Guest Post: The Greatest Myth Propagated About The Fed: Central Bank Independence (Part 1)

Tyler Durden's picture

Submitted by L. Randall Wray via New Economic Perspectives blog,

It has been commonplace to speak of central bank independence - as if it were both a reality and a necessity. Discussions of the Fed invariably refer to legislated independence and often to the famous 1951 Accord that apparently settled the matter. [1] While everyone recognizes the Congressionally-imposed dual mandate, the Fed has substantial discretion in its interpretation of the vague call for high employment and low inflation. For a long time economists presumed those goals to be in conflict but in recent years Chairman Greenspan seemed to have successfully argued that pursuit of low inflation rather automatically supports sustainable growth with maximum feasible employment.


In any event, nothing is more sacrosanct than the supposed independence of the central bank from the treasury, with the economics profession as well as policymakers ready to defend the prohibition of central bank “financing” of budget deficits. As in many developed nations, this prohibition was written into US law from the founding of the Fed in 1913. In practice, the prohibition is easy to evade, as we found during WWII in the US when budget deficits ran up to a quarter of GDP. If a central bank stands ready to buy government bonds in the secondary market to peg an interest rate, then private banks will buy bonds in the new issue market and sell them to the central bank at a virtually guaranteed price. Since central bank purchases of bonds supply the reserves needed by banks to buy bonds, a virtuous circle is created so that the treasury faces no financing constraint. That is what the 1951 Accord was supposedly all about—ending the cheap source of US Treasury finance.

Since the Global Financial Crisis hit in 2007 these matters have come to the fore in both the US and the European Monetary Union. In the US, discussion of “printing money” to finance burgeoning deficits was somewhat muted, in part because the Fed purportedly undertook Quantitative Easing to push banks to lend—not to provide the Treasury with cheap funding. But the impact has been the same as WWII-era finances: very low interest rates on government debt even as a large portion of the debt ended up on the books of the Fed, while bank reserves have grown to historic levels (the Fed also purchased and lent against private debt, adding to excess reserves). While hyperinflationists have been pointing to the fact that the Fed is essentially “printing money” (actually reserves) to finance the budget deficits, most other observers have endorsed the Fed’s notion that QE might allow it to “push on a string” by spurring private banks to lend—which is thought to be desirable and certainly better than “financing” budget deficits to allow government spending to grow the economy. Growth through fiscal austerity is the new motto as the Fed accumulates ever more federal government debt and suspect mortgage-backed securities.

The other case is in the EMU where the European Central Bank had long been presumed to be prohibited from buying debt of the member governments. By design, these governments were supposed to be disciplined by markets, to keep their deficits and debt within Maastricht criteria. Needless to say, things have not turned out quite as planned. The ECB’s balance sheet has blown up just as the Fed’s did—and there is no end in sight in Euroland even as the Fed has begun to taper. It would not be hyperbole to predict that the ECB will end up owning (or at least standing behind) most EMU government debt as it continues to expand its backstop.

It is, then, perhaps a good time to reexamine the thinking behind central bank independence. There are several related issues.

  • First, can a central bank really be independent? In what sense? Political? Operational? Policy formation?
  • Second, should a central bank be independent? In a democracy should monetary policy—purportedly as important as or even more important than fiscal policy—be unaccountable? Why?
  • Finally, what are the potential problems faced if a central bank is not independent? Inflation? Insolvency?

While this two part piece will focus on the US and the Fed, the analysis is relevant to general discussions about central bank independence. We will limit our analysis to the questions surrounding what we mean by central bank independence. We leave to other analyses the questions surrounding the wisdom of granting independence to the Fed, democratic accountability, and potential problems. We will argue here that the Fed is independent only in a very narrow sense. We have argued elsewhere that the Fed’s crisis response during the global financial crisis does raise serious issues of transparency and accountability—issues that have not been resolved with the Dodd-Frank legislation.[2] Finally, it will become apparent that we do not believe that lack of central bank independence raises significant problems with inflation or insolvency of the sovereign government.

