Have you ever wondered where the money in your wallet really comes from? Have you ever wondered what really gives money its value? Since 1913, the Federal Reserve System has been in charge of managing the money supply. Despite the intense criticism it has come under in recent years, our friends at the Fed have actually done well recently. Racking in profits of up to $77.4 billion in profit in 2011, our neighborhood friendly central bank has done what it’s supposed to do; maintain price stability and set us on the path to achieving maximum employment. Recent statistics shows that core prices have only risen by 1.4 percent this past year, below the Fed’s target of 2 percent, while Mr. Ben Bernanke, despite former House Speaker Newt Gingrich calling him the “most inflationary chairman ever”, has actually kept inflation at a mere 2.3 percent per year, the second lowest out of the last six chairman of the Federal Reserve Board. Quantitative easing by the Fed in the wake of the 2008 financial crisis has saved or created over 2 million jobs and it’s easy to see why; when the Federal Reserve engages in quantitative easing by buying Treasury securities, the spike in demand forces bond prices to rise, forcing interest rates down, which encourages borrowing and increased consumer spending, thus encouraging job creation and increased production to keep up with the increased consumer demand. So, it seems like our friends at the Fed have been doing a good job recently, so what’s the problem, why do we need to nationalize the Fed? Well, the problem is that the Fed isn’t actually “federal” at all.
One of the most common misconceptions that most Americans have is that the Federal Reserve is actually an agency of the government, but that could not be farther from the truth. This excerpt from the Fed’s own website* tells you all you need to know regarding who’s really in charge and whose interests the Fed is really concerned about:
“The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation’s central banking system, are organized much like private corporations – possibly leading to some confusion about “ownership.” For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.”
So, what we learn is that the Fed, by their own admission, is currently structured as a privately owned banking cartel that has an obligation to its shareholders first and foremost. So, now the question that we must ask is this; how does the Fed turn a profit? Once again, the answer can be found on the Fed’s own website:
“The income of the Federal Reserve System is derived primarily from the interest on U.S. government securities that it has acquired through open market operations.”
The “open market” operations by which the Fed acquires Treasury Securities is the way which the Fed expands the monetary base; by issuing electronic “money” to the U.S Treasury Department, who then print the currency and circulate it while exchanging Treasury securities for the “right” to use these Federal Reserve notes. It’s no coincidence that the interest the U.S government is charged for the right to circulate each dollar is at 6%, the same rate of interest the Fed is obligated to pay its shareholders in dividends. Now, the Fed tries to cover up this gruesome reality in many mischievous ways:
“After it pays its expenses, the Federal Reserve turns the rest of its earnings over to the U.S. Treasury.”
Don’t be fooled by this; this is only the profit the Fed makes off the M0 money supply (total amount of physical currency in circulation), which totals about $2.6 trillion.The rest of the money in circulation is created by a process known as fractional reserve banking, by which the Federal Reserve and their member banks create new money by issuing electronic loans that are about 10 times greater than the actual physical supply of currency in reserve. In other words, if you go to the bank and deposit a $100, the Fed and their member banks can create new money by issuing a loan of about $190 to the next customer, so long as they remain within the Fed’s 10:1 ratio. The Federal Reserve does not have to turn the profits made on this money over to the Treasury Department, which is why $1.4 trillion dollars of our national debt is owed to, you guessed it, the Federal Reserve. This number will only continue to get higher if we continue with this financial system. The Federal Reserve is a perpetual debt machine and as long as it remains in the hands of private bankers, we will never pay off the national debt.
Despite the gruesome reality of the very structure of our current Federal Reserve System, the recent statistics above show that central banking can indeed play a positive role in stimulating economic recovery. So, why don’t we nationalize the Federal Reserve? After all, if we manage to nationalize the Federal Reserve, we can instantly reduce the national debt by $1.4 trillion dollars and, more importantly, begin issuing debt-free money. The U.S would once again gain the ability to coin its own money like the Constitution intended and we could finally begin paying off the national debt while maintaining our promises regarding Social Security, Medicare, and other entitlement programs. Let’s take back our country, let’s end the cycle of debt. Let’s nationalize the Federal Reserve.
*This excerpt originally appeared on the Federal Reserve’s website, but was later removed.