Saturday, September 24, 2011

How did we end up with the Federal Reserve and why? And what do we do about it now?

How did we end up with the Federal Reserve and why? And what do we do about it now?

 In 1913 due to panic  on the part of the citizens and the world; the federal reserve act was passed BY CONGRESS.Originally the Federal Reserve (FR) was to:** address banking panics  "to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes" and act as a central bank for The United States of America.  

Current functions of the Federal Reserve System include:

  • To address the problem of banking panics
  • To serve as the central bank for the United States
  • To strike a balance between private interests of banks and the centralized responsibility of government
    • To supervise and regulate banking institutions
    • To protect the credit rights of consumers
  • To manage the nation's money supply through monetary 
  • policy to achieve the sometimes-conflicting goals of
    • maximum employment
    • stable prices, including prevention of either inflation or deflation[32]
    • moderate long-term interest rates
  • To maintain the stability of the financial system and contain systemic risk in financial markets
  • To provide financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system
    • To facilitate the exchange of payments among regions
    • To respond to local liquidity needs
  • To strengthen U.S. standing in the world economy

CONGRESS oversees (or doesn't as the case is now) the Federal Reserve, the chairperson and board of governors is appointed by the President of the USA and these appointments are approved BY congress.   

The federal reserve relinquishes it's profits minus 6% back to the federal government . . in 2010 that amount given to the federal government was around 70 Billion dollars out of an 82billion dollar profit margin.   

In 1910 a republican (Nelson Aldrich) submitted what would become the foundation for the Federal Reserve.  It was met with opposition but with modifications, it was re-introduced as the Federal Reserve Act in 1913. Democrats favored a reserve system owned and operated by the government; they believed that public ownership of the central bank would end Wall Street's control of the American currency supply.  Republicans believed that a centralized bank with NO political involvement would be best to stabilize and monitor our money supply.  The Federal Resere Act gave ultimate control over and responsibility of overseeing this centralized bank  to the government i.e the CONGRESS.  

This bill passed on party lines not because the Republicans didn't like the idea of the centralized bank but because they didn't like the government having the final say in how it conducted business.  
Congress gave the Federal Reserve System the authority to establish a nationwide check-clearing system. The System, then, was to provide not only an elastic currency—that is, a currency that would expand or shrink in amount as economic conditions warranted—but also an efficient and equitable check-collection system.  Fed serves as a banker's bank and as the government's bank. Banks (private) as we know them are "for profit" and the FR regulates them so that the consumer is not left to fend on their own.  

The FR can not make policy or decisions without the consent of Congress and the President. It is not publicly (tax payer) funded.  
Where did Congress get the authority to institute the Federal Reserve Act and set up the Federal Reserve?  Well, from the Constitution which specifically states that Congress has  The Power To lay and collect taxes, Duties, Imposts and Excises; To pay the Debts;Provide for the common Defence and general Welfare of the United States;To Borrow Money;To regulate Commerce;To establish a uniform Rule of Naturalization;To coin money;To establish Post Offices;To constitute Tribunals inferior to the supreme court;To declare War;To raise and support Armies;To provide and maintain a Navy; andTo provide for calling forth the Militia. 

These entities have served as Central Banks of The United States of America:

  • 1791–1811: First Bank of the United States
  • 1811–1816: No central bank
  • 1816–1836: Second Bank of the United States
  • 1837–1862: Free Bank Era
  • 1846–1921: Independent Treasury System
  • 1863–1913: National Banks
  • 1913–Present: Federal Reserve System
Now, I ask you, since our founding fathers favored a centralized bank. . and there is definitely a need for a centralized monetary system not only between the citizen and the state but state between states and the federal government and other governments along with individual entities and individual citizens; who would you have control our monetary system? Congress?  The president?  This begs the quesiton, has the Federal Reserve over-stepped its authority? I think that answer is obvious.  Yes, it certainly has.  So, given that answer; what do we do now?  

I in particular like Herman Cain's response:  Take away the FR's jobs that are not primary to its existance.  Obviously as Mr. Cain points out, Congress is not doing its job but those are the same people who can not and have very little intentions of balancing a budget  (the democrats in Congress who control it at this time can't even pass a budget), they've stolen from one program (Social Security) to pay for other programs, the same Congress that uses the TAX code to punish and reward people as it suits their own purposes, the same Congress that spends without consideration of how and who's going to pay for that spending?  The politicization of the FR is wrong.  Auditing the FR is not something that Mr. Cain thinks will solve any problems coming out of the FR's practices.  

Congress is not doing their job- overseeing the Federal Reserve. Printing money to buy our own 14 trillion dollar debt is like incest but Congress does nothing to stop this (Speaker Boehner and Minority Leader Mcconnel have told the chairman of the FR,Bernecke to stop interferring in the economy but if that is adhered to is yet to be seen).  Getting back to the Gold Standard is only possible if we get rid of the 14 trillion dollar debt but still something would have to replace the Federal Reserve.. what?  The key to getting the Federal Reserve back in line and back on it's mission or even replacing it with something else is to cut spending and the deficit.  

It seems to me that the idea of doing anything ecomomically to put this country back on the black side of the ledger is to cut spending, get rid of waste and duplicity within the departments and government as a whole.  If you don't do those things, you're just asking for change and haven't we been down that road long enough?I've done this research but I'm sure it's not complete. 

 I welcome your input but, as usual, please present facts and not merely opinions.  

Thank you.    


  1. I really like that you have a plan and show to be a Ronald Reagan conservative. Remember Jimmy Carter gave us Ronald Reagan. Obama will give us a Herman Cain :-)

  2. Very well-written, Laurie. Thank you.

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