|By: Edward Flaherty, Ph.D. Department of Economics College of Charleston,
Facts: Yes, the Federal Reserve banks are privately owned, but they are controlled
by the publically-appointed Board of Governors. The Federal Reserve banks merely
execute the monetary policy choices made by the Board. In addition, nearly
all the interest the Federal Reserve collects on government bonds is rebated
to the Treasury each year, so the government does not pay any net interest
to the Fed.
Facts: No foreigners own any part of the Fed. Each Federal Reserve bank is
owned exclusively by the participating commercial banks and S&Ls operating
within the Federal Reserve bank's district. Individuals and non-bank firms,
be they foreign or domestic, are not permitted by law to own any shares of
a Federal Reserve bank. Moreover, monetary policy is controlled by the publically-appointed
Board of Governors, not by the Federal Reserve banks.
Fact: Independent accounting firms conduct full financial audits of the Federal
Reserve banks and the Board of Governors every year. The Fed is also subject
to certain types of audits from the Government Accounting Office.
Facts: The Federal Reserve rebates its net earnings to the Treasury every
year. Consequently, the interest the Treasury pays to the Fed is returned,
so the money borrowed from the Fed has no net interest obligation for the Treasury.
The government could print its own currency independent of the Fed, but there
would be no effective safeguards against abuse of this power for political
Facts: The Federal Reserve banks have only a small share of the total national
debt (about 7%). Therefore, only a small share of the interest on the debt
goes to the Fed. Regardless, the Fed rebates that interest to the Treasury
every year, so the debt held by the Fed carries no net interest obligation
for the government. In addition, it is Congress, not the Federal Reserve, who
is responsible for the federal budget and the national debt.
Facts: Kennedy wrote E.O. 11,110 to phase out silver certificate currency,
not to issue more of it. Records show Kennedy and the Federal Reserve were
almost always in agreement on policy matters. He even signed legislation to
give the Fed more authority to issue currency.
Facts: McFadden was incorrect regarding the Fed costing the government money.
However, later economic analysis agrees with him that Federal Reserve policy
blunders had a substantial role in causing the Depression. However, his implication
that this was done deliberately has no basis in fact. Moreover, for a dozen
years prior to his rant, McFadden had been the chairman of the House subcommittee
that oversaw the Federal Reserve. Why didn't he do anything to reform or abolish
the Fed while he had the chance?
Facts: The banking system is indeed able to create money with a mere computer
keystroke. However, a bank's ability to create money is tied directly to the
amount of reserves customers have deposited there. A bank must pay a competitive
interest rate on those deposits to keep them from leaving to other banks. This
interest expense alone is a substantial portion of a bank's operating costs
and is de facto proof a bank cannot costlessly create money.
Fact: The term 'lawful money' does not refer to gold or silver coin, but to
types of money which the government would permit banks to use when tabulating
their reserves. These types of money included, but were not limited to, gold
and silver coin.
BY: Edward Flaherty, Ph.D. Department of Economics College of Charleston,