed policy. Nonetheless, the only way monetary policy can sustain lower long-term rates is to promote price stability, thereby removing the influence of both inflationary expectations as well as uncertainty premiums. Certainly, Congress has reason to ensure the provision of lower long-term rates in this way.
The Federal Reserve is the Lender of Last Resort.
During financial crises, provision of lender-of-last-resort services can stabilize the financial system. The Central Bank, being the ultimate supplier of system-wide reserves, can satisfy sharp increases in reserve or liquidity demand, thereby preventing systemic liquidity shortages and stabilizing the financial system. Failure to provide this function as, for example, occurred in the Great Depression of the 1930s, can be disastrous. On the other hand, liquidity provision prevented any serious financial system fallout from the sharp 1987 stock market crash and 1989 stock market decline. The Federal Reserve (and by inference the Congress) has responsibility to ensure that lender-of-last-resort safeguards are adequate and in place in case of unforseen financial shocks.
STRUCTURE
The Federal Reserve's organizational structure is unusual, some would say even Byzantine. It is a Federal system made up of (1) a central government agency, the Board of Governors in Washington, D.C., (2) 12 regional banks located in major U.S. cities, and (3) a monetary policy decision-making unit, the Federal Open Market Committee (FOMC), composed of representatives from both the Board and banks.
The Board of Governors (BOG).
The BOG was established as a Federal agency. It is composed of seven Governors appointed by the President of the United States and confirmed by the Senate to staggered 14-year terms. A Chairman (and Vice Chairman) are also appointed by the President and confirmed by the Senate, for four-year terms. The Board of Governors and its staff of about 1,700 are located in Washington, D.C.
Twelve Federal Reserve Banks.
Twelve Federal Reserve Banks serve as the operating arm of the Federal Reserve system; they perform a number of functions such as operating a nationwide payment system, supervising certain financial institutions, distributing the nation's currency and coin, and serving as a banker for commercial banks and the U.S. Treasury. Each bank has a President nominated by its board of directors and approved by the Board of Governors. The New York Bank is clearly "the first among equals" since it not only sits in the world's financial center but serves as the Federal Open Market Committee's operating arm, conducting open market operations and foreign exchange intervention. Congress chartered these banks and, consequently, has oversight responsibilities for them.
Federal Open Market Committee.
The FOMC, the Federal Reserve's key monetary policy decision-making unit, formally meets eight times a year in Washington, D.C.[3] It oversees open-market operations, the principal tool of monetary policy which influences short-term interest rates and determines reserve and monetary growth. It also directs foreign exchange market operations of the Federal Reserve System. The FOMC is made up of the seven Board Members and five of the 12 Reserve Bank presidents.[4] These presidents bring "grass roots" information to the meetings and, historically, have had relatively conservative voting records due in part to their insulation from political pressures. Notably, the structure described here was designed by Congress and therefore can be changed by Congress.
POLICY OPERATIONS
The Federal Reserve conducts monetary policy principally using open-market operations (purchases/sales of securities) to alter bank reserves and influence short-term interest rates, but it also can employ the discount rate and changes in reserve requirements as policy tools. In so doing, the Federal Reserve uses the Fed funds rate as its key policy instrument. Movements in this rate (relative to other rates) in turn influence a wide array of financial and economic variables with differing time lags. These movements, for example, influence financial market variables (such as other interest rates, foreign exchange rates, commodity prices, and yield spreads), monetary and credit aggregates, measures of economic and business activity, and eventually broad measures of inflation. Because of the long time lags involved between adjustments to Federal Reserve instruments and ultimate policy goals, monetary policy makers look for those variables that are both reliably influenced by Fed policy moves and in turn predictably related to subsequent movements in policy goals; i.e., they look for reliable intermediate guides to policy.
Over the years, controversies about monetary policy have often related to debates over which variables best serve as intermediate policy guides or targets. In the past, for example, Keynesian economists prescribed target variables such as unemployment or interest rates whereas monetarist economists prescribed monetary aggregates as targets. Both of these types of targets, however, have proven unreliable. Currently, the Federal Reserve has no single explicit intermediate policy target. Rather, it uses an eclectic approach, but undoubtedly has paid more attention to movements in financial market variables than previously was the case.
