Things You Probably Need to Know About the Fed
What do you know about the Federal Reserve Banking System? Do you know that they control a relatively large portion of this country’s economic activity and aren’t even a government agency. Yes, I am a free-market enthusiast, and yes, you may think that this sounds contradictory. But if you knew what the Fed could do, you might change your tune. They have the ability to regulate and carefully manipulate 38% of the over 25,000 financial institutions in the U.S. And best of all, they are a private, organized web of corporations, who although claim to have the economy’s best interests at heart, upon further scrutiny leave a little to question.
The structure of the Fed is simple. There are twelve regional banks spread across the country. Mine is St. Louis. Each regional bank has a couple of district branches underneath of them, except the the north-east. Their regions are small so their regional bank acts as their district bank. Below these are all your commercial banks within the district.
So…
– Regional Banks- District Branches- Commercial Banks
The power structure of the Fed gets kind of hairy but I’ll do my best to explain. The Fed is ran by three main different groups (Keep in mind that the Fed is not a government affiliated group).
They are…
– The Board of Governors- Federal Open Markets Committee- Advisory Councils
The Board of Governors is made up of seventeen members who all serve 14-year terms. These people are all appointed by the President and confirmed by the Senate. The President then is allowed to choose the Chairman and Vice-Chairman of this body. Their function is to report to Congress on monetary policy.
The Federal Open Markets Committee is arguably the most important monetary policy enacting body with the Fed. The body consists of the Board of Governors and five regional bank presidents. For some reason the New York regional bank president is always entitled to one of those five spots. They are responsible for the growth of the money supply and overseeingS90-07A operations in the domestic securities markets and the foreign exchange market.
The Advisory Councils consist of the three groups which include the Federal Advisory Council, Consumer Advisory Council, and Thrift Institutions Advisory Council. The Advisory Councils tend to do a lot of advising.
The Fed’s purpose is to be a bank for the banks, a bank for the government, a regulator, a supervisor, and to conduct monetary policy. Wow. Sounds like a lot of responsibility for a privately owned institution. Especially when the members of the administration serve 14-year terms!
“So what’s this all about and how’s it affect me?”
If you couldn’t tell already a private institution with odd connections with the government shouldn’t have control of any aspect of your finances. But if you bank with a member bank, they do. They use monetary instruments to achieve specific macroeconomic goals, they participate in open market operations, they set the discount rate, and they also set your banks required reserve ratio. All of these which haveS90-08A an affect directly and indirectly on inflation and the money supply.
Uncomfortable yet? Remember the whole part about them being a private institution? Which means that you have no say so in any of the activities that go on behind their doors and indirectly, in your own pocket book.
Oh! Remember Henry Paulson? The guy who asked the government for $800 billion dollars of our tax money and got it? He’s a member too! He’s actually on the Board of Governors.
Now you should be thoroughly uncomfortable and if not, I give up.
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