Here We Go Again: Debunking the Federal Reserve Myths

[Pajman]

With the release of certain film productions (well, you know the one in particular), more and more people are becoming misinformed about the Federal Reserve.
Here are some of the most common myths about the Fed:


Myth #1: There’s nothing “federal” about the Federal Reserve

The Federal Reserve Board (“Board of Governors”) is a government agency which consists of 7 members appointed by the president and confirmed by the Senate. According to the law (12USC§244), the members of the board cannot be “an officer or director of any bank, banking institution, trust company, or Federal Reserve bank or hold stock in any bank, banking institution, or trust company; and before entering upon his duties as a member of the Board of Governors of the Federal Reserve System he shall certify under oath that he has complied with this requirement, and such certification shall be filed with the secretary of the Board.”
You have probably heard that the Fed is privately owned. This is false. No one “owns” the Fed. It is only “controlled” by the board mentioned above. The member banks of the Federal Reserve are private. This is why the Fed is referred to as a quasi-governmental institution. These member banks own shares of the Federal Reserve stock. However, unlike stocks of a publicly traded corporation, Federal Reserve stocks only represent membership in the Fed and nothing more.
The Fed is independent, but not private (it is only in a sense that the member banks are private). It is important that the Fed stays independent, beyond the immediate reach of politicians.


Myth #2: The Fed Prints Too Much Money

This is possibly the most common of all myths. The Federal Reserve does not have the ability to print money. The Bureau of Engraving and Printing does, which is part of the Treasury Department. The Fed then buys the notes at the cost of printing them, but it cannot gain the potential seigniorage. Seigniorage is the revenue gained from the difference between the cost of printing (or minting) money and the face value of money. The Fed issues money to banks, but primarily to replace the old ones. If it’s not to replace the old money, the Fed will debit the bank’s account, and no gains will show (kind of like how you might withdraw cash form the ATM).



Myth #3: The Fed is the Most Profitable Organization in the World

The Fed is a non-profit organization. It gains most of its revenues from the interest on government securities, but all profits are rebated back to the Treasury. The Fed would be extremely profitable if it didn’t have to give the money back to the Treasury (refer to the audited financials).


Myth #4: The Fed Does Not Get Audited

The Fed gets audited by the Government Accountability Office under the Federal Banking Agency Audit Act. The Office of Inspector General audits the Fed as well. Independent auditors also conduct financial audits. In 2005 and 2006, PricewaterhouseCoopers LLP and KPMG LLP were responsible for auditing the Fed. These audits are made public.

[Fag Boy]

What I find funny is that nobody was asking any of these questions years ago, and then now all of the sudden its an issue. Now im going to get some stupid replies about how I dont know what im talking about and that all the informed individuals of the world have always been skeptical of the fed. No, you were never informed like you are trying to act, and it was never an issue until now. The only reason you people are even talking about this is because of Ron Paul, you will follow him and his scare tactics no matter what.

[Spike Lee]

Originally Posted by Fag Boy

What I find funny is that nobody was asking any of these questions years ago, and then now all of the sudden its an issue. Now im going to get some stupid replies about how I dont know what im talking about and that all the informed individuals of the world have always been skeptical of the fed. No, you were never informed like you are trying to act, and it was never an issue until now. The only reason you people are even talking about this is because of Ron Paul, you will follow him and his scare tactics no matter what.

Or maybe it has something to do with the movie From Freedom To Facism. That where I got it from.

[shade]

How about this...
http://en.wikipedia.org/wiki/Federal_Reserve_Notes

A Federal Reserve NOTE is:

Legally, they are liabilities of the Federal Reserve Banks and obligations of the United States government.

Debt. Whereas in the gold backed currency days, your United States DOLLAR was an obligation of the United States government to give you a set amount of gold. So, in the past, your money was a true value owned by you. A "whole" unit of value. Now, it is debt. What you have in your wallet are liabilities - debt.

Just like how a balance sheet of a corporation has assets on one side such as property (value) and liabilities on the other side such as accounts payable(debt).


Here is another tidbit that is interesting.

