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Stocks Tank 500 Points Following Fed Rate Hike – Just Who Is This Federal Reserve?

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by Mustang and Bunk
Fed’s ‘freshmen’ are in focus as markets brace for a interest rate decision – so goes the story line in yesterday’s CNBC piece. Just who are the freshmen? We have new folks involved in the Federal Reserve and these aren’t your bankers and old white men. Oh no. They are woke as we learned last week.
We hear a lot about Jerome H. Powell as chair and that he is a consensus type guy so let’s know more about these other players who are involved in taking care of our banks and money. One thing we learned is that a .25 percent rate hike got us a 500 point drop in the stock market yesterday.
A short review first if you missed this last week.

Let’s meet the gal.

Mary C. Daly | Center on Finance, Law & Policy

Mary Daly’s career trajectory: drops out of High School, works at a donut shop, gets GED, goes to college, becomes enamored with leftist prof teaching Marxian economics, becomes San Fran Federal labor researcher, ingratiates herself with Janet Yellen, who keeps promoting her first openly gay Fed/ prez/CEO.  Her background is in the study of economic equality.

Conversation with Dr Mary Daly, Chief Executive Officer of the Federal Reserve Bank of San Francisco


Now that we have an idea of who they might be, back to the story.

The Federal Reserve decision, CNBC’s Steve Liesman highlights a wild card in the process: the high number of freshmen FOMC voters. The Federal Open Market Committee (FOMC) consists of twelve members–the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining eleven Reserve Bank presidents



Our intrepid Mustang will give the Federal Reserve more of a spin. 

The Federal Reserve 

by Mustang


The twenty-first century has brought us many changes. So many that, to some, they seem overwhelming. Some of these changes involve our monetary system.  

Previous discussions at Bunkerville include the possibility of shifting to some variation of an electronic monetary system — and, of course, people who do not react well to changes are having a tough time with the proposition.

Failure of Banks Sets the Stage for Digital Currency

It would help if the United States had adults in Congress, but we don’t. And it would be nice if our president (and his closest advisors) cared more about the American people than they do about their ideological agenda. That’s not going to happen, either. The Chairperson of the Federal Reserve is one of those “presidential advisors” I mentioned a moment ago. 

What do most of us know about the American banking system? Most of us have no more than a rudimentary understanding. Let’s fix that right now — 

The Federal Reserve System (F.R.S.) 

A central bank is a financial institution granted privileged control over the production and distribution of money and credit for a nation or a group of countries. In modern economies, the central bank is usually responsible for formulating monetary policy and regulating member banks. The Federal Reserve (also called, The Fed) comprises 12 regional F.S.R. Banks accountable for a specific geographic area of the United States. 

The Fed was established by the Federal Reserve Act (1913) under the administration of President Woodrow Wilson — a response to the financial panic of 1907. Before that, the U.S. was the only significant financial power without a central bank. Its creation was precipitated by repeated financial panics that afflicted the U.S. economy over the previous century, which led to severe economic disruptions caused by bank failures and business bankruptcies. The 1907 crisis led to calls for an institution that prevented panic and disorders. Unfortunately, those calling for such an institution didn’t get one in the F.R.S. 

Still, the Fed has broad power to act to ensure financial stability. It is the primary regulator of U.S. banks retaining membership in the F.S.R. The Fed also serves as the lender of last resort to member institutions with no other place to borrow money. F.S.R. district banks are in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco.

Special Considerations 

The Fed’s primary income source is the interest charged on a range of U.S. government securities it has acquired through its Open Market Operations (also knowns as O.M.O.). Other income sources include interest on foreign currency investments, interest on loans to depository institutions, and fees for services — such as check clearing and fund transfers — provided to these institutions. After paying its expenses, the Fed transfers the rest of its earnings to the United States Treasury. 

The Federal Reserve payments system, commonly known as Fedwire, moves trillions of dollars daily between banks throughout the United States. Transactions are for same-day settlement. In the aftermath of the 2008 financial crisis, the Fed has paid increased attention to risks created by the time lag between when payments are made early in the day and when they are settled and reconciled. Currently, the Fed is pressuring large financial institutions to improve real-time monitoring of payments and credit risk, which was previously available only on an end-of-day basis.  

The F.R.S. Mandates and Duties  

The monetary policy goals are twofold: first, to foster economic conditions that achieve stable prices and second, to maximum sustainable employment. The Fed’s duties can be further categorized into four general areas: (1) Conducting national monetary policy by influencing economic and credit conditions in the U.S. economy to ensure maximum employment, stable prices, and moderate long-term interest rates. (2) Supervising and regulating banking institutions to ensure the U.S. banking and financial system’s safety and protect consumers’ credit rights. (3) Maintaining financial system stability and containing systemic risks, and (4) Providing financial services, including a pivotal role in operating the national payments system, depository institutions, the U.S. government, and foreign official institutions.  

Some Interesting History 

The foundation of the Federal Reserve System was crafted in near total secrecy in 1910 at a Jekyll Island (Georgia) resort by several powerful men with close ties to the Rockefellers — including J. P. Morgan and the Rothschilds. A version of this scheme was eventually passed into law in 1913 (over the objections of many financiers who feared turning over control of the nation’s money supply to a consortium of private bankers — giving them a competitive advantage over everyone else.  Even now, the F.E.D. remains highly secretive. 

In addition to the secrecy issues, the F.E.D. attracted much criticism from European economists who believed that a Federal Reserve was unnecessary, counterproductive, and an obstacle to a vibrant economy. Europeans also didn’t understand why the Americans would relinquish the gold standard — or their penchant for secrecy. Added to this was the generally held notion that confidentiality was part of a scheme to enrich a few wealthy bankers at the expense of the public — which was probably true. 

Ludwig von Mises (of the Austrian School) argued that the F.E.D.’s interference in monetary policy is the cause of the boom/bust business cycle that has occurred since 1913. Beyond Mises, libertarians resented economic manipulation, believing that the F.E.D.’s activities to “stop gold flight” from England either caused or was instrumental in driving the Great Depression. 

Finally, Nobel Lauriat Milt Friedman championed dismantling it altogether, which prompted the Fed Chairman to admit that it was true, the F.E.D. did cause the Great Depression — but they were all sorry and wouldn’t do it again. Given the amount of suffering caused by the depression, Ben Bernanke’s statement was incredible. 

But the F.R.S. is NOT a Federal Agency 

While the American banking system is called the Federal Reserve, it is not owned or directly controlled by the U.S. government. And yet, the following words appear on every single U.S. bank note that comes out of the U.S. Treasury Department: united states federal reserve system. Thus, any confusion seems perfectly understandable. 

So, who owns it? This is a question asked many times and answered by the Supreme Court of the United States (S.C.O.T.U.S.). Although categorized as an independent agency, the Court stated that instrumentalities (such as national banks) in which private interests are not federal government departments. They are private corporations in which the government has an interest. To complicate the issue further, the Court decided that “the commercial banks own each federal reserve bank within its district.” you can read/download the Supreme Court’s case by following this link: 406 F. 3rd 532: Scott v. Federal Reserve Bank of Kansas City, 2006. 

So, we know now that even though the F.E.D.’s board members are presidential appointees, and the U.S. Senate confirms their positions, the F.E.D. is privately owned and controlled by large (powerful and influential) private banks. Once the U.S. Senate confirms the appointment of a board member, the U.S. government exercises no control over its decisions — other than the president’s ability to remove a board member, and Congress does not influence this incredibly powerful institution — that holds no reserves. 

Mustang also has blogs called  Fix Bayonets and Thoughts From Afar

To be continued … the very best of the swamp.



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