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What is the Federal Reserve Bank (FED) and why do we have it?

Original post made by mark, another community, on Sep 30, 2009

This story contains 2527 words.

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Comments (18)

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Posted by Stacey
a resident of Amberwood/Wood Meadows
on Oct 1, 2009 at 12:31 am

Stacey is a registered user.

This article misses a lot more details. One must learn a little about Chicago and Austrian economic schools of thought to grasp more about this. The system is called "fractional reserve", not just "fractional". It means that the bank only holds a fraction of the money in reserve, meaning that if there's a run on the bank (everyone wants to withdraw their money at once), it is impossible for the bank to comply (and thus we have FDIC). This article doesn't mention that the US banks run at a high ratio of amount held in reserve to amount loaned out. European banks run even higher while Canadian banks are more conservative and run at much lower ratios. These high ratios are what contribute to bank closures.

The Chicago school of economic thought is prevalent. In the Austrian school, the prime interest rate is set through the free market; the belief being that such pricing leads to less drastic fluctuations. Now since we, as a country, control the interest rate through policy instead of market pressures, it requires certain regulations to be in place. These regulations, such as the Glass-Steagall Act, were removed by a Republican-controlled Congress and signed by Democrat President Bill Clinton. That's a really backwards way to go about it. The Fed control over the prime interest rate should have been revoked first before the financial industry de-regulation that has been going on since the time of Reagan.

Fractional reserve banking is a way to create wealth. Someone deposits $100,000. The bank holds 50% of that in reserve and loans out the other 50% at 6% interest. The bank just made money on the interest. They pay the depositor a portion of that interest.


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Posted by Stacey
a resident of Amberwood/Wood Meadows
on Oct 1, 2009 at 12:35 am

Stacey is a registered user.

Artificially low interest rates caused by Fed policy send investors looking for investment vehicles with higher interest rates. Enter the derivatives market, enabled by repeal of the Glass-Steagall Act...


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Posted by Stacey
a resident of Amberwood/Wood Meadows
on Oct 1, 2009 at 12:41 am

Stacey is a registered user.

P.S. Web Link

The American School included three cardinal policy points:

1. Support industry: The advocacy of protectionism, and opposition to free trade - particularly for the protection of "infant industries" and those facing import competition from abroad. Examples: Tariff of 1816 and Morrill Tariff
2. Create physical infrastructure: Government finance of internal improvements to speed commerce and develop industry. This involved the regulation of privately held infrastructure, to ensure that it meets the nation's needs. Examples: Cumberland Road and Union Pacific Railroad
3. Create financial infrastructure: A government sponsored National Bank to issue currency and encourage commerce. This involved the use of sovereign powers for the regulation of credit to encourage the development of the economy, and to deter speculation. Examples: First Bank of the United States, Second Bank of the United States, and National Banking Act[12]


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Posted by Stacey
a resident of Amberwood/Wood Meadows
on Oct 1, 2009 at 12:48 am

Stacey is a registered user.

I just want to clarify, I don't feel informed enough about economic workings and I won't pretend to be. This stuff is just interesting to me. I don't know which school of thought is closer to reality: Chicago or Austrian, only that a patchwork system doesn't seem to work too well. If you're going to control the interest rate through policy then you've got to have other legislation in place otherwise you have to go 180 degrees in the opposite direction. It can't be both ways.


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Posted by Stacey
a resident of Amberwood/Wood Meadows
on Oct 1, 2009 at 12:55 am

Stacey is a registered user.

Austrian School: Web Link
Chicago School: Web Link


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Posted by mac
a resident of Another Pleasanton neighborhood
on Oct 1, 2009 at 9:05 am

mac is a registered user.

Great posts. Mine is simpler. While I'm certain much time was spent in the name alone of "Federal Reserve Bank" it is misleading at the onset. It is neither Federal, a reserve, or a bank. Some call that part of the spin that we have come to know in our daily lives of the way this country operates both publicly and privately. It would seem so.