The Federal Reserve Banks pay the BEP only the cost of printing the notes (about 4¢ a note), but to circulate the note as new currency rather than merely replacing worn notes, they must pledge collateral for the face value, primarily in Federal securities.

Ah, ok. So new money issued by the fed is indeed backed by something. A security.. ok what is that?

Treasury securities are government bonds issued by the United States Department of the Treasury through the Bureau of the Public Debt.

http://en.wikipedia.org/wiki/Treasury_security
Debt.

So your note is backed by government debt. Yay.

[Pajman]

Originally Posted by shade

How about this...
http://en.wikipedia.org/wiki/Federal_Reserve_Notes

A Federal Reserve NOTE is:


Debt. Whereas in the gold backed currency days, your United States DOLLAR was an obligation of the United States government to give you a set amount of gold. So, in the past, your money was a true value owned by you. A "whole" unit of value. Now, it is debt. What you have in your wallet are liabilities - debt.

Just like how a balance sheet of a corporation has assets on one side such as property (value) and liabilities on the other side such as accounts payable(debt).

Cash still shows up as an asset (current) on your balance sheet. Cash only shows up as a liability to the Fed for accounting purposes. The cash in your wallet is still classified as an asset.
The Fed can't spend the notes, but they still paid money for them. Therefore, the notes have no value. When you have cash, you are free to spend it. Therefore, the notes have value. There's an obvious difference.

Originally Posted by shade

Here is another tidbit that is interesting.

Ah, ok. So new money issued by the fed is indeed backed by something. A security.. ok what is that?

http://en.wikipedia.org/wiki/Treasury_security
Debt.

So your note is backed by government debt. Yay.

Government debt is an asset to the Federal Reserve, or anybody else who wishes to buy them. Bonds are assets, are they not?
Government securities are said to be the most secure investment there is.

[shade]

You are missing the circular nature here.

If all those bonds are paid off (which are backing the note you would pay it off with) what is left over?

Cash in your wallet is only considered an asset because people are still willing to accept them in exchange for goods and services.

[Pajman]

Originally Posted by shade

You are missing the circular nature here.

If all those bonds are paid off (which are backing the note you would pay it off with) what is left over?

After a bond is matured, you are left with the bond principal and the interest that you received.
If it makes you feel any better, they use gold certificates as a collateral as well.

Originally Posted by shade

Cash in your wallet is only considered an asset because people are still willing to accept them in exchange for goods and services.

...and when do you expect people to stop accepting money for their goods?

[HockeyFan28]

Its funny, these conspiracy fools think that before they knew the "real secret truth" that they could bring their bills to fort knox and get a pot full of gold.

the truth is our money is pretty much "funny money". The more money you spend the more its worth in retard terms. every time you spend a dollar you give your other dollars more value....

besides what the fuck does anyone think they will do with a pot of gold anyways if the united states economy collpased??

the whole point of taking us off the gold reserve was to make sure we didnt go into another depression being the government controlls the amount of bills it has in circulation. sure our economy goes up and down but we will never have another depression.

[shade]

Originally Posted by Pajman

After a bond is matured, you are left with the bond principal and the interest that you received.
If it makes you feel any better, they use gold certificates as a collateral as well.

...and when do you expect people to stop accepting money for their goods?

So you missed the point obviously. That very principal is backed by the same debt. If you pay it off, you have nothing left.

This is why I prefer that if we do have a fiat system it at least be less convoluted... dollars are dollars, they are worth what you exchange them for, and that is that. None of this "note is backed by a bond of the same notes" bs.

And yes people are already stopping the use of dollars. Or have you not noticed the further decline of it against the Euro/gold/etc? During the 7 years Bush has been in office, the dollar has been made worth HALF of what it was.

[shade]

Originally Posted by HockeyFan28

Its funny, these conspiracy fools think that before they knew the "real secret truth" that they could bring their bills to fort knox and get a pot full of gold.

the truth is our money is pretty much "funny money". The more money you spend the more its worth in retard terms. every time you spend a dollar you give your other dollars more value....

besides what the fuck does anyone think they will do with a pot of gold anyways if the united states economy collpased??

the whole point of taking us off the gold reserve was to make sure we didnt go into another depression being the government controlls the amount of bills it has in circulation. sure our economy goes up and down but we will never have another depression.

