The Fed itself admitted (via Bloomberg):
While the Fed’s Washington-based Board of Governors is a federal agency subject to the Freedom of Information Act and other government rules, the New York Fed and other regional banks maintain they are separate institutions, owned by their member banks, and not subject to federal restrictions.
For that reason, the New York Fed alleged in the lawsuit brought by Bloomberg to force the Fed to reveal some information about its loans – Bloomberg LP v. Board of Governors of the Federal Reserve System, 08-CV-9595, U.S. District Court, Southern District of New York (Manhattan) – that it was not subject to Federal Freedom of Information Act....
Postscript: The Bank of International Settlements (BIS) – which is the “Central Banks’ Central Bank” – is, in turn, owned by the Fed and other central banks:
The BIS is a closed organization owned by the 55 central banks. The heads of these central banks travel to the Basel headquarters once every two months, and the General Meeting, the BIS’s supreme executive body, takes place once a year.So the private banks own the Fed (and other central banks), and the central banks own BIS.Washington's Blog
Everyone Knows that the Federal Reserve Banks Are PRIVATE … Except the American People
WashingtonsBlog
Time to recall Carroll Quigley:
Carroll Quigley, Tragedy and Hope: A History of the World in Our Time (PDF)
Volumes 1-8
New York: The Macmillan Company, 1966
Time to recall Carroll Quigley:
"The powers of financial capitalism had (a) far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank... sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."Carroll Quigley (1910-1977) | Professor of History at Georgetown University, member of the Council on Foreign Relations (CFR), mentor to Bill Clinton, in Tragedy and Hope, 1966., ch. 20
Carroll Quigley, Tragedy and Hope: A History of the World in Our Time (PDF)
Volumes 1-8
New York: The Macmillan Company, 1966
56 comments:
Exactly.... Libertarians have been saying this for years. This is just one more example why Libertarians and MMTrs should seek common ground to maximize political power via coalition on areas of agreement.
Right, but did you read the second link on inflation? Bonkers. We agree on somethings but the economics? No way. They are batty.
The picture presented in this piece is a gross oversimplification, to say the least. In fact, it is a gross distortion.
The Federal Reserve system is a complex public-private enterprise. It makes little sense to assert outright either that the Fed is "publicly owned" or that it is privately owned.
"Ownership" is itself an ambiguous legal concept with no simple meaning, but we can look at the ownership of an enterprise both from the point of view of who controls it and who receives its profits
The Board of Governors is 100% government-appointed. And the BoG does exactly what its name suggests: it governs the system.
Next in line of governance, the committee that executes the monetary policy established by the BoG, is the Federal Open Market Committee. 7 of the 12 members of the FOMC are themselves the member of the BOG, and hence are government appointees.
And also, government appointees play a role in the selection of the remaining five members, since 3 members of each nine-member district bank board of directors are appointed by the BoG, and those boards elect four of the five remaining FOMC members.
Now as to the question "Who profits?" Member banks are required to subscribe to the Fed system through the purchase of capital stock in the system. If the Fed has positive income in a given fiscal period, then after paying its necessary expenses, member banks receive a statutory 6% dividend on their capital stock. The balance of the Fed's earned income is remitted to the Treasury. The Fed remits vastly more income to the US treasury than it pays out in dividends to its member stockholders, as can be seen in this 2012 annual report, pages 315-321:
http://www.federalreserve.gov/publications/annual-report/files/2012-annual-report.pdf
In 2012, the Fed remitted over $88 billion to the US Treasury. It paid out only $1.6 billion in dividends to the member banks.
Since the end of WWII, this circumstance - the Fed earning income for the Treasury far in excess of income disbursed as stock dividends - has been the standard situation.
Since 1914, the Fed has disbursed a total of close to $1 trillion of its earnings to the US Treasury, and has paid only $17 billion in dividends to the member banks during that entire period.
The situation with the BIS is similar. The BIS might be owned by central banks, but since those central banks, just like the Fed, have large degree of both state ownership and state direction, with high degrees of state control and state profit-making, then the BIS should be seen as a system of global governance dominated by states.