For the US case we will draw on an excellent study of the evolution of governance of the Fed by Bernard Shull, one of the foremost authorities of the history of the Fed.[3] As we will see, the dominant argument for independence throughout the Fed’s history has been that monetary policy should be set to promote the national interest. This requires that it should be free of political influence coming from Congress. Further, it was gradually accepted that even though the Federal Open Market Committee includes participation by regional Federal Reserve banks, the members of the FOMC are to put the national interest first. Shull shows that while governance issues remain unresolved, Congress has asserted its oversight rights, especially after economic or financial crises.

I’ll also include summaries of the arguments of two insiders—one from the Treasury and the other from the Fed—that also conclude that the case of the Fed’s independence is frequently overstated. The former Treasury official argues that at least within the Treasury there is no presumption that the Fed is operationally independent. The Fed official authored a comprehensive statement on the Fed’s independence, arguing that the Fed is a creature of Congress. More recently, Chairman Bernanke has said that “of course we’ll do whatever Congress tells us to do”:  if the Congress is not satisfied with the Fed’s actions, the Congress can always tell the Fed to behave differently.[4]

In the aftermath of the GFC, Congress has attempted to exert greater control with its Dodd-Frank legislation. The Fed handled most of the US policy response to the Great Recession (or, GFC). As we have documented, most of the rescue was behind closed doors and intended to remain secret. (See Felkerson 2012; and Wray 2012)[5]  Much of it at least stretched the law and perhaps went beyond the now famous section 13(3) that had been invoked for “unusual and exigent” circumstances for the first time since the Great Depression. Congress has demanded greater transparency and has tightened restrictions on the Fed’s future crisis response. Paradoxically, Dodd-Frank also increased the Fed’s authority and responsibility. However, in some sense this is “deja-vu” because Congressional reaction to the Fed’s poor response to the onset of the Great Depression was similarly paradoxical as Congress simultaneously asserted more control over the Fed while broadening the scope of the Fed’s mission.


Most references to central bank independence are little more than vague hand-waves. In the US, the Fed is a “creature of Congress”, established by the Federal Reserve Act of 1913, which has been modified a number of times. Elected officials play a role in selecting top Fed officials. And while the Fed is nominally owned by share-holding banks, and while the Fed’s budget is separate, profits above 6% on equity are returned to Treasury. Congress also has asserted its authority to mandate that the Fed release detailed information on its operations and budget—and there seems to be nothing but Congressional timidity to stop it from demanding more control over the Fed (indeed, Dodd-Frank sanctions many of the actions taken by the Fed during the GFC, now requiring prior approval by the President, the Treasury Secretary, and/or Congress for various interventions). Further, as we will see, the Fed’s operations are necessarily closely coordinated with the Treasury’s; the Fed, after all, functions as the Treasury’s bank. Finally, as everyone knows, Congress has provided a dual mandate to guide Fed policy although one could easily interpret Congressional will as consisting of four (at least some of which are related) mandates: high employment, low inflation, acceptable growth, and financial stability.

Above I have argued that the Fed is a creature of Congress. MacLaury has put the relationship this way:

Ultimately the [Federal Reserve] System is accountable to congress, not the executive branch, even though Reserve Board members and the chairman are president-appointed. The authority and delegated policy powers are subject to review by the congress not the president, the Treasury Department, nor by banks or other interests. (p. 4)

While many supporters and critics alike have stressed the Fed’s nominal ownership by member banks as evidence that it is somehow independent of government, the Fed’s Bruce MacLaury interprets the independence as follows[6]:

First, let’s be clear on what independence does not mean. It does not mean decisions and actions made without accountability. By law and by established procedures, the System is clearly accountable to congress—not only for its monetary policy actions, but also for its regulatory responsibilities and for services to banks and to the public. Nor does independence mean that monetary policy actions should be free from public discussion and criticism—by members of congress, by professional economists in and out of government, by financial, business, and community leaders, and by informed citizens. Nor does it mean that the Fed is independent of the government. Although closely interfaced with commercial banking, the Fed is clearly a public institution, functioning within a discipline of responsibility to the “public interest.” It has a degree of independence within the government—which is quite different from being independent of government. Thus, the Federal Reserve System is more appropriately thought of as being “insulated” from, rather than independent of, political—government and banking—special interest pressures. Through their 14-year terms and staggered appointments, for example, members of the Board of Governors are insulated from being dependent on or beholden to the current administration or party in power. In this and in other ways, then, the monetary process is insulated—but not isolated—from these influences. In a functional sense, the insulated structure enables monetary policy makers to look beyond short-term pressures and political expedients whenever the long-term goals of sustainable growth and stable prices may require “unpopular” policy actions. Monetary judgments must be able to weigh as objectively as possible the merit of short-term expedients against long-term consequences—in the on-going public interest.

