The Fed - Independence, Yes; But Accountability And Limits?

Tyler Durden's picture

Via Peter Tchir of TF Market Advisors,

At this point it is clear that there is no single person in America, and possibly the planet who can influence markets as much as the Chairman of the Federal Reserve Board.  The president may have more overall power (possibly) but in terms of moving markets for weeks at a time, that power primarily belongs to Mr. Bernanke.  An unelected official with almost total control over the “board” he chairs.

Some have argued whether the Fed should even exist.  I won’t go that far (it is beyond my scope), and I even understand why the Fed needs some independence.  But I don’t understand why he isn’t accountable or why there aren’t limits.
The “Voting” Constraint

In theory the Fed has a board that votes.  In fact there are actually 2 boards.  The first is the Fed Board of Governors, which consists of 7 members (5 at the moment), appointed by the President and confirmed by the Senate for 14 year terms. The Board of Governors sets the discount rate and the reserve requirements. The second is the Federal Open Market Committee (FOMC), which consists of 12 members (10 at the moment), who are the 7 members of the Fed Board of Governors, the President of the Federal Reserve Bank of New York, and 4 other Presidents of the regional Federal Reserve Banks (on 1 year rotating basis). The Presidents of the other regional Federal Reserve Banks participate in the discussions but do not have a vote. Congress, effectively, no meaningful influence on the Fed since no appropriations come from Congress – Fed pays its bills from its own operations.  FOMC sets the open market operations policy including the target Fed Funds rate.

In theory, the Chairman has the same one vote as the other members of the boards, but never in the history of the Fed has the chairman been on the losing side of the vote.  In fact, multiple dissents are rare.  The chairman may have the same vote but it is clear he is the leader.  Whether the other board members are meant to be independent, there is a clear chain of command, and they are effectively subordinate to him regardless of what was intended.  If the President of the United States wanted to call a board member directly, we have no doubt that it would be okay.  If a board member called the President directly, I expect there would be repercussions.  Only the chairman holds the post announcement press conference.  He has the 60 minutes interviews.  Whatever the intention was, it is impossible to argue that in practice the Fed Chairman is the boss of the others, and the idea of “team” is more reminiscent of the baseball bat scene in the “Untouchables” than a meeting of peers.
“Need To Know”

Why is there such a “need to know” level of secrecy surrounding many of their policies.  The Government Accountability Office (GAO) does audit the Fed but its oversight of the Fed system is limited to areas outside of monetary policy. In fact, the “GAO can’t review most of the Fed’s monetary policy actions or decisions, including discount window lending (direct loans to financial institutions), open-market operations and any other transactions made under the direction of the Federal Open Market Committee. It also can’t look into the Fed’s transactions with foreign governments, foreign central banks and other international financing organizations.” Fed Audit

Is it really a state secret what price the Fed paid on treasuries during their open market operations?  Would it have been collapse of the Western hemisphere if which banks got loans was disclosed?  We have real state secrets.  Military secrets.  Secrets that are designed to protect us from real people.  The CIA and the Pentagon are able to operate with oversight committees.  Shouldn’t the Fed have to ask special permission to keep documents or activities sealed?  We have a need to know.  Sure, there are some things that shouldn’t be available to everyone.  It isn’t a black or white issue and we can argue over which side we err on, but there are procedures.  How can it possibly be up to the Fed to determine what level of disclosure is necessary?  How long should things be withheld.  We have far bigger state secrets (I’m sure) than that ABC bank was going to fail if they didn’t get money and XYZ bank took advantage of the programs to make a few extra billion.   Everything should be disclosed, it is our “fiat” money after all. 
Fed Ownership

The fact that the Fed is technically owned by the banks is also a bit weird.  Why is that necessary?  Is there any reason for it?  Does it really have no influence?
Fed As A Regulator

When was the last Fed Regulatory press conference held?  The NY Fed has articles in the NY times about their open market purchase group and the level of “ahem” sophistication.  How many regulators are there?  If we could calculate a ratio of derivative notional outstanding per regulators assigned, how hideous would that number be?  Don’t they have any responsibility for regulating?  Where is the accountability?  The banking system effectively collapsed under the existing regime’s watch, and the chairman and virtually every single board member is still there, or retired of their own volition.  How is that possible?  How can the NY Fed with all the banks still be there?  The California Fed head with all the mortgage fiascos? 
Which Fed member didn’t take the time to figure out why all the “risk” in his system was being pumped into AIG?