CONGRESSIONAL OVERSIGHT OF MONETARY POLICY
Detailed knowledge of the intricacies and fine points of monetary policy operations, however, is not necessary for successful congressional oversight. Rather, the keys for Congress are to clearly establish a viable objective for the Federal Reserve and to ensure the Central Bank is fully accountable for achieving this goal. This can be fostered by establishing appropriate incentives for monetary policy makers as well as mandating enhanced reporting and disclosure requirements related to progress in achieving stated objectives. Oversight, therefore, should promote policy transparency which can help to promote the credibility of a given monetary policy.
Notably, congressional oversight of the Federal Reserve need not imply increased political influence on monetary policy, especially if explicit, objective policy goals such as price stability are established for the Central Bank. Such oversight can actually work to minimize political influence by ensuring Executive Branch sway over monetary policy reflecting their appointments to the Board of Governors is kept in check.
http://www.house.gov/jec/fed/fed/fed-impt.htm
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| Trancer-X |
| quote: | Originally posted by occrider
That ruling applied to the 10 federal reserve district banks, not the main Fed. The main federal reserve that conducts monetary policy is a federal institution with appointments made by the executive branch. I'm an economist so I hope I have some insight into the real economy. |
So can you you answer this:
Given the fact that our money has no intrinsic value, who do our interest payments go to and who's actually profiting from the interest? (It surely isn't the United States Government or the taxpayers)
Why does the Fed issue stock certificates like a privately held corporation (which are not available to the public)?
Why would Kennedy have made it such an issue to create interest-free and debt-free "United States Notes" which were backed by the US Treasury's silver reserves? Why were the United States Notes withdrawn from circulation so quickly after Kennedy's assassination (right after LBJ took over)?
Lastly, do you think that your economics professors (or textbooks for that matter) would actually reveal the true nature of the Fed if it was in fact guilty of unbeknownst usuries?
OWNERSHIP OF THE FEDERAL RESERVE |
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| occrider |
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So can you you answer this:
Given the fact that our money has no intrinsic value, who do our interest payments go to and who's actually profiting from the interest? (It surely isn't the United States Government or the taxpayers)
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Well I work in the finance/banking industry so perhaps I can answer this question. First, our money does have intrinsic “value”. Its value is based on the faith that the United States government’s guarantee that all debts, public and private, can be satisfied with its currency. The market “gauge” of the government’s ability to hold up to this guarantee is the interest rate that a currency maintains. Now, to understand the concept of interest rates you have to understand that money that is sitting around doing nothing, is essentially wasting money. One can always deposit money in a bank, invest in a CD, or any other slow, but safe investment that earns you nominal interest. Your interest is determined by the amount you are borrowing and the duration until you pay back your interest plus principal. As for where your interest payments go to … to whoever loaned you the money. For example, for mortgages, we purchase hundreds of mortgages from banks. By passing off the mortgages to us they’ve essentially wiped their hands clean of that mortgage and banks can afford to loan out more mortgages to consumers at a relatively low interest rate. When consumers pay the banks their mortgage payments, banks forward those payments to us since we are the new servicers of the mortgage. What we then do is we package a group of mortgages into a mortgage backed security, and sell it to private investors. These investors are probably looking for safe investments that provide steady income streams. We then pay out the income streams of these mortgages to the investor and they earn a return on their investment over time. Most of investors in this area are pension funds and what not. From the money that these investors pay us with, we can then afford to purchase more mortgages from banks … assuming we hedge the risks correctly and make money off our investments.