We can take that as our starting point: the Fed is part of government–a public institution–but is insulated from day-to-day politics and other types of special interest pressures. Let’s explore this independence in more detail, beginning with an historical perspective.

Fed Governance: Historical Perspective

Shull[7] (2014) offers a detailed history of the evolution of Fed governance. He notes that the Fed is an independent government agency like the Federal Trade Commission, the National Labor Relations Board, and the Securities and Exchange Commission. Each of these has substantial discretion in implementing laws through rules and regulations and in formulating policies. Most independent agencies have an Inspector General and are subject to Congressional oversight. The Fed is somewhat unusual in that it is self-financing and in that there is a widely held belief that if its formulation of monetary policy were not independent, the policy outcome would be worse. In other words, good monetary policy supposedly depends on independence (from Congress and the Administration).Thus, the Fed’s monetary policy is not subject to audit by the General Accountability Office—and courts have refused to hear suits that accuse the Fed of policy mistakes. In recent decades, the Administration has been reluctant even to criticize the Fed’s monetary policy. However, as we will see, that has not always been the case.

The movement to create a central bank strengthened after the Panic of 1907. Rival plans were put forward, which ranged from a bank-supported plan which would create a privately-owned central bank (like the Bank of England), to a proposal to house the US central bank within the Treasury. The Glass-Owen bill split the difference, with private ownership and a decentralized system, but with the Treasury Secretary and the Comptroller of the Currency sitting on the Board. The decentralized system was supposed to ensure “fair representation of the financial, industrial and commercial interests and geographic divisions of the country,” (quoted in Shull p. 4). The Board was to be “a distinctly nonpartisan organization and was to be wholly divorced from politics.” (ibid p. 5) According to Paul Warburg, governance was to be maintained by a “system of checks and counter-checks— a paralyzing system which gives powers with one hand and takes them away with the other.” (ibid) In other words, the idea was that by ensuring broad representation of interests, the Fed would be stymied by a “clash of interests” that would reduce the damage it might do; as Shull puts it, “The checks and balances thus constituted a form of internal governance.” (ibid p. 5) That of course sounds somewhat familiar as a typically American approach to governance.

When WWI came along, however, the Fed turned its attention to supporting the Treasury’s debt issue. In the inflationary period at the end of the war, the regional Feds raised discount rates sharply (up to 85%) and a deep retraction followed that led to deflation of farm prices. Congress revisited the governance issue as some critics wanted to force the Fed to seek Congressional approval in advance of future rate hikes. One of the Board members, Adolph Miller, understood the implication:

“The American people will never stand contraction if they know it can be helped. Least of all will they stand contraction if they think it is contraction at the instance, or with the consent of an institution like the Federal Reserve System….The Reserve System cannot ‘make’ the business situation but it can do an immense deal to make its extremes less pronounced and violent….Discount policy…should always address itself to the phase of the business cycle through which the country happens to be passing.” (quoted in Shull, p. 7)

As Shull argues, the governance by paralyzing checks and balances conflicted with the need to cooperate to use monetary policy to stabilize the economy. Congress tightened the reins on the Fed but also centralized decision-making at the Board in Washington. The GAO began to audit the Board and there were a number of Commissions and Committees that investigated new guidelines to control the Fed. However, the 1927 Pepper-McFadden Act replaced the Fed’s original 20 year charter with an indefinite charter, and a Congressional report at the time declared that the Fed had demonstrated its usefulness. In the end, Congressional anger dissipated and not much was done to constrain the Fed’s discretion.

Governance issues again came to the forefront during the Great Depression, with serious consideration given to government ownership of the Fed, to be housed in the Treasury. President Roosevelt (who seemed to have supported such a move) as well as many in Congress were concerned that the Fed was not sufficiently attune to the national interest. Title II of the Banking Act of 1935 was a compromise that preserved private ownership but moved to ensure the Board would be more responsive, focusing on the national interest. (Shull, p. 10)  As power was further centralized in Washington, the “checks-and-balances” approach to governance continued to fade.