What is the Chicago member doing?  Almost 4 years after Bear Stearns and we have to go to a DTCC website to get any information on CDS notionals?  Where is clearing, let alone exchanges?

Why Not Have Limits?

Traders have limits.  It is a key part of the job.  You are expected to trade and make money but you need to know what your limits are.  These include what products you can commit to, notional limits, DV01 limits, etc.  They are meant to be large enough to handle the day to day business you run.  You can usually get limit increases from your direct supervisor who has his own limits to allocate. If an occasional exceptional opportunity comes up that tends to be a fairly easy process.  If you continually bump into your limits, you can ask for a bigger increase.  Once in awhile something rare happens and the limits have to be approved at a higher level.  That trader considers himself independent but is subject to limits.

Why can’t the Fed have certain limits, and beyond those, they have to go to Congress?  Say $1 trillion of balance sheet.  Is that normally enough? Sure.  Under most circumstances that would be enough.  The Fed would be independent though technically “limited”.  If they need more, and times like this may call for more, it should be approved by the people or the representatives of the people.  That isn’t too much too ask.  The Fed is not slave to congress in “normal” times, but neither do they have unlimited powers.

Authority and Responsibility go hand in hand. One without the other invariably leads to disaster. That’s is why the US government is based on the principle of checks and balances. The President/Administrative branch cannot unilaterally make policy decisions except as has been authorized by the Constitution and Congress. To pass a Healthcare bill or change the tax structure, the President has to go to Congress and persuade/negotiate/compromise.  And the Congress holds the purse strings. Nor can the Congress do things unilaterally, the President must agree or the Congress must have the unity to override the veto. The Judicial Branch is independent of the President and Congress, but if the Congress/President can pass a law overriding the decision of the Supreme Court. The key is information and ability to make corrections. Checks and balances all the way.

Why is the Fed not subject to the same principles? Congress has no purse strings over the Fed; the President has no voice past the appointment (and given the 14 year terms that can be served once, that’s not much a lever).  The Fed doesn’t have to reveal what it has done, thus making it impossible to make corrections. The President can be impeached for  "treason, bribery, or other high crimes and misdemeanors."  So can other civil officers of the United States, including the Fed Chairman.  The Vice President can assume the office of the President, if the President is unable to discharge the powers and duties of the Presidency.  The Fed Chairman apparently could ride in a helicopter dropping $100,000 bills on the people “to further monetary policy” and it might be impossible to stop him or find out how much he is dropping and on whom. 

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Mr Lennon Hendrix's picture

The Fed is unconstitutional!  It is run by a private clique of bankers!  It is a private, for profit "S" corporation!  The Directs profit directly (hence the name) and their bankers get bonuses from the loans made by the Federal Reserve. 

LeBalance's picture

let's dispense with the validity or applicability of that concept.

Oh regional Indian's picture

Teh Fed is simply the 4 or 5th charter of the infamous First American Bank from bank when. It took them a long time to get it all right.

I think it's coming demise is planned. It's work is almost done. And look at the thing, fortress.



Mr Lennon Hendrix's picture

The seed of the tree of knowlegde was planted long ago in the minds of men.  It went through many seperate times, some of radical science, some of art, and some of philosophy.  The most recent turn is a revolution of deceit; that money can actually grow on this tree.

The bankers have played the greatest con-game of all time:  They have tricked people into believing that money is beyond time.  They have taken Einstein's theory that time is relevant to the next level by creating money (by debt) at a moments notice without any work.  They have gotten rid of hard work, making themselves, once again, Kings of this Earth.

Before now they needed armies to protect their gates.  Now they use propoganda.  Propoganda by the Hegelian dialectic:  There are only two sides, two sides of the coin, and you must pick a side.  However, what they do not mention, is that there is ONLY ONE COIN.  You can take the whole coin for what it is.

This is like how we understand that there is no red party, no blue party, but one Royal Purple Party, and we do not want any part of it.  We want to be independant, we long to be free.

Take away the Fed, and you have taken away the greatest wall the oligarchs have.  Take back the money supply, and you have taken back your monetary freedom.  So do it.