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Why does the Fed issue stock certificates like a privately held corporation (which are not available to the public)? |
The fed issues stocks because it’s mandated to:
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United States Code
TITLE 12 - BANKS AND BANKING
CHAPTER 3 - FEDERAL RESERVE SYSTEM
SUBCHAPTER VI - CAPITAL AND STOCK OF FEDERAL RESERVE BANKS; DIVIDENDS AND EARNINGS
Section 287
Section 287. Value of shares of stock; increase and decrease of stock; member banks as shareholders; surrender of shares
The capital stock of each Federal reserve bank shall be divided into shares of $100 each. The outstanding capital stock shall be increased from time to time as member banks increase their capital stock and surplus or as additional banks become members, and may be decreased as member banks reduce their capital stock or surplus or cease to be members. Shares of the capital stock of Federal reserve banks owned by member banks shall not be transferred or hypothecated. When a member bank increases its capital stock or surplus, it shall thereupon subscribe for an additional amount of capital stock of the Federal reserve bank of its district equal to 6 per centum of the said increase, one-half of said subscription to be paid in the manner hereinbefore provided for original subscription, and one-half subject to call of the Board of Governors of the Federal Reserve System. A bank applying for stock in a Federal reserve bank at any time after the organization thereof must subscribe for an amount of the capital stock of the Federal reserve bank equal to 6 per centum of the paid-up capital stock and surplus of said applicant bank, paying therefor its par value plus one-half of 1 per centum a month from the period of the last dividend. When a member bank reduces its capital stock or surplus it shall surrender a proportionate amount of its holdings in the capital stock of said Federal Reserve bank. Any member bank which holds capital stock of a Federal Reserve bank in excess of the amount required on the basis of 6 per centum of its paid-up capital stock and surplus shall surrender such excess stock. When a member bank voluntarily liquidates it shall surrender all of its holdings of the capital stock of said Federal Reserve bank and be released from its stock subscription not previously called. In any such case the shares surrendered shall be canceled and the member bank shall receive in payment therefor, under regulations to be prescribed by the Board of Governors of the Federal Reserve System, a sum equal to its cash-paid subscriptions on the shares surrendered and one-half of 1 per centum a month from the period of the last dividend not to exceed the book value thereof, less any liability of such member bank to the Federal Reserve bank.
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All national, or federally chartered, banks are required to join the system; membership of state-chartered institutions is voluntary. Members have to purchase capital stock in their district Federal Reserve bank in the amount of 6 percent of their capital, excluding retained earnings, and get the right to vote for six of the nine directors of that district bank. Stock ownership does not convey control or the financial interest normally attached to stock in a corporation. The stock may not be sold or used as collateral and must be returned to the district reserve bank if the commercial bank ceases to be a member. Essentially stock purchase is required to force a vested interest in the member bank. If it wants the ability to replenish its money supply at the overnight discount rate, in the event that the bank’s reserves dip below the requirement, than it has to become a member by surrendering a percentage of its capital to own stock. Oh and by law dividend payments are 6 percent ...
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Why would Kennedy have made it such an issue to create interest-free and debt-free "United States Notes" which were backed by the US Treasury's silver reserves? Why were the United States Notes withdrawn from circulation so quickly after Kennedy's assassination (right after LBJ took over)?
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I don’t know to be honest. I’ll research it later tonight, but even if Kennedy had re-introduced notes backed by silver or gold reserves that still wouldn’t eliminate “interest” on the note. Interest is not simply derived from the devaluation of money. Interest is essentially arrived at by calculating the opportunity cost of capital using a time function. The simple fact of the matter is that you are borrowing money that you don’t have and are paying it back at a future date. That money could be invested earning a nominal rate of return elsewhere. It could also be invested in a risky investment with a potential high rate of return. Interest is the opportunity cost you apply to a loan to make that loan a worthwhile investment.
Edit: Ok here's some basic research I did into what Kennedy did:
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BY: Edward Flaherty, Ph.D. Department of Economics College of Charleston, S.C.
Presidential Executive Order 11,110 is quite infamous among conspiracy buffs. Jim Marrs, author of Crossfire: The Plot that Killed Kennedy, writes that the order instructs the Treasury secretary to issue about $4.2 billion in silver certificates as a form of currency in place of Federal Reserve Notes.1 Written by John F. Kennedy, Marrs also speculates this order was part of a larger plan by Kennedy to reduce the influence of the Federal Reserve by giving the Treasury more power to issue currency. The order was signed June 4, 1963. A few months later, of course, Kennedy was killed, and conspiracy theorists hypothesize a link between the murder and E.O. 11,110. They argue that the Federal Reserve was somehow involved in the assassination to protect its power over monetary policy.
The executive order modifies a pre-existing order issued by Harry Truman in 1951. E.O. 10,289 states "The Secretary of the Treasury is hereby designated and empowered to perform the following-described functions of the President without the approval, ratification, or other action of the President..." The order then lists tasks (a) through (h) which the Treasurer can now do without bothering the President. None of the powers assigned to the Treasury in E.O. 10,289 relate to money or to monetary policy. Kennedy's E.O. 11,110 then instructs that
SECTION 1. Executive Order No. 10289 of September 9, 1951, as amended, is hereby further amended (a) By adding at the end of paragraph 1 thereof the following subparagraph (j): '(j) The authority vested in the President by paragraph (b) of section 43 of the Act of May 12, 1933, as amended (31 U.S.C. 821(b)), to issue silver certificates against any silver bullion, silver, or standard silver dollars in the Treasury not then held for redemption of any outstanding silver certificates, to prescribe the denominations of such silver certificates, and to coin standard silver dollars and subsidiary silver currency for their redemption,' and (b) By revoking subparagraphs (b) and (c) of paragraph 2 thereof.