As in WWI, WWII saw the Fed cooperating with Treasury, in the national interest to keep rates on national debt low. That ended in the famous Accord of 1951, restoring “independence” of the Fed to formulate monetary policy. However, policy was still to be undertaken in the national interest, with the Fed keeping rates very low until the mid 1960s; the Fed mainly operated in short-term Treasury bills so as to have minimum effects on other financial markets. Monetary policy remained on the backburner until the inflation-recession cycle of the early 1970s. In 1975, Congress decided to exert greater control, in House Resolution 113.

In the Federal Reserve Reform Act of 1977, the Senate insisted on the requirement that it confirm the President’s appointment of the Fed’s chairman and vice-chairman. In addition Congress required that Class B Reserve bank directors had to be “elected to represent the public”. (Shull p. 12) The 1978 Humphrey-Hawkins full Employment and Balanced Growth Act clarified the Fed’s mandates and required semi-annual reports to both the Senate and the House. Later, after Chairman Greenspan got caught in “white lies” provided to Chairman Gonzalez, the Fed was required to release its transcripts of FOMC meetings (albeit with a five year lag).[8] The Fed also voluntarily agreed to measures designed to increase transparency (including announcing its explicit interest rate target).

The final big changes to governance occurred after the GFC, when Dodd-Frank tightened limits on what the Fed can do in response to a crisis. This was a surprising turn of events, as Chairman Greenspan had become the darling of Congress and the media and his replacement, Chairman Bernanke, had declared the era of the New Moderation in which central bankers could do nothing wrong. However, in the aftermath of the crisis, many elected representatives as well as the media and the population at large blamed the Fed for the crisis and for bungling a response that made the downturn worse than it should have been. As we’ve argued elsewhere, even many of those directly involved agreed that the Fed’s crisis response “stunk” and that it should never be repeated.[9] The Dodd-Frank legislation was designed in part to ensure it would not happen again.

However, yet again, Congress actually extended Fed responsibility, to include authority over large, systemically important non-bank financial institutions. Still, the Act restricted application of Section 13(3) in future crises, and for some actions required approval from the Treasury. It also mandated increased transparency (including a review by the GAO of all the Fed’s emergency assistance after the GFC). Congress also created the Financial Stability Oversight Council that is chaired by the Treasury Secretary and includes heads of agencies involved in overlooking the financial sector—including the Fed. In that manner it diluted the Fed’s power somewhat. Exactly what difference all this will make for the response in the next crisis cannot be foreseen in advance.

Next time, in Part 2, we look at the Fed’s supposed independence from our elected representatives. We’ll see that that is a fabricated myth.

[1] Thorvald Moe examines the role of Marriner Eccles and the discussions and events that led up to the 1951 Accord. Eccles was a dominant figure in the transformation of the Fed from the relatively weak and decentralized institution that had been created in 1913 to the modern central bank we know now. Moe makes a strong case that the vision of Eccles was instrumental in that evolution; as we will see, modern theories of central banks, however, deviate sharply from the Eccles vision in quite illuminating ways. See: Thorvald Grung Moe “Marriner S. Eccles and the 1951 Treasury – Federal Reserve Accord: Lessons for Central Bank Independence” Working Paper No. 747, Levy Economics Institute of Bard College January 2013.

[2] See two annual reports of research conducted with the support of Ford Foundation Grant no. 1110-­?0184, administered by the University of Missouri–Kansas City. See: L. Randall Wray, 2012. “Improving Governance of the Government Safety Net in Financial Crises,” Research Project Report, April 9.; and L. Randall Wray, 2013. “The Lender of Last Resort: A Critical Analysis of the Federal Reserve’s Unprecedented Intervention after 2007”, Research Project Report, April

[3] Bernard Shull, who made a great presentation at the annual ASSA meetings in Philadelphia. His paper, “Financial crisis resolution and Federal Reserve governance: economic thought and political realities”, Jan 4 2014, is forthcoming as Levy Institute Working Paper.

[5] See James A. Felkerson, 2012 “A Detailed Look at the Fed’s Crisis Response by Funding Facility and Recipient.” Public Policy Brief No. 123. Annandale-on-Hudson, NY: Levy Economics Institute of Bard College.; and L. Randall Wray, 2012. “Improving Governance of the Government Safety Net in Financial Crises,” Research Project Report, April 9.

