Q&A On the Federal Reserve
DOES THE UNITED STATES GOVERNMENT OWN THE FEDERAL RESERVE?
“The 12 regional Reserve Banks aren’t government institutions but corporations nominally owned by the member commercial banks, who must buy special non-marketable stock in their district Federal Reserve Bank.“
“I Bet You Thought”, Federal Reserve Bank of New York, page 21.
DOES THE UNITED STATES GOVERNMENT OWN STOCK IN THE FEDERAL RESERVE?
“When the Federal Reserve was created, its stock was sold to the member banks. As stockholders, they elect some of the directors of the 12 Federal Reserve Banks. The other directors are appointed by the Board of Governors. The directors and the officers they select run the Federal Reserve Banks and their 20,000 or more employees, who are not under Civil Service.“
“The Hats the Federal Reserve Wears,” Federal Reserve Bank of Philadelphia, page 14.
DOES THE PRESIDENT OF THE UNITED STATES GOVERNMENT CONTROL THE AMERICAN ECONOMY?
“The Federal Open Market Committee [FOMC] is the most important monetary policy-making body of the Federal Reserve System. It is responsible for the formulation of policy designed to promote economic growth, full employment, stable prices, and a balance in international trade and payments.“
“The Federal Open Market Committee”, Board of Governors of the Federal Reserve System, page 2.
DOES THE UNITED STATES GOVERNMENT DETERMINE THE AMOUNT OF MONEY IN CIRCULATION?
“The Bureau of Engraving and Printing in Washington, D.C, a unit of the Treasury, is responsible for printing the nation’s currency. But its order to print comes from the 12 Federal Reserve Banks, not the President or Congress. The Federal Reserve, not the Treasury, determines how much currency is printed, based mainly on estimates of commercial banks and public cash demands. Under this arrangement, the government can’t print more Federal Reserve notes to pay its bills or debts. Since most U.S money is checkbook money, the printing presses have little to do with the buying power of money.“
“I Bet You Thought”, Federal Reserve Bank of New York, page 12.
DOES THE FEDERAL RESERVE CREATE MONEY?
“Put another way, when the Federal Reserve buys government securities, it is by the mere stroke of a pen putting new money into the banking system, money which itself can lead to the creation of even more new money. When the Federal Reserve writes a check, it is creating money.“
“Putting It Simply”, Federal Reserve Bank of Boston, page 17.
DO THE COMMERCIAL BANKS CREATE MONEY IN THE FORM OF LOANS?
“One institution, the commercial bank, creates new money, checkbook money, when it lends to producers and workers borrowing (Money) from commercial banks. The banks put this new money into circulation.“
“The Story of Money”, Federal Reserve Bank of New York, page 4.
DO BANKS CAUSE RECESSIONS?
“But bank credit isn’t a one way street. It adds to our money supply, to be sure, but our money supply declines as bank credit is repaid. Banks, then, can “destroy” or “extinguish” money as well as create it.“
“Money: Master or Servant?”, Federal Reserve Bank of New York, page 15.
HOW DOES THE FEDERAL RESERVE CAUSE RECESSION?
“Just as purchases of government securities by the Federal Reserve System can provide the basis for deposit expansion by adding to bank reserves, sales of securities by the Federal Reserve System reduce the money stock by absorbing bank Reserves. The process is essentially the reverse of the expansion steps just described.“
“Modern Money Mechanics”, Federal Reserve Bank of Chicago, page 12
DO THE BANKS CREATE MONEY?
“Commercial banks, however, lend in a different way. They create new checkbook dollars and add them to a borrower’s checking account. Because commercial banks create almost all new dollars, they play a special role in our financial system.“
“The Story of Banks”, Federal Reserve Bank of New York, page 4.
WHY DOES THE SELLING OF GOVERNMENT SECURITIES DECREASE THE TOTAL MONEY SUPPLY?
“When the Federal Reserve sells securities, the supply of lendable money is decreased. When the Federal Reserve sells a government security, the check paying for it is deducted from the account of the commercial bank on which it is drawn, but it is not deposited to the account of another commercial bank.“
“Putting It Simply”, Federal Reserve Bank of Boston, pages 16 and 17.
DOES THE GOVERNMENT OR THE COMMERCIAL BANKS CREATE MONEY?
“The actual process of money creation takes place primarily in banks. As noted earlier, checkable liabilities of banks are money. These liabilities are customers accounts. They increase when customers deposit currency and checks and when the proceeds of loans made by the banks are credited to borrowers‘ accounts.“
“Modern Money Mechanics”, Federal Reserve Bank of Chicago, Page 3.
WHEN A BANK MAKES A LOAN FOR $9,000. IS THAT NEWLY CREATED MONEY AND DOES IT GET POSTED LIKE A DEPOSIT DOES INTO A CUSTOMER’S CHECKING ACCOUNT?
“When the Banks makes a $9,000 loan the Banks accept the promissory note(s) of the borrower in exchange for credits to the borrower’s transaction accounts (demand deposit). Bank Loans (assets) and deposits (liabilities) both rise by $9,000. But the deposit credits constitute new additions to the total deposits of the banking system.” To conceal this inflation the Banks contract the money causing recessions.“
“Modern Money Mechanics”, Federal Reserve Bank of Chicago, Page 6.
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