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Posted by M
a resident of Another Pleasanton neighborhood
on Oct 1, 2009 at 11:01 am

GREAT POSTS on everyone part. Ron Paul just released his book END THE FED. Another great source: MONEY MASTERS Video (YouTube and torrent) ... most important is that the issue of MONEY is becoming an issue, along with the understanding of how Money works. This is a first for the American Public. If you were to ask a person about economics/finance/money their eyes would glaze over and then they would add: "I just want a lot of it". This is the first time in cultural history where the mystery is being revealed. I know since my adventure into learning about Money my world view has changed radically. Mark ... impressive ... Stacey ... I follow your posts BUT I have to say these blew me away!!!!


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Posted by Lois
a resident of Another Pleasanton neighborhood
on Oct 1, 2009 at 5:17 pm

My eyes do glaze over when reading this. I don't feel interested enough to figure it out. Tell me why I should be interested.


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Posted by m
a resident of Another Pleasanton neighborhood
on Oct 1, 2009 at 7:15 pm

Because it fundamentally affects yours and your children's LIVELIHOOD


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Posted by mark
a resident of another community
on Oct 1, 2009 at 11:00 pm

Stacy said:

"Fractional reserve banking is a way to create wealth. Someone deposits $100,000. The bank holds 50% of that in reserve and loans out the other 50% at 6% interest. The bank just made money on the interest. They pay the depositor a portion of that interest."


Stacy, that is not how it works here in the USA. Here is a quote from the article, the next two paragraphs:

"Today's banks are members of the Federal Reserve Banking System. This membership makes it legal for them to create money from nothing and lend it to you. Today's banks, like the goldsmiths of old, realize that only a small fraction of the money deposited in their banks is ever actually withdrawn in the form of cash. Only about 3 or 4 percent of all the money that exists is in the form of currency. The rest of it is simply a computer entry.

Let's say you're approved to borrow $10,000 to do some home improvements. You know that the bank didn't actually take $10,000 from its pile of cash and put it into your pile? They simply went to their computer and input an entry of $10,000 into your account. They created, from thin air, a debt, which you have to secure with an asset and repay with interest. The bank is allowed to create and lend as much debt as they want as long as they do not exceed the 10:1 ratio imposed by the FED."



With a 10:1 ratio, the bank only needs $100 on hand to loan out $1000. In reality, the money you borrowed to buy your house, never existed, but was made out of thin air. Fractional Reserve Banking only creates wealth for the banksters and is criminal. They are in fact counterfeiters and stealing the real wealth of this country.

There is a lot of info in the article, and it wouldn't hurt to read it again. I now see where the author could have explained some things better, as there is much more to this. Like he said:

"It sort of puts a new slant on how you view your friendly bank, doesn't it? How about those loan committees that scrutinize you with a microscope before approving the loan they created from thin air. What a hoot! They make it complex for a reason. They don't want you to understand what they are doing. People fear what they do not understand. You are easier to delude and control when you are ignorant and afraid."


He also used one of Thomas Jeffersons quotes, which I have also used and is the truth of the matter:


Thomas Jefferson said, "If the America people ever allow private banks to control the issuance of their currencies, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their prosperity until their children will wake up homeless on the continent their fathers conquered."

I don't think I can stress enough, how important of an issue this is to all of us, and why we need to end the FED. The Bansksters that own the Fed, have control of our country because they control the money system, which is their money system.


Here is a link to a video that probably is far better than the article in presenting the facts about the FED. This video is like no other, for most it will prove to be shocking. A must watch:

Web Link


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Posted by BW
a resident of another community
on Oct 1, 2009 at 11:15 pm

Many of the facts here are wrong. What we normally call the Fed is not privately owned at all -- it is a government institution that runs the Federal Reserve System. The Fed is run and staffed by federal employees. Ben Bernanke, for instance, is an employee of the U.S. government.