[6] See Bruce K. MacLaury; “Perspectives on Federal Reserve Independence – A Changing Structure for Changing Times”;  Published January 1, 1977, The Federal Reserve Bank of Minneapolis, Annual Report 1976,, which examines Fed independence with respect to Congress, the Executive branch (including the Treasury), member banks, and within itself (ie, for example relations between the Board of Governors in Washington and the District banks). I will use several quotes from this comprehensive survey.

[7] Bernard Shull, “Financial crisis resolution and Federal Reserve governance: economic thought and political realities”, Jan 4 2014, forthcoming as Levy Institute Working Paper.

[8] See L. Randall Wray, “The Fed and the New Monetary Consensus: The Case for Rate Hikes, Part Two”, Public Policy Brief No. 80, December 2004, p. 14 for a discussion of this episode.

[9] See Wray 2013, the second report of this Ford Foundation-funded project, cited above.


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somecallmetimmah's picture

Yeah, they're "independent" alright.
Independent like a $50,000 custom-fit rubber with a monster load trickling out.

SafelyGraze's picture

Banca Romana and the five other issue banks (banks that were allowed to issue banknotes), had steadily increased their note circulation.

In 1887 five of the issue banks had exceeded their legal limit, a fact well known to the government and banking and financial circles. However, restricting credit in a period of speculative construction boom was considered politically impossible.  

The governor of the bank at the time of the scandal, Bernardo Tanlongo, was peculiar man; a semi-literate with a genius for accounts and finance. A former farm hand and former spy during the short-lived Roman Republic in 1849, he made his career in the bank under Pope Pius IX and his court for providing illicit entertainment to Vatican officials.  

The Banca Romana had loaned large sums to property developers but was left with huge liabilities when the real estate bubble collapsed in 1887.

The report, published on January 18, 1893, confirmed the serious state of affairs in the Banca Romana: a deficiency of cash, cooked accounts, a note circulation of 135 million lire instead of the 75 million permitted by law, a great quantity of bad debts due to speculation in building, and 40 million lire in a duplicated series of notes which had been printed in Britain but not issued owing to the honesty of minor officials of the bank.

fijisailor's picture

From your link:

 The Bank Act of August 1893 liquidated the Banca Romana and reformed the whole system of note issue, restricting the privilege to the new Banca d'Italia – mandated to liquidate the Banca Romana – and to theBanco di Napoli and the Banco di Sicilia, and providing for stricter state control.[3][7][10]

Conclusion:  Liquidate the FED.

MeMadMax's picture

If our government wasn't so corrupt and screwed up, I would suggest folding the FED into the government as either another department or branch or something... So that way it would fall under FOIA, regulations, etc etc...





new game's picture

keeping it MF'g simple:it should piss you off to the MAX that some fuck heads don't have to exchange labor/tyme for money...

Anusocracy's picture

Much better to speak about central bank non-existence.

robertsgt40's picture

It's no wonder why Ron Paul was thrown under the bus. Can't say he didn't try TP warn us.

Greenskeeper_Carl's picture

"Independent central bank" how quaint. It's all a big bank/fed gov/ fed res bukkake fest with them in a circle around us, the taxpayer, who takes it on the chin over and over. Dress it up however you want, but that's how it goes.

worldlymrb's picture

When has a U.S president ever defied the Central Bank?   I know our current president brags about defying congress, but I don't recall the POTUS ever defying the moneychangers.

NoDebt's picture

If men made it, men can corrupt it.  Simple as that.  The siren's song is too strong to avoid misuse and abuse, no matter how you structure it.

XitSam's picture

If we End The Fed, there is no need to worry if the Fed is independent.

Radical Marijuana's picture

The FED is "independent" in the sense of being a government of the money, by the money, for the money.

somecallmetimmah's picture

Couldn't make $50,000 custom-fit rubbers without an independent fed, now could we?...

new game's picture

so only one question: when does greater than violence rise up to over throw/change the fed. it has to be violent, a force greater than present force because the last thing the status quo wants is a change of the present system/control- so i ask is their not enough pain? yet?

this is about your tyme on earth and how some of that is enslavement (assuming most would rather not be working) by consfication...