The way to look at the Federal Reserve system is as a pyramid. It's classically hierarchical. The role of public governance dominates at the top level, and the role of direct private governance dominates at the subordinate levels.
BoG: 100% publicly governed
FOMC: 72% publicly governed
District banks: 33% publicly governed
Member banks: privately governed.
But even this overrates the role of private governance, since the system is hierarchical. For example if US towns were all privately owned, that wouldn't mean they were privately governed, since they would still be subject to state and federal governance coming from above.
Dan, you are far more positive on this than I am.
It's true that the BOG is appointed by the President and confirmed by the Senate, but from there out they are "politically independent." They are similar to the Supreme Court only their terms are limited. As such they constitute a quasi fourth branch of government.
But the FOMC is composed of the seven members of the BOG and 5 FRB presidents, of whom the president of the FRBNY is a permanent member. These five are not chosen by public officials. Although the Fed chair reports to Congress bi-yearly, the FOMC is also politically independent.
Most importantly, the FRBNY runs Fed ops and it is a private bank that claims not to be subject to the Freedom of Information Act. Similarly, the minutes of the BOG and and FOMC are not revealed until long after the fact. There is zero transparency.
Therefore, the argument over whether the Fed is public or private rages when the status is so nuanced as to be ambiguous.
IN theory, The Fed is subject to the will of Congress, but Congress as its creator but Congress has never intervened in Fed independence and resistance to anything it deems an incursion on its independence.
In my view this is Rube Goldberg contraption that invites obfuscation and secrecy. The US Congress should decide whether it wants a public central bank like the BoE now, or a private central bank like the BoE used to be.
Tom, you more or less just repeated what I said. It's a public-private mix.
The FRBNY can make a claim of not being subject to the Freedom of Information Act because it is one of regional banks that has only 1/3 public governance. But if the BoG, which governs the whole system, directs FRBNY to disclose its info, it would have to do so. And that can happen if the Prez and Congress appoint the right governors. The Fed is only as "independent" as Congress allows them to be.
I'd be happy to socialize the whole kit and kaboodle, and clean out the remaining private bankster contol. But Washington Blog is indulging in ridiculous hyperbole about the extent and degree of private ownership. Just look at the nutty stuff people in that camp are alwasy throwing out about the "stockholders". Why don't they actually read the damn accounts. They keep demanding audits of the Fed but are apparently too lazy to read the actual financial reports that already exist.
Those folks are from the loony old-time populist paranoid camp about the world being run by secret cabals of Jewish bankers. It's always the same old stuff about Rotschilds, usurers, etc., etc.
It's one thing to want to undermine the power of concentrated private capital, but if people don't pay attention to the degree of public control we have already achieved, and indulge in all sorts of conspiracy mongering and urban legends, they don't know how to proceed further.
Given the dividend, it seems to me that the following can happen:
1. Fed buys a ton of assets from the banks with cash (Treasuries, MBS etc)
2. Fed earns income from those assets.
3. Fed gives a part of that income to the banks, from whom it bought the assets.
WTF??????????
Dan, where did you get that 17 billion (paid out in dividends) figure from?
I'm with Dan on this one....
Dan writes:
"In 2012, the Fed remitted over $88 billion to the US Treasury. It paid out only $1.6 billion in dividends to the member banks."
This is the main point... they may get "dividends" but they are pennies compared to what they have to turn back in to the govt account....
I'd bet that 99.999% of all of these 'conspiracy theory' people like Washington here dont even know what Dan is talking about here, nor could they ever explain it like Dan has done here... they dont have the maths...
This whole "Fed is private" is borderline paranoia on a mass scale from people who cant see what is going on here mathematically...
The govt "MAY" use a "fiscal agent" which right now is the FRS and this was established under the Federal Reserve Act ie LAW.
GET OVER IT.
That said, if morons are operating this system, bad things can indeed happen....
rsp,
Dan,
I'd bet this person "Washington" couldnt look up the Fed reports and analyze them to "follow the money" like you have done here in a million years...
rsp,
People like "Washington" cant ever figure it out so they go right over to paranoia and then they make it worse by trying to spread it around to others...
The fact that the FRBNY gets so defensive when asked for information on its loans speaks volumes.