Many of the banking functions of the Federal Reserve System are performed by privately owned regional Federal Reserve banks. There are 12 of them. However, they are not owned by banking "families." They are owned by the banks that are regulated by the Fed. So, yes, Citibank owns some of one of the Federal Reserve Banks. So does every bank, large or small.

However, the banks that "own" the Fed do not actually control it. Their ownership consists of non-voting shares of stock -- shares that entitle them to a 6% dividend. In return for that dividend, the banks must perform many functions, including providing interest-free reserves for the central banks. Have you heard about how the Fed is going to raise more money by drawing capital from the member banks? Well, what that means is that the member banks have to allocate more capital to the reserve banks to replenish the reserves.

The member banks do not have any right to profits beyond the 6% dividend. So all "profits" of the Federal Reserve System go into the US Treasury.

The Fed is not part of any conspiracy. Sure, some rich bankers 100 years ago tried to create one, but remember why this country is great. We have a great political system that doesn't let that sort of thing go on. When the bankers tried to push through their system, Congress did not go for it. It used more or less the plan proposed by the bankers, except they made all of the important parts of it (i.e the profits and control of the system) owned by the people.

If you don't believe me, feel free to read the text of the Federal Reserve Act. It's available here. Web Link


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Posted by Stacey
a resident of Amberwood/Wood Meadows
on Oct 1, 2009 at 11:21 pm

Stacey is a registered user.

Mark,

Actually, I describe exactly the same process as what is written in the article, only I wasn't using a 10:1 ratio nor so much hyperbole.

Note this line: "The bank is allowed to create and lend as much debt as they want as long as they do not exceed the 10:1 ratio imposed by the FED"


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Posted by Stacey
a resident of Amberwood/Wood Meadows
on Oct 1, 2009 at 11:24 pm

Stacey is a registered user.

Who really thinks that some bank grunt sits at a computer terminal and types in $10,000 and "creates money out of thin air"? Man, if I were that guy I'd be typing in a lot more zeros.


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Posted by Stacey
a resident of Amberwood/Wood Meadows
on Oct 1, 2009 at 11:40 pm

Stacey is a registered user.

Lois,

Yes, it can be difficult to understand. We grow up in this system and we don't understand how it works. No, it isn't entirely necessary to know in order to run your life, but understanding some of the reasoning behind certain political stances (or your financial health) can be empowering. Wikipedia is a good place to start.


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Posted by Stacey
a resident of Amberwood/Wood Meadows
on Oct 1, 2009 at 11:42 pm

Stacey is a registered user.

It is a little like language. You can study grammar in school, but it isn't necessary to know grammar in order to speak. But only those who have studied grammar go on to become writers, poets, and otherwise influential people.


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Posted by mark
a resident of another community
on Oct 2, 2009 at 5:18 am

Well I can tell that none of you watched the video I posted in in my reply above. It appears to me that none of you seem to think is effects you, so sad. Maybe you dont think you can handle the shock that I promised, who knows?

Albert Einstein said "Those that refuse to checkout the facts of an arguement are the height of ignorance".


Now regarding

Posted by BW, a resident of another community, 5 hours ago

Many of the facts here are wrong. What we normally call the Fed is not privately owned at all -- it is a government institution that runs the Federal Reserve System. The Fed is run and staffed by federal employees. Ben Bernanke, for instance, is an employee of the U.S. government.

I don't know where you get your info, but I got to tell you, you could not be any more mistaken, and about everything. I am interested in hearing where you got that info, so if you don't mind, would you post it up here. I've only dedicated probably 10,000 hours since 9/11/2001 into researching this and other relevant issues so to say that I am interested does not begin to tell the story.

Thanks in advance Mark


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Posted by Bill Rummel
a resident of Castlewood
on Oct 2, 2009 at 7:22 am

Web Link


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Posted by mark
a resident of another community
on Oct 4, 2009 at 4:04 pm

Thanks Bill


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