SECTION 2. The amendments made by this Order shall not affect any act done, or any right accruing or accrued or any suit or proceeding had or commenced in any civil or criminal cause prior to the date of this Order but all such liabilities shall continue any may be enforced as if said amendments had not been made.
John F. Kennedy, THE WHITE HOUSE, June 4, 1963.
To understand exactly what Kennedy's order was trying to do, we must understand the purpose of the legislation which gave the order its underlying authority. The Agricultural Adjustment Act of May 12, 1933 (ch. 25, 48 Stat 51) to which Kennedy refers permits the President to issue silver certificates in various denominations (mostly $1, $2, $5, and $10) and in any total volume so long as the Treasury has enough silver on hand to redeem the certificates for a specific quantity and fineness of silver and that the total volume of such currency does not exceed $3 billion. The Silver Purchase Act of 1934 (ch. 674,48 Stat 1178) also grants this power to the Treasury Secretary subject to similar limitations. Nowhere in the text of the order is a quantity of money mentioned, so it is unclear how Marrs arrived at his $4.2 billion figure. Moreover, the President could not have authorized such a large issue because it would have exceeded the statutory limit.2
As economic activity grew in the fifties and sixties, the public demand for low denomination currency grew, increasing the Treasury's need for silver to back additional certificate issues and to mint new coins (dimes, quarters, half-dollars). However, during the late fifties the price of silver began to rise and reached the point that the market value of the silver contained in the coins and backing the certificates was greater than the face value of the money itself.2
To conserve the Treasury's silver needs, the Silver Purchase Act and related measures were repealed by Congress in 1963 with Public Law 88-36. Following the repeal, only the President could authorize new silver certificate issues, and no longer the Treasury Secretary. The law, signed by Kennedy himself, also permits the Federal Reserve to issue small denomination bills to replace the outgoing silver certificates (prior to the act, the Fed could only issue Federal Reserve Notes in larger denominations). The Treasury's shrinking silver stock could then be used to mint coins only and not have to back currency. The repeal left only the President with the authority to issue silver certificates, however it did permit him to delegate this authority. E.O. 11,110 does this by transferring the authority from the President to the Treasury Secretary.2
E.O. 11,110 did not create authority to issue new silver certificates, it only affected who could give the order. The purpose of the order was to facilitate the reduction of certificates in circulation, not to increase them. In October 1964 the Treasury ceased issuing them entirely. The Coinage Act of 1965 (PL 89-81) ended the practice of using silver in most U.S. coins, and in 1968 Congress ended the redeemability of silver certificates (PL 90-29). E.O. 11,110 was never reversed by President Johnson and remained on the books until 1987 when there was a general cleaning-up of executive orders (E.O. 12,608, 9/9/87). However, by this time the remaining legislative authority behind E.O. 11,110 had been repealed by Congress with PL 97-258 in 1982.2
In summary, E.O. 11,110 did not create new authority to issue additional silver certificates. In fact, its intention was to ease the process for their removal so that small denomination Federal Reserve Notes could replace them in accordance with a law Kennedy himself signed. If Kennedy had really sought to reduce Federal Reserve power, then why did he sign a bill that gave the Fed still more power?
Marrs also makes some other factual errors in his conspiracy tale that suggest he is not very familiar with the Federal Reserve or the financial system. He writes that a source of tension between the Federal Reserve and the Kennedy Administration was the Treasury's desire to allow banks to underwrite state and local government bonds, thereby weakening the "dominant" Federal Reserve banks. However, such a move, which was later permitted by Congress, would not have affected the Federal Reserve system because it had never been involved in underwriting bond issues. Marrs also claims that Kennedy signed a bill that changed the backing of small denomination currency from silver to gold to "add strength to the weakened U.S. currency." This is completely false. U.S. currency has not been on the gold standard since 1934, and silver certificates, as their name suggests, had never been redeemable in anything but silver. In addition, U.S. currency was not "weak" during Kennedy's time: There had not been any significant inflation since the late forties, and the exchange rate value of the dollar was fixed according to the Bretton Woods agreement.