This reminds me of the recent Anglo-Irish tapes. These feature senior managers of the Anglo-Irish bank joking about how they went down to "central" (the central bank) and demanded billions of euros in loans that could never be paid back, putting up their own toxic waste bullshit loans as 'collateral'. The central bankers were worried that the loan was so large someone would see what was going on, but they agreed to it anyway, simply telling the bankers 'don't fuck it up and don't come back'.
This is the sort of corrupt behaviour that goes on behind closed doors in the secretive world of central banks.
"In 2012, the Fed remitted over $88 billion to the US Treasury. It paid out only $1.6 billion in dividends to the member banks."
Yes, this is the direct consequence of Fed QE operations and as Warren Mosler often points out may be more deflationary than anything else. Moreover, the Treasury debt held by the Fed is debt that the government owes to itself and therefore should not even apply to the debt ceiling. I propose that Congress pass legislation that interest income earned by the Fed and subsequently remitted back to Treasury should instead flow back to taxpayers in the form of tax cuts starting with the lower income brackets as the Fed member banks who act as the tribunes for the elite 1% are already getting their $1.6 billion dividend.
"This is the sort of corrupt behaviour that goes on behind closed doors in the secretive world of central banks. "
y - Bravo!
Yes, this is the direct consequence of Fed QE operations and as Warren Mosler often points out may be more deflationary than anything else.
QE is responsible for the specific level of of high Fed earnings, RR. But as the table I linked to shows, the Fed always remits much more to the Treasury than it pays out in dividends.
But Ed you have to compare that 1.6B to what they have in ... its peanuts...
y,
What FRBNY loans are you talking about?
The fact that the FRBNY gets so defensive when asked for information on its loans speaks volumes.
Yes, the Fed should be absolutely transparent, as befits the central bank and monetary authority in a democratic society.
Ed,
Its not from QE, before any of this went on they had the factors up to like 900B which under those old policy rates would yield probably 5% so that is 45B right there... which again has to be returned to Treasury in the end after the Fed pays its own expenses...
Another thing is that normally when we have non-zero rates, the Treasury xfers balances into the TTL accounts from the TGA to the max "to earn interest" from the banks so the banks lose a lot of balances back to Treasury that way too... you can see these xfers in the old DTS reports from back pre-ZIRP...
In practice, the Fed does an ok job at managing the nation's money. The main problems are with Republicans in Congress and with the economics profession.
Republicans in Congress hypocritically scream about the national debt, and are generally corrupt. See the recent Farm Bill. They then use the fact of their own corruption to discredit the concept of government in general. Sarah Palin is another good representative of this mode.
The economics profession in general lends credence to the wildly exaggerated claims regarding the role of the Fed in the economy. Not so long ago many of my favorite liberals were blaming the Fed for not fixing the economy, as if the Fed was somehow maintaining a tight money policy which was choking off the recovery.
The Fed can set interest rates for government obligations, and it can buy certain mortgage-backed obligations if necessary to stop the financial system from imploding. I suppose the Fed could have let the financial system implode and thus hastened the revolution, but that is not really their role, and would not be even if they were 100% public...
Here's some words used by an intelligent person Dan here:
pyramid, hierarchical, top/subordinate, %'s, 1.6B vs 88B, 7 of 12, 100%, remaining 5 members, 3 of 9, 4 of the 5, etc....
ALL MATH.
In contrast, Washington says: some guy said this in 1932 another guy said that in court documents, blah..blah.. blah....
Washingtons post here LITERALLY contains NO MATHEMATICS.... NONE NADA ZIP....
Its all a bunch of "he said she said" BS with none of the objectivity we get from an analysis thru the mathematical relationships... that is how INTELLIGENT people approach an analysis....
So Washington is a moron paranoid and now he/she wants everyone else to be one...
"But Ed you have to compare that 1.6B to what they have in ... its peanuts..."
Yes, I know but the $88 billion is real money which I think should go back to tax payers in the form of a tax cut. Does anyone see any problems with this proposal or have any objections?
Does anyone see any problems with this proposal or have any objections? The Rombach Report
Yes, I do. Since the banking cartel cheats everyone, not just taxpayers, a universal "citizens dividend" is more just.