Teknopagan's picture

Democracy is now the rule of money. Who has the money. Let me repeat myself." Allow me the control of credit and I don't care who makes the laws."  Meyer Amschel Rothchild

fijisailor's picture

The FED is an illegal criminal organization since it is unconstitutional.  Only the treasury has the right to mint gold and silver coin for circulation.  

sessinpo's picture

I don't think the FRB mints money with gold or silver, thus they aren't violating the right of the treasury. Their money is all fiat. Hell, they don't even have to have paper money printed. It can all be electronic.


The FRB simply enslaves the public with the approval of the politicians by creating debt that the citizens guarantee, with or without public consent. Yes, it is criminal and it doesn't have to be constitutional. Most criminal organizations don't follow the law.

disabledvet's picture

First off nice to see you at the Hedge Randall. Always like economists who like mixing it up in the scrum here. Second...I would argue the Fed is pretty much irrelevant at this point. Once they wind down QE...and i believe that's an absolute certainty at this point...we'll be stuck at the zero bound for many, many, many years still. While I don't agree with your view on the Fed vis a vis the crisis...basically i agree with you now in the sense that "we don't really need them anymore" and their actions could simply be merged into a Treasury function. Obviously I would like for that to lead to an actual return to gold...start paying the soldiers in real money if you know what i mean...if this equity market continues to rally i think these Government folks better pause for a moment and start to think in those terms. This is a large pot of money in the middle of the poker table here. why not "monetize it" by Going for the Gold?

lunaticfringe's picture

Let me sum up a central bank for those of you that don't want to read 25 paragraphs of gibberish. Here's the bottom line.

The FED is an unlimited credit line. That's all it is. Without the FED, politcians could not spend us into oblivion and take on insurmountable debt. In fact, they'd actually have to get budgetary approval from the people paying the bills- that would be us taxpayers- and we would never give them a blank check. We'd vote everyone of them out of office along with erasing the FED.

I mean if your daughter charged 5k worth of drinks on your bank account- would you cut up the card or increase the credit line?

So the FED exists so that politcians or they- can keep kiting checks ad infintum- offering nothing for collateral on that debt except their ability to continually hike taxes and steal your work product. That this thievery is acceptable is proof positive that all people, not just us, are fucking retards who have created a Frankenstein Government that exists to enslave us.


LMAOLORI's picture

"The FED is an unlimited credit line. That's all it is. Without the FED, politcians could not spend us into oblivion and take on insurmountable debt."

I completely agree I have long argued that the anger is misplaced and the politicians love it because the anger is directed away from them.


It's been nothing more then Monopoloy money since Nixon took us off the gold standard.  This is how they effectively turned us into a nation of tax slaves.  


Don't hold your breath waiting for the politicians to abolish it because it is their life blood, their power!


This article explains it in a manner that should be easy for all to understand.


The Fed as Giant Counterfeiter



Arkadaba's picture

I'm tired. No time to read through all the comments but will reiterate - the Fed is a private commercial bank. Why do we let unelected private bodies dicate a countries economy whether Ireland or El Salavador and soon to be UK and US?

"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered...I believe that banking institutions are more dangerous to our liberties than standing armies... The issuing power should be taken from the banks and restored to the people, to whom it properly belongs." 

bunnyswanson's picture


"After paying expenses, the Fed turns our profits over to the Treasury Department each year. We pay no income taxes. However, we pay real estate taxes, personnel related taxes such as unemployment insurance, workers compensation tax and social security withholding tax, etc."


oday, the Federal Reserve's responsibilities fall into four general areas:


  • Conducting the nation's monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices;
  • Supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers;
  • Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets;
  • Providing certain financial services to the U.S. government, to the public, to financial institutions, and to foreign official institutions, including playing a major role in operating the nation's payments systems.

Right from the horse's mouth.

Crash N. Burn's picture

"After paying expenses, the Fed turns our profits over to the Treasury Department each year."

 They must have forgot to mention the 6% the owner(s) (subsiduaries of Rothschild Inc. - shhhh) of the Fed are paid! An oversight, I'm sure.

lunaticfringe's picture

I can't remember what the skim rate is. They NEVER, EVER mention it. Instead they say they turn their profits over to the Treasury minus EXPENSES.


lasvegaspersona's picture

If the Fed is really going to taper then I suspect it is a final act of distancing itself from the calamity to come. "Hey, we tried to finally get it right, we were just too late."

I think they will reverse the taper however, deflation is too painful. 

Anyway 'independence' is an ideal. The Fed does what the government (and ultiimately the people) want. The people want dollars to flow, they want debts to be more easily paid. 'Hard' currency is a dream, it lasts until things get rough. Then the political process gets its way and money is printed. It does not matter if it is the king or the Fed, the will of the populace is  ultimately irresistable.

Clowns on Acid's picture

Depends on who that "populace" is. Since LBJ's Great Society and subsequent immigration policies advocating for 2nd and 3rd world "people of color", the spintering of US society has made it easy for the banksta's and lackey politicians to create a "need" for moar Gov't spending and borrowing .... and then QE.... and now a little taper until .... there is not a taper ever again..... until currency collapse.     

lasvegaspersona's picture

MMT= magic money tree

sessinpo's picture

I am of the belief that no institution can be totally independent. There are always bribes and special deals.

Competition in a truly free market helps alleviate some of the corruption. But no matter what system is used, corruption will always exist. There is no utopia.

Even on ZH, we have many here that rail against the FRB and other institutions. But when you dissect their thought process, it becomes evident they are more progressive then they portray themselves to be.

I say about 10% of the posters at ZH are legit anti-government, anti-progressive modern day liberals.

Last of the Middle Class's picture

"Barbarians at the Gate" is the only reason the would EVER consider tapering. They own the money tree and everyone else pays through decreased dollar "value". Certainly this talk of taper is a signal someone sees a crowd gathering "down the road" with a little bit of "head fake" thrown in. I remember my dad telling me of a couple of failed bank robbers placed in the window in coffins in the drugstore in west Texas where he grew up. Bullet holes and all for everyone to see. Climate change is this nice little warm and fuzzy topic we're allowed to participate in with it's inevitable "carbon tax" that is going to show up on your "bill" somewhere in the near future, while the real blood thirsty beast that is destroying our economy to protect TBTF is hidden with a sweet little official name "The Fed". This is the bankers secret that we're supposed to not understand and certainly not look towards with a baleful eye. They deserve to be window dressing in the drug store for their greed.

eddiebe's picture

A lot of words in this article that tell me nothing new. I don't intend to waste my time reading partII.

graspAU's picture

 "We can create money by fiat (decree). Our checkbook doesn't have a ledger. So you write out the check, it's (money/currency) just transmogrified out of thin air, which is a nice checkbook to have."

- Jerry Nelson, Federal Reserve Bank of Chicago, Public Relations. May 14, 2008.

Updated Video Links as of 2012: part 1

Part 2

Question :“People have often questioned about the Federal Reserve being a private bank or a private corporation. Is that in fact true?

– Gary Franchi, Republic Magazine

Answer: “It is…each one of the 12 banks is a separate closely-held private corporation. We’re literally owned by the banks in our district.

– Jerry Nelson, Public Relations, Federal Reserve Bank of Chicago, May 14, 2008.

Updated Video Links as of 2012: part 1

Part 2


The 1982 Ninth Circuit court case of LEWIS v. UNITED STATES, 680 F.2d 1239 ruled that the Federal Reserve Bank is privately owned:

“Examining the organization and function of the Federal Reserve Banks, and applying the relevant factors, we conclude that the Federal Reserve Banks are not federal instrumentalities for purpose of the FTCA, but are independent, privately owned and locally controlled corporations. Each Federal Reserve Bank is a separate corporation owned by commercial banks in its region.”


“Mr. Chairman, we have in this country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve Banks. The Federal Reserve Board, a Government board, has cheated the Government of the United States and the people of the United States out of enough money to pay the national debt. These twelve private credit monopolies (Federal Reserve Banks) were deceitfully and disloyally foisted upon this country by the bankers who came here from Europe and repaid us for our hospitality by undermining our American institutions...The people have a valid claim against the Federal Reserve Board and the Federal Reserve banks.” 

- Louis T McFadden, Congressional Record, 1932, pages 12595 and 12596  (R-PA, Chairman of the United States House Committee on Banking and Currency 1920-31)

“Some people think the Federal Reserve banks are United States government institutions. They are not government institutions. They are private credit monopolies which prey upon the people of the United States for the benefit of themselves and their foreign customers; foreign and domestic speculators and swindlers; and rich and predatory money lenders.”

- Louis T McFadden, Congressional Record, 1932, pages 12595 and 12596 (R-PA, Chairman of the United States House Committee on Banking and Currency 1920-31)

facsimile of Congressional record pages - page 12595

page 12596 -



kenezen's picture

A massive sum of trillions of dollars without previous disclosure was discovered sent to Europe after the 2007-2008 crash. Only with the insistence of Ron Paul did that historic audt get done! It is an example of coordination of our banking system and the other privately owned Federal Reserves dealing without full Government's approvals.  

verum quod lies's picture

Blah, blah, blah, ... the Fed on the one hand is this on the other hand isn't that blah, blah, blah ...

Long story short, it isn't independent, it is inflationary as all hell, it is killing our real economy, and it will be the death of us all. Kill it already; and stop writing thousands of worthless words about actual monetary policy without any numbers to back it up. Also, disallow any tribe member from holding any fiscal or monetary authority over us. If the economy is to be destroyed we don't need a parasite class sucking us dry while we are ground into dust, we can do that on our own without the half-a_s reach around.

over45's picture

It's easier to do nothing,

and live with the lie.

Than stand up for your beliefs,

and possibly die.



GreatUncle's picture

There may come a point though where living is so torturous that dying can be viewed as an escape.

At that point all paths coalesce into one and where doing nothing just results in the inevitable consequence.

So you die by doing nothing or die doing something! Which one you going to choose?

Reckon payback myself is far more appealing.

geno-econ's picture

There is no such thing as Economic Policy--- only Fed Speak, and that's the way politicians like it so there is no accountability or fault when things go wrong, very wrong.

icanhasbailout's picture

The Fed is "independent" in the sense of being sovereign - and the sooner we figure that out, the sooner we can get this revolution under way.

Reaper's picture

The Central Bank is just another delusion providing hope.  A bank operating independent of corrupt politicans is corrupted by its power.  The sheeple crave a good king, a good Central Committee, a good dictator, a good President, a good honest judge and make the same mistake over and over of giving them unchecked power.    Einstein paraphrased: The insanity of humankind is to repeatedly impower a ruler and expect something different.

Yancey Ward's picture

All central banks are on the same path, some just further down the road than others, but the end point is the same for all.  To know where the Fed will eventually end up, just look to Argentina and Venezuela.  It might take another 50 years, but the end will eventually come for the Fed, too.

giggler321's picture

They are fiercely independent but just happened to be doing the same thing all of the time in tandem and that has nothing to do with the fact that a small group decides direction for each and every one of them

RaceToTheBottom's picture

The FED and their co-enabling relationship with the fiscal side of the equation in the congress leads to the problems. 

They don't control each other, they enable each others drug habit.  That sort of relationship leads to the worst nature of each side surfacing.

Billy Shears's picture

Please,  allow me. The politicians are controlled (i.e., bought) by the banks,  the banks control the Fed so therefore the banks control the government.  The so-called, two-party political system does not act as a check on any excesses or abuses that take place because "both" parties have separate but coincidental interests that support deficits and, hence, the expansion of the debt; expansion of the debt is the sole reason for the Feds existence, all the other BS notwithstanding. 

Sufiy's picture

Glenn Beck: Where Is German Gold?

  Glenn Beck is digging up the mystery of German Gold repatriation. With the reports that even small amount of the delivered Gold so far was melted beforehand we can be sure that there is no more original German Gold left. As we have discussed before, theGold smashing down has started with Venezuela's request for Gold to be returned back and last year Gold's bloodbath was assured with Germany seeking for its Gold to be returned as well.


Playback: Glenn Beck Exposes the Private FED; Gets Fired by Fox

"C.S. It is not the new video, but Glenn Beck is a very good showman to show the dramatic complications surrounding privately owned Federal Reserve. With President Obama now "close to his decision"  on the new Chairman for the FED, the clear understanding of this organisation will help us all to survive the "Taper of QE".

lakecity55's picture

Bankster Criminality has not changed since President Andrew Jackson.

We need another Hero.

sbenard's picture

"Central bank indedependence" is just another way of saying that they are UNACCOUNTABLE!

Zymurguy's picture

Uh, when the president appoints the positions at the top of the Fed', it's NOT an independent organization.