In the introduction to his book, Marrs advises the reader not to trust his book. This appears to be good advice.
References:
1. Marrs, Jim (1989), Crossfire: The Plot that Killed Kennedy, New York: Carroll & Graf Publishers.
2. Woodward, G. Thomas (1996), "Money and the Federal Reserve System: Myth and Reality," Congressional Research Service.
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Lastly, do you think that your economics professors (or textbooks for that matter) would actually reveal the true nature of the Fed if it was in fact guilty of unbeknownst usuries?
http://www.research.stlouisfed.org/...ata/M3_5yrs.png
OWNERSHIP OF THE FEDERAL RESERVE
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Well I’ve spent 4 years studying economics at the college level. My job is in the finance industry. I understand the role of the Fed in the economy because I know how the banking industry works, I know the role the government plays in all of this, and I know how the money works, and hell everything the Fed does in one way or another affects me.
Edit: By the way, the Federal Reserves turns over all of its earnings (after paying expenses) to the US treasury:
http://www.federalreserve.gov/boarddocs/rptcongress/ |
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| quote: | Originally posted by occrider
Well I work in the finance/banking industry so perhaps I can answer this question. First, our money does have intrinsic “value”. Its value is based on the faith that the United States government’s guarantee that all debts, public and private, can be satisfied with its currency. The market “gauge” of the government’s ability to hold up to this guarantee is the interest rate that a currency maintains. Now, to understand the concept of interest rates you have to understand that money that is sitting around doing nothing, is essentially wasting money. One can always deposit money in a bank, invest in a CD, or any other slow, but safe investment that earns you nominal interest. Your interest is determined by the amount you are borrowing and the duration until you pay back your interest plus principal. As for where your interest payments go to … to whoever loaned you the money. For example, for mortgages, we purchase hundreds of mortgages from banks. By passing off the mortgages to us they’ve essentially wiped their hands clean of that mortgage and banks can afford to loan out more mortgages to consumers at a relatively low interest rate. When consumers pay the banks their mortgage payments, banks forward those payments to us since we are the new servicers of the mortgage. What we then do is we package a group of mortgages into a mortgage backed security, and sell it to private investors. These investors are probably looking for safe investments that provide steady income streams. We then pay out the income streams of these mortgages to the investor and they earn a return on their investment over time. Most of investors in this area are pension funds and what not. From the money that these investors pay us with, we can then afford to purchase more mortgages from banks … assuming we hedge the risks correctly and make money off our investments.
The fed issues stocks because it’s mandated to:
All national, or federally chartered, banks are required to join the system; membership of state-chartered institutions is voluntary. Members have to purchase capital stock in their district Federal Reserve bank in the amount of 6 percent of their capital, excluding retained earnings, and get the right to vote for six of the nine directors of that district bank. Stock ownership does not convey control or the financial interest normally attached to stock in a corporation. The stock may not be sold or used as collateral and must be returned to the district reserve bank if the commercial bank ceases to be a member. Essentially stock purchase is required to force a vested interest in the member bank. If it wants the ability to replenish its money supply at the overnight discount rate, in the event that the bank’s reserves dip below the requirement, than it has to become a member by surrendering a percentage of its capital to own stock.
I don’t know to be honest. I’ll research it later tonight, but even if Kennedy had re-introduced notes backed by silver or gold reserves that still wouldn’t eliminate “interest” on the note. Interest is not simply derived from the devaluation of money. Interest is essentially arrived at by calculating the opportunity cost of capital using a time function. The simple fact of the matter is that you are borrowing money that you don’t have and are paying it back at a future date. That money could be invested earning a nominal rate of return elsewhere. It could also be invested in a risky investment with a potential high rate of return. Interest is the opportunity cost you apply to a loan to make that loan a worthwhile investment.
Well I’ve spent 4 years studying economics at the college level. My job is in the finance industry. I understand the role of the Fed in the economy because I know how banks work, I know how the government works, and I know how the money works, and hell everything the Fed does in one way or another affects me. |
Kennedy's 'United States Notes' were interest and debt free. They had intrinsic value backed by the Treasury's silver reserves. It was an attempt to break free from the Fed's "fiat money."
If the Fed is actually a Government agency, why do they loan our Government money at interest?
With the knowledge base of all of the professors and economists, why aren't we able to stop our National debt from spiralling out of control? (over $6,000,000,000,000.00 in additional debt created since 1963)
Why hasn't the Fed ever been audited? |
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