The shocking realization that the Federal Reserve Bank is privately owned by its member banks is one of the defining moments in any Truthseeker’s path. Eustace Mullins, coached by the indefatigable Ezra Pound, wrote ‘the Secrets of the Federal Reserve’, listing the banks owning the system. Ed Griffin then infamously plagiarized this book with his ‘the Creature of Jekyll Island’, to push the John Birch/Libertarian poison of the Gold Standard as a solution. We’re still dealing with this today, as seen in the ‘End the Fed’ movement.
The FED itself is now starting to move against its critics, claiming they ARE a Government institution, although partly independent. As Central Banks should be, which is today’s conventional wisdom in the Mainstream.
Here’s some text from the link, from the FED itself:
“The 12 regional Federal Reserve Banks, which were established by the Congress as the operating arms of the nation’s central banking system, are organized similarly to 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 while the FED tries to downplay private ownership, it does not deny it. Its stock cannot be traded, but this is not a limitation, it’s a sure way of keeping outsiders out. After all, it’s a club, and we’re not in it.
Furthermore, a dividend of 6% per year is not bad. It depends on the value of the stock, of course.
On the other hand, after paying its shareholders, the Federal Reserve returns what remains to the US Government, so it’s not entirely fair to say that the FED is printing money and then has the State pay interest on it. It paid the State 89 billion over 2012.
Nowadays the situation is even further confused by the fact that people like Tom Woods from the Hate the State crowd openly call Central Banks ‘statist’ operations, messing up the ever so fair ‘free market’ operations of the banks. They will say funny stuff, for instance claiming or implying that Central Banks are responsible for ‘money printing’, their dreaded enemy of ‘inflation’. However, it is the private banks that do by far the most of the money creation. They are the ones lending, after all, and they lend freshly created ‘credit’.
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Control vs. Ownership
Central Banks were created by the Banks for the simple reason that Fractional Reserve Banking is incredibly unstable. There is an eternal incentive for the banksters to loan out more than they can cover with fractional reserves, leading to all sorts of destabilizing busts. This was hurting the Money Power’s control over the money supplies of the World and Central Banks were created as ‘lenders of the last resort’: in case of a panic a Central Bank could keep busted banks afloat, maintaining sufficient confidence in the system.
Furthermore, they were useful tools for Sovereign borrowing. The basic contract between Sovereigns and the Central Banks was, that the Central Bank would always provide the State with all the money it would ever need, in return for guaranteed interest payments through taxation.
Also important was the monopoly on national currency that is closely associated with Central Banking. In earlier days, both in Europe and the US, free banking and local Sovereign money created a diverse monetary environment, more difficult to control for the Money Power. By ‘legal tender’ laws their units became the sole accepted way of paying taxes, giving the banking units a massive advantage in the market place. These were the early steps in further and further monetary centralization in ever fewer units, with World Currency as its final goal.
And finally Central Banks have the opportunity to ‘regulate’ banks. This is a simple trick: make regulation incredibly complex and expensive, and it becomes impossible for the vast majority of market players to comply. It’s the same deal as the Pharma maffia has with the FDA: new drugs are so incredibly expensive to test that it is impossible for low cost natural cures to go through the process, as they will never provide the return necessary to cover the cost. Exit competition and another excuse to keep prices artificially high for the cartel.
So now comes a third attack on the central-banking consensus, conceptually less radical and therefore politically more potent. This holds that an inflation target is a noble thing, but that 2 percent is not high enough. The idea was first championed by the research department of the International Monetary Fund, a respected bastion of the central-bank establishment. Last week, John Williams, president of the Federal Reserve Bank of San Francisco, came close to endorsing it, throwing in some kind words about NGDP targeting for good measure. The heretics are now inside the citadel.
Would a small adjustment in the inflation target — from, say, 2 percent to 4 percent — matter to ordinary citizens? The obvious advantage is that central banks would have more scope to fight recessions. The Fed sets its lending rate at a level that reflects the appropriate “real” interest rate for the economy, plus inflation; so if the real rate should be 3 percent and inflation were 2 percent, the Fed’s lending rate would be 5 percent. But if the Fed raised its inflation target and delivered annual price increases of 4 percent, then the same economic conditions would lead to a Fed lending rate of 7 percent. The higher this nominal Fed rate, the more room the Fed will have to cut it in a recession. By switching to a higher inflation regime, therefore, the Fed might not have to resort to less effective tricks such as quantitative easing.
But raising the inflation target would have a further consequence — less noted but as interesting. It would underscore how the internationally celebrated 2 percent target is no divinely ordained rule; it is shockingly arbitrary. The magical 2 percent marker could just as well be 3 percent or 4 percent, and the dirty little secret of central banking is that the gains from stable prices are difficult to demonstrate. Despite the brilliance of its practitioners, monetary policy is not a settled science. It is an improvised experiment.