No offense but you have about a 1st grade understanding on this topic. Just about every single thing you said was false. The only hint of truth was your last paragraph, but you do not even understand what part was true or why. So, I will explain it to you.

The only unique power the government has in a fiat system is to create "new money". This simply devalues your money, steals value from it, and allows the government to spend the new money. It can use that to fight a depression in that it can basically tax everyone without going straight to their bank accounts or knocking on their doors and then spend that money. It is more passive in that people dont realize how much value is being stolen and continue their business as normal. In the mean time, the government can increase spending in hopes that it will help reduce unemployment or spur more consumer spending and such.

[Hermit]

well, i'm still bartering and trading shells and shiny rocks (albeit mostly with myself)... nothin spends like wampum...

[Pajman]

Originally Posted by shade

So you missed the point obviously. That very principal is backed by the same debt. If you pay it off, you have nothing left.

This is why I prefer that if we do have a fiat system it at least be less convoluted... dollars are dollars, they are worth what you exchange them for, and that is that. None of this "note is backed by a bond of the same notes" bs.

You are not understanding the concept of a collateral. Having government securities as a collateral means that if the Fed is ever abolished, the US government would be responsible for the notes. The notes themselves still have no intrinsic value, and no one is claiming that they do. It's just your misinterpretation.

Originally Posted by shade

And yes people are already stopping the use of dollars. Or have you not noticed the further decline of it against the Euro/gold/etc? During the 7 years Bush has been in office, the dollar has been made worth HALF of what it was.

Bush's fiscal policy has what to do with the Fed's monetary policy? The USD is not losing value because of the Fed. You just said it yourself who is responsible.

[shade]

Originally Posted by Pajman

You are not understanding the concept of a collateral. Having government securities as a collateral means that if the Fed is ever abolished, the US government would be responsible for the notes. The notes themselves still have no intrinsic value, and no one is claiming that they do. It's just your misinterpretation.

Bush's fiscal policy has what to do with the Fed's monetary policy? The USD is not losing value because of the Fed. You just said it yourself who is responsible.

I accept your first answer.

On the 2nd part, the fed enables the government to do whatever it wants. This is my 2nd biggest problem with the system (the first being inflation tax). If it did not exist, bush and congress would have been forced (albeit only partly) to restrain their spending. They could still go into debt, but it would not involve any new creation of money.

[Pajman]

Originally Posted by shade

I accept your first answer.

On the 2nd part, the fed enables the government to do whatever it wants. This is my 2nd biggest problem with the system (the first being inflation tax). If it did not exist, bush and congress would have been forced (albeit only partly) to restrain their spending. They could still go into debt, but it would not involve any new creation of money.

Here's an interesting fact for you:
The Fed, which is part of the public sector, owns an astonishing 8% of the total debt. The government itself and foreigners hold a lot more than the Fed does. (source: September 2007 issue of the Treasury Bulletin)
No spending would be restrained if the Fed were to disappear today; they can just borrow that 8% from elsewhere.

If you have anything to say about "inflation tax," now would be a good time.

[shade]

When you create new money you are not creating new value. The total true value of all things in the world is finite. When you create new money, that does not change. It just means more money exists to chase those same goods and services.

In the past 50 years or so it has benefited us a great deal. While other countries are willing (stupid enough) to hold dollars in reserve, we can tax those reserves by creating new money. We steal value from them and use that value to our benefit. This is waning quite a lot now, though.

It also inflates prices of things such as houses, energy, etc. Especially energy because we import a lot of it. Anything we import now is more expensive than it was even a short while ago because our (hyper)inflationary policy has hurt our exchange rate significantly. That is the single biggest reason that gas is $3 a gallon.

It is also recessive in many ways. Poor people spend a higher % of their income on gasoline, for example.