The Federal Reserve system is a complex public-private enterprise. Dan K
That's pretty much the definition of fascism. And it's not necessary because:
1) The monetary sovereign has no need for a bank.
2) The private sector can come up with private money solutions that do not depend on government privilege. Common stock is one such money solution.
"Yes, I do. Since the banking cartel cheats everyone, not just taxpayers, a universal "citizens dividend" is more just"
Interesting. Achieves more or less the same result by way of a different mechanism. Would a universal "citizens dividend" accrue to the top income bracket or would there be a cutoff at some income level?
Make it universal since the rich could then not complain about injustice. Nevertheless, a universal dividend would reduce wealth disparity, much of it unjust btw, because the dividend would add much to a poor person's assets but little to a rich person's, relatively speaking.
But, of course, the Fed should be abolished anyway so my objection/suggestion is just academic.
And why should we inform the Fed on good public relations, anyway? Let's not varnish evil, eh?
"if the BoG, which governs the whole system, directs FRBNY to disclose its info, it would have to do so. And that can happen if the Prez and Congress appoint the right governors. The Fed is only as "independent" as Congress allows them to be."
We are not in disgreement over the facts, Dan, but the spin and the spin is important because it allows the Fed to maintain secrecy unless, the BOG directs the president of the FRBNY to disclose ops, or Congress gets involved, which is a highly politicized process. Moreover, owing to the close connection between corporations and government in the corporate state, the dice are loaded against the public interest. Add to the stated intention of bankers to take over the global system through central banking and evident confirming it since, this looks to me like a conspiracy against the public. Of course, it will be dismissed as "conspiracy theory" but some conspiracy theories turn out to be true and I think that is one that has strong evidence going for it. Moreover, the level of fraud in the banking and finance in the US and UK recently as well the Libor scandal show that the financial sector cannot be trusted to act legally, let alone in the public interest.
Bottom line. Take the franchises back on the grounds that they have been abused and overhaul the system, nationalizing the cb and limiting the size and scope of banking.
The cry will go up that this limits growth. BS. The business community will come up with private ways to fund. If it can't, what is market capitalism all about?
Summarizing. This is not chiefly about money & banking, and finance. It is about power and who wields it in national economies and the global economy. The stake are huge, and the bankers have figured out how to dominate the system. That has to end, if the rest of the world want to avoid the fate of the EZ.
"I'd bet this person "Washington" couldnt look up the Fed reports and analyze them to "follow the money" like you have done here in a million years..."
Matt, Washington's Blog is not an economic blog. it is a political one. It is about power. As an authoritarian, you are far more trusting of centralized power in the hands of a small group of unelected and politically unaccountable technocrats, all with vested interest that in conflict with the public interest, than I and most libertarians of left and right are.
The cry will go up that this limits growth. BS. The business community will come up with private ways to fund. If it can't, what is market capitalism all about? Tom Hickey
Amen, amen, amen!
That's pretty much the definition of fascism.
C'mon, that's silly. What societies, then, are not fascistic? Where are the societies that have a sharp and pure distinction between private and public?
It's not that the monetary sovereign has a need for a bank. It's that modern societies, having created banks of various kinds over many centuries to help organize credit and finance, have also evolved governmental systems to help stabilize the turbulent financial systems they thus created. Central banks were created to be the bankers' banks, to regulate the banking industry, serve as lenders of last resort, and provide some well-regulated elasticity to the supply of whatever that society happens to use as its chief reserve currency.
It's that modern societies, having created banks of various kinds over many centuries to help organize credit and finance, have also evolved governmental systems to help stabilize the turbulent financial systems they thus created. Dan Kervick
Correct because borrowing short to lend long is inherently risky which is fine so long as government privilege* is not involved. Reducing the risk via government privilege does so at the cost of honesty.
*Including implicit government privileges such as lack of a risk-free fiat storage and transaction service for all citizens, such as a Postal Savings Service, that makes no loans and pays no interest. The mattress should not be the only option to the banking cartel.
Besides which, we should all know by now that money can be issued as Equity, not just as Liabilities (debt), so there's no excuse for a government-backed credit cartel.
