After
the manipulations of the Origin
and Workings of the Federal Reserve Bank
A
Study by Rand Fanshier
After
the manipulations of the
So with
popular support, the twelve regional Federal Reserve Banks (Fed) were created
with the enactment of the Federal Reserve Act,
The
In the Federal Reserve System, Federal Reserve Notes are released into the economy by the vehicle of low-interest “discount rate” loans from the Fed to commercial banks. These banks then sell the money at “prime-plus” rates to businesses and individuals.
In addition, the Fed can issue money to the U.S. Government by purchasing government bonds or gold certificates. It can sell government bonds to the public, taking dollars out of circulation. This provides for rapid changes in the money supply and control of the inflation index.
The ability for the U.S. Treasury to sell bonds directly to the Fed gives the government ready cash in times of war, and no need to get immediate public financial support for the war.
The Fed accepts dollar reserves from foreign customers and sells them government bonds. This is how the Federal Government borrows from foreign lenders.
The Internal Revenue Service (IRS) was established in 1933, and the public supported it thanks to the popularity of that era’s worldwide socialist movement, as a way to redistribute wealth from the rich to the poor.
The IRS, like the Fed, is a private corporation. Money collected by the IRS is sent directly to the Fed, not to the U.S. Treasury. This is because the Treasury was already paid, in advance, when it issued T-bills to the Fed. The income tax collected by the IRS and paid to the Fed redeems these same securities.
The Federal Reserve Notes received by the Fed which are out of date or damaged are destroyed at this time. It seems odd to think that when you send in your taxes, they might simply wind up being burned. But that’s the way of it.
The Fed orders fresh Federal Reserve Notes from the U.S. Treasury much as a merchant orders products for his shelves. But these notes are just so much paper and ink until placed in circulation when a government or commercial entity takes out a loan with the Fed.
If the U.S. Treasury issues more securities than the income tax can pay for, then the Fed can auction these tax-free interest-bearing bonds to investors, to bring Federal Reserve Notes back in and balance the books. Alternately, the Treasury can issue long term notes to buy back the T-bills and the Fed can auction those off instead. This is where national debt is created, and the Fed is unparalleled at selling the national debt to intergovernmental ($1.5 trillion in bonds held by the social security administration), foreign ($2.5 trillion) and domestic investors.
Today the U.S. National debt exceeds $7,000,000,000,000.
The Federal Reserve Bank Structure
The Fed’s
chief architect was Paul Warburg, and he and a group of financiers worked on the
plan between
Essentially, the Fed operates as a quasi-corporation, ‘owned’ by many commercial banks. The Federal Reserve Act requires that each shareholding member bank subscribe to the capital stock of one of the Reserve Banks in an amount equal to 6 percent of the capital and surplus of the member bank. As a member bank’s capital and surplus change, its holdings of the Reserve Bank’s stock must be adjusted. Shares have a par value of $100. Today, since the Federal Reserve Act does not specify exactly when shares must be purchased, only about half of the subscription is paid in full by the various member banks, as their capital changes over time, but the balance is nevertheless subject to call.
A total of
1,430,000 shares were originally sold to capitalize all the twelve Fed
districts, which are not organized along state lines, but use a different
boundary map. Due to the population
as it existed in 1913, there is only one Reserve bank west of the
The stock
of the Fed cannot be bought or sold on any stock exchange.
By law, each member bank is entitled to receive an annual dividend of 6
percent on the paid-in capital stock. Reserve Banks are required to
transfer to the U.S. Treasury excess earnings, after providing for the costs of
operations, payment of dividends, and reservation of an amount necessary to
equate surplus with capital paid-in. The
Reserve Banks are exempt from federal, state, and local taxes.
No stock in any Federal Reserve Bank
has ever been sold to the public, to foreigners, or to any non-bank
A Federal Reserve Board of Governors is
appointed by the President of the
This original structure of the Fed has worked so well that it has not been altered very much by congress over the last 90 years, even though congress explicitly has the power to reorganize or even abolish the Fed at any time.
(No bibliography, but I checked my facts well. If you find an error, please email me: rand@fanshier.com ).
Rt-Click to Download this in MS Word format: fed_rand.doc
Some links where to go and find out more about the Fed, the US Treasury, and the National Debt
 |
Look how much we owe foreign lenders | http://www.ustreas.gov/tic/exhibitsa-d.pdf |
 |
Exact national debt totals | http://www.publicdebt.treas.gov/opd/opdpdodt.htm |
 |
Want to see how the government has raided social security for $1.5 Trillion? Click here, select "3. Time Series" and GO | http://www.ssa.gov/OACT/ProgData/transactions.html |
 |
Statistical information available to the public from the Federal Government | http://www.fedstats.gov/cgi-bin/A2Z.cgi |
 |
U.S. Treasury | http://www.ustreas.gov/education/index.html |
 |
New York Federal Reserve Bank | http://www.newyorkfed.org/aboutthefed/fedpoints.html |
 |
Federal Advisory Council | http://www.federalreserve.gov/GeneralInfo/AdvisCoun/FAC.htm |
|
Federal Open Market Committee | http://www.federalreserve.gov/FOMC/ |