TruthInSunshine's picture

Aside from the constitutional question as to whether Congress can delegate its role of coining money to a surrogate such as the Federal Reserve, the practical issue is whether Americans have a more immediate means of petitioning government for redress in the event that the majority (or even a plurality of voters) is not in favor of circumstances brought about by whatever monetary policy vis-a-vis monetary policy are brought about.

If Congress is controlling the money supply directly, rather than the Federal Reserve, voters can resort to the democratic process and "vote out the bums" far sooner and with more directness than if "an independent body, sometimes claiming to be governmental, quasi-governmental, or non-governmental, depending on convenience of the moment (apparently), such as the Federal Reserve" is controlling the money supply directly. Whether voters do the right thing or not is part and parcel of whether one believes in democracy (either direct or more of a republic version) versus statism, and is willing to assume that risk rather than trade it for the risks inherent in usurping citizenry input/rights.

From a more general and philosophical perspective, having an unelected (although appointed by the POTUS and confirmed by the Senate) Federal Reserve Chairman (who can then vote with his co-members at the Fed to fill in the ranks of fellow regional Fed Member Seats), with such a collective, non-elected group being able to control something as fundamental to the U.S. economy as the money supply and interest rates, truly does grossly warp what appears to be the clear intent (based on a plain reading of the Constitution) of those who drafted our Constitution.

We, as a new nation, had just broken away from the British Crown, which itself was subject to the predilections and private interests of a private central bank (House of Red Shield), warping its economy and the general welfare of its citizenry for private, kleptocratic gain, when we drafted and enacted our Constitution.

But here is the real question that every American with a pulse need answer:

What good is a GUARANTEED Constitutional framework of law and government (i.e. NOT law  or rules or CONSTRAINTS on government as mandated by men) if any part of the Constitution providing said guarantee can be dismissed, thrown out, arbitrarily tossed, burned, ignored, abused to the point of meaninglessness?

mr_sandman's picture

If the Constitution was in force, we would not be allowed to create currency in America, so the question of whether "a collective, non-elected group being able to control something as fundamental to the U.S. economy as the money supply and interest rates" is moot.  The constitution specifically bans Congress emitting bills of credit.  Any money they wanted to coin would first have to be created and transferred by someone else, meaning they're not in control of it.  They just define the 'weights and measures' of that gold and silver.


You mention that they can always "vote the bums" out if they print too much money.  That's a nice theory.  There's a problem with this though--it's never happened in history--ever, including in America under the Articles of Confederation.  The only time that this might have been somewhat true is with Volcker and Reagan vs. Carter, but that wasn't congressional control of the money supply.


Also, there's no such things as a republican democracy, but there is such a thing as a democratic republic.  The U.S. Constitution was explicitly designed to prevent democracy, which is why U.S. Senators were not directly elected.

akak's picture

There is another term for those who are politically "independent" and unaccountable to the public: Dictator.

i-dog's picture

There are no "guarantees" with political constructs. Each generation must defend (or reject) what the prior generation constructed. Franklin himself warned of this: "A republic ... if you can keep it".

Also, a historical correction: The House of Red Shield played no part in the creation of the United States or its Constitution (though the Jesuits did ... through Freemasonry).

The Bank of England had been chartered as a private bank 80 years prior to 1776 by William of Orange, and it wasn't until 22 years after 1776 that Nathan Rothschild, at age 21, set up in London and began his mission to take over the Bank of England.

Mayer Amschel Rothschild had neither money nor influence in 1776. Prior to 1789, he didn't even handle the Bills of Prince William of Hanau, let alone any other state business. Prior to 1794, he had less than an upper middle class income. But in 1795 his income doubled, and in 1796 it more than quadrupled again. Then, two years later in 1798, his son Nathan Rothschild set up in London with the capital equivalent of 100 upper middle class incomes. That is when the Rothschild dynasty actually began its inexorable march to untold wealth.

The Illuminati, on the other hand, was formed just 2 months before the Declaration of Independence ... by Jesuit Adam Weishaupt who, at the time, occupied the chair of Canon Law at the University of Ingolstadt - a Jesuit chair in staunchly Roman Catholic Bavaria. It was not until 6 years later, in 1782, that the Illuminati began its takeover of Freemasonry - at the Masonic Conference of Wilhelmsbad, held in a castle owned by Prince William of Hanau. By 1789, the Illuminati controlled Freemasonry throughout Europe.

Incidentally, it was Prince William of Hanau's father, Roman Catholic Frederic II of Hesse-Kassel, who rented Hessian soldiers to George III to fight the Americans in the Revolutionary War of 1775-1783.

Mr Lennon Hendrix's picture


Then it is just stupid and masochistic to want to be enslaved by a ruling oligarchy that makes decisions based on their best interests.  If you don't believe that the constitution is adaquate then that is motive to start a revolution.  If you do believe that the constitution is formal law, then the fact that it is being disregarded is a cause for revolution.  The only reason people have for not making one last stand for freedom is if they love being a docile, masochistic servant of the monopoly powers that the Federal Resrve control by their issuance of the money supply, based on their need to maintain the status quo, which is a prison system of epic proportions. 

JR's picture

Powerful arguments all around, LH. Markets are no longer driven by economic developments but rather clandestine cash injections.  It seems kind of simple -- the people have less money, the market is flush.  Where did the market get its transfusions? 

All Americans are better off with a sound currency; they need to jettison the current system which benefits the Fed and its banking cartel.

tempo's picture

Uncle Ben is unaccountable because the elite, super rich families want it that way. The USA fights endless wars based on flimsy excuses (9/11 airplanes could have been shot down if Chenny had not been in charge of air defenses on that day) because its a easy was for the billionaires to become trillionaires. Clinton was paid $50,000 per month to do PR for Corzine is another example of the corrupt system. However, its probably no worse than the past 200 years of Government. He who has the gold makes the rules.

Stax Edwards's picture

The FED's profits are turned over to the treasury, not divied up among member banks.

Mr Lennon Hendrix's picture

The Fed made, what, $10 billion last year?

The banks profit directly off of the actions of the Fed, and the Fed only turns over a few billion dollars.  The difference is in the hundreds of billions of dollars between what the Major Banking Houses make and what the Fed turns back to the Treasurie.

tmosley's picture

Yeah, they are WAAAAYYYYY low.

lolmao500's picture

Last time I saw the numbers from Bloomberg, it was over 30 trillion... and that was like a year or two ago... so YEAH....

LeBalance's picture

Bee-man: "I have the *power.*"

old naughty's picture

No only he has the *power**, he also has robots from Mars operating faster-than-light-speed algorithm.

Captain Kink's picture

Is that Vodka that Geithner is guzzling?  Or perhaps Schnapps?

RobotTrader's picture

The Fed will never be "abolished"

Not after pulling off one of the greatest financial miracles in financial history:

1) Plunging interest rates to 50-year lows while running insane deficits

2) Goosing stocks up 84% despite the worst economy in a generation

3) Allowing millions of homeowners to live "rent free" for 3 years, spurring the greatest consumer spending frenzy in 10 years.

4) Pulling all of this off, and have absolutely no inflation whatsoever

SeverinSlade's picture


MINIMAL domestic inflation...Thanks to the USD being the world reserve currency, we've happily exported our inflation to China and other nations.

Make no mistake though, that inflation will eventually come home. 

old naughty's picture

Robot, are you looking for these: ++++? There.

Bansters-in-my- feces's picture

NO inflation,eh,RobotTrader...?

"Pulling all this off,and have absolutely no inflation whatsoever"

You FuckTard

Wipe the Bernank's keynesian cum off your face,we know you would give him an ass wash with your tounge,but thats in private.

This cum thing on your face,in public,is just a bit much.

Go wash up now,before more people have to see you like this.


TheFourthStooge-ing's picture

He's been huffing gasoline with freddie.


Stax Edwards's picture

You forgot:

5) Looking the other way while their member banks blew up the world financial system merely to pad their year end bonuses.

6) Bailing out the banks that caused the mess, not even bothering to claw back any of the fraudulently earned bonus money.

7) Simultaneously watching the middle class who believed in the system get decimated, lose their homes, and wind up on foodstamps while living out of their cars, parents houses, etc.

8) Causing widespread inflation in all needs while touting bogus measures of such by excluding or reducing the weight of the most inflated items, to make themselves appear much more effective.

I could go on...

CvlDobd's picture

Limits in government? Interesting idea. This just may be what we need to stop the debt growth.

Had anyone considered a debt ceiling to prevent over spending? I think thi is a good idea.

Robslob's picture



The Fed is like the Board of any failed company...always the last to know...


Once banks have set their table THEN they tell the Fed "OMG...we just came across this huge problem and you have to fix it!".


Why else would they pick "academics" to run the money printing business...I mean smart you got to be to just print money?


SeverinSlade's picture

You need PhD economists because it takes "economic geniuses" to attempt to centrally plan economic and monetary policies.  The alternative is a free market that governs itself which requires no PhD steering the ship.

Everybodys All American's picture

The Fed out to save the world. Right. As if you should forget that they created all the "bubbles" and problems in housing and finance to begin with. We better put some limits on the Federal Reserve or otherwise we are heading for an IMF as the world's central bank with a one world currency and a one world government imo. Hope I'm wrong.

JustObserving's picture

"The Fed Chairman apparently could ride in a helicopter dropping $100,000 bills on the people “to further monetary policy” and it might be impossible to stop him or find out how much he is dropping and on whom. "

The Fed dropped $16.1 trillion during the last crisis and more than $3 trillion on foreign entities.  Can we find out how much of that money has been returned?  Apparently, not.

The Fed Chairman is far more powerful than the President and far less accountable.  If you are unhappy with the Fed handing out more than $3 trillion to foreign banks, there is nothing you can do.

Fiat money is a fraudulent game.  You have to embrace fraud to continue to play that game.  

One can expect a few trillion flowing to Europe soon - it's just electrons and required to keep the fiat game moving along anyway.

homer8043's picture

I can't and won't go as far as many on this site calling for the end of the Fed and the fiat money system. The Gold Standard has many of the same issues as the Euro system with trade imbalances and lack of flexibility. Economies also benefit from having a central bank acting as a lender of last resort to get through TEMPORARY liquidity crises.

That being said, the current Fed has clearly gone rouge, and gone rouge a long time ago. The duty of the Fed or any central bank is not to save the economy from all pain and any recession at any cost. We've gotten here since we really didn't want to take our medicine from the internet bubble and that infrastructure over build, so we inflated the real estate bubble. Then we didn't take our medicine from the real estate bubble and that clear over build so we exacerbated a generational debt cycle that's ending any month now. All this while stealing from the middle class to enrich bankers and prop up the bottom quartile at barely subsistance levels.

Fed interest rate moves preventing any medicine taking from the late 90's forward has been rouge behavior. We'e now at the point that the consequences for further rogue behavior are exponential, not linear.

SeverinSlade's picture

"If the American people ever allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered." - Thomas Jefferson

Nothing wrong with a central bank in theory...So long as it is owned by the American people and not a private banking cartel.

homer8043's picture

I have to give you that Jefferson sounds prophetic with that quote.

LawsofPhysics's picture

How does any of this tie economics back into reality?  Still believe in infinite growth do you?  Good luck with that.

Antifederalist's picture

Infinite growth, no. More efficiency, yes . There is a difference. Think about it.

r00t61's picture

This is a great quote, but it's not from Jefferson.  "Deflation" as an economic term didn't come into use until the 1920s.  The first recorded instance of this quote is from 1935.

If you want an actual Jefferson quote about banking, I really like:

"I sincerely believe...that banking institutions are more dangerous than standing armies..."

Bansters-in-my- feces's picture

Hey homer8043...

No matter what number you give yourself,your just another homer.

BennyBoy's picture

The private bank known as the FED needs debt to increase by the govt and everyone else.

That's the FED business model.

It will go bust if few borrow from the banks.

Federal Reserve NOTES (Aren't notes debt?) are debt based money.

No debt, no money.

mick_richfield's picture

Some have argued whether the Fed should even exist.  I won’t go that far (it is beyond my scope), and I even understand why the Fed needs some independence.

Then you need to extend your scope if you want to be relevant to the people of this country.

The Fed is illegal, unconstitutional, and treasonous.  They are undeclared agents of a foreign power.  It's 'independence' is blatantly undemocratic.  The destruction of the Fed and the arrest of its members will be the first step toward the restoration of the American republic.


Shizzmoney's picture

I always found it quite a bit of mockery that they put Andrew Jackson and Abraham Lincoln on Federal Reserve Notes, considering both tried to establish currencies AWAY from central