"Matt, Washington's Blog is not an economic blog. it is a political one. It is about power. As an authoritarian, you are far more trusting of centralized power in the hands of a small group of unelected and politically unaccountable technocrats, all with vested interest that in conflict with the public interest, than I and most libertarians of left and right are."
I'm with you Tom. It may be that human nature is basically good and that most people want to do the right ting most of the time... at least I hope so. Problem is that when push comes to shove, enough people will resort to greed, corruption and violence to achieve their objectives.
This is why the founders of the American Republic placed constraints on the size and scope of government with checks and balances because whatever flaws of human nature that exist in civil society in the private sector also exist in the public sector. One can even make the case that the proclivity for greed, corruption and violence is greater in the government because there is less accountability and transparency than in the private sector.
I am hoping that the yet to be released dangerous information that Edward Snowden possesses includes some compromising photos of high ranking officials in both political parties... maybe someone wearing a tutu or something like that. All seriousness aside, as the old saying goes.... Power corrupts and absolute power corrupts absolutely.
This is why the founders of the American Republic placed constraints on the size and scope of government with checks and balances because whatever flaws of human nature that exist in civil society in the private sector also exist in the public sector. The Rombach Report
You've got that backwards. The checks and balances were to impede a majority of the population. Question? Why would the majority of a population be a threat in a just society?
Dan K "C'mon, that's silly. What societies, then, are not fascistic? Where are the societies that have a sharp and pure distinction between private and public?"
Economic liberalism aka capitalism is incompatible with political liberalism aka democracy. Economic liberalism is the unfettered right to acquire private property. Political liberal is government in which power resides with the people — "government of the people, by the people and for the people."
Economic liberalism leads to concentration of wealth. Wealth is the fulcrum of power in a representative democracy (republic). Therefore, power is controlled by wealth rather than the people.
The result is the state run by and for wealth, justified by all sort of BS resting on loaded assumptions. IN the present context this is the "corporate state," which is the definition of fascism. To protect itself, the corporate state develops into the national security state, which is a police state and surveillance state.
Which is where we are now with the American Empire.
Ed: "One can even make the case that the proclivity for greed, corruption and violence is greater in the government because there is less accountability and transparency than in the private sector."
Or to sum it up with the Federal budget is in the trillion dollar range, there is a lot of jockeying for power over who controls it. Same is true on a smaller scale with the states. The stakes are huge and attract the criminal element.
Economic liberalism is the unfettered right to acquire private property. Tom Hickey
Which is un-Biblical, at least wrt to agricultural land (see Leviticus 25).
But our current system is not even consistent with economic liberalism since all appeals to a "meritocracy" are negated by the existence of a government-backed credit cartel - a cartel that primarily benefits the rich, either as owners of it and/or because they are so-called "creditworthy" of new purchasing power.
To say that the Fed is publicly controlled is like saying that everyone is a neoliberal democratic republic is free because everyone can make it — the Horatio Alger myth. That is just BS based on the evidence.
It's also like the neoliberal myth and owner and worker are equally balanced in the labor market, assuming near perfect competition, symmetrical information, and equal power. That, too, if BS.
Same with modern central banking. The argument is that even private central banks are nor "really" private since they can be regulated and even nationalized by the sovereign. The fact is that central banks are "politically independent" and the government never ever threatens this independence in fact.
Moreover, there is a revolving door between large financial interest and government, making the two almost indistinguishable. Financial lobbyists write financial legislation directly, actually supplying the text that is adopted, or indirectly through influence.
There is no reason why a representative democracy has to be capitalistic, or permit unrestrained accumulation of wealth and the means of production. As Justice Holmes noted in his Lochner dissent, "the Constitution does not enact Mr. Herbert Spencer's social statics."
The economic system and system of property and contract rights is a social choice, created and upheld by law, and subject to change by changing the law. It is entirely permissible, even under our existing constitutional system, to organize to vote in a radically different and more egalitarian economic system.
Right, saying the Fed is "publicly controlled" is just as starry-eyed and unrealistic as claiming it is "privately controlled". American society is not divided into neat cells of pure privacy and pure government - nor is any other society. Private sector firms are regulated by and interpenetrated with the government decisions; government is influenced by private firms and individuals.
Private sector firms are regulated by and interpenetrated with the government decisions; government is influenced by private firms and individuals. Dan Kervick
Yes, but based on principles that are discarded once they fail (such as whites are superior to blacks, men are superior to women, etc.)
Debt-based money has had its chance and has clearly failed to "promote the general welfare." Time for bye-bye!
Dan K: "There is no reason why a representative democracy has to be capitalistic, or permit unrestrained accumulation of wealth and the means of production."
There is a big reason. Power structure. A republic guarantees a power structure in its very construction. For example, the US has senate and the UK a house of lords that gives a minority disproportional power
The expense of modern political campaigns and they way they are financed guarantees the financiers a seat at the table that others are excluded from, and Citizens United just makes a mockery of the political process, as does gerrymandering.
Everywhere one looks in a republic one sees power and its connection with wealth.
Thee is no simple way to fix this and if fact there is no plan on the table for making democracy predominant over wealth other than some kind of socialism.
there is no plan on the table for making democracy predominant over wealth Tom Hickey
Common stock is a democratic money form, at least per share. But instead of encouraging a money form that "shares" wealth and power we have increasingly provided government privileges for debt-based money.
Power begets power. Power doesn't care about theories (or others) unless it is tempered with kindness....
Kindness is simply an (evolutionary) potential in a human being: how intelligent people activate and implement it, recognise it (as a part of their own nature, with its own Laws, just as we recognise physical Laws) - accept it, defend it, elevate it, is the age old problem. Evolution is the evolution of consciousness. History from one view, the sorry record of its absence.
The only way I know of is to find it inside of yourself and use it! To be successful, one must desire it and focus!
After 200,000 years on the road, what is a human being?
Peace is a feeling
"It is entirely permissible, even under our existing constitutional system, to organize to vote in a radically different and more egalitarian economic system."
People want it and have been voting for it.... They're just not getting it.
People want it and have been voting for it.... They're just not getting it.
No they haven't. There has been no coherent and broad based egalitarian movement. People keep voting for stooges of the status quo.
i understand what you're saying Dan....Maybe to clarify...I believe people want a more egalitarian society. in fact I'm quite sure there are many studies and statistics to support this.
I believe many people vote Republican because they are duped into believing their hard work will be rewarded more fairly. They vote Democratic because they were duped into believing they will get equal opportunity. Of course the reality turns out quite different to what they voted for. Unequal opportunity and unfair reward.
I just can't rationalize why if Warren Mosler and Mike Norman had the fountain of youth in thier backyard, and could live forever, why would they share that with poor people like you or me? braveheartwallace
Be glad you are poor since it is difficult for the rich to realize their need for salvation.
F. Beard,
you seem to believe that markets devoid of government involvement and regulation are inherently self regulating, stable, and moral.
Are you willing to accept that might not actually be true?
you seem to believe that markets devoid of government involvement and regulation are inherently self regulating, stable, and moral. y
Government should certainly punish fraud and insolvency and provide a risk-free storage and transaction service for its fiat available to all citizens (and free up to normal household limits on account size and number of transactions) that makes no loans and pays no interest.
so that's a sort of public bank, without the loans.
You apparently have no problem with the govt creating money to spend, but you have a very big problem with the govt lending money.
So an underlying assumption of yours seems to be that if the govt just gets out of the business of lending money, then the private money markets will take care of themselves - i.e. they will eventually self-regulate, be stable and moral, etc.
But history would seem to indicate otherwise - i.e. private money markets appear to be inherently unstable over the medium to long term.
in other words they go through boom-bust cycles, which can sometimes lead to massive depressions.
You apparently have no problem with the govt creating money to spend, but you have a very big problem with the govt lending money. y
Correct. Lending money* into existence causes economic instability (since the money must necessarily be repaid). Moreover, when government does it, lending money into existence is inherently discriminatory since no one is "creditworthy" when it comes to his neighbors' purchasing power.
*Note: I use "money" to mean "symbolic purchasing power" which is how most people use it. So it encompasses fiat, bank credit and other potential private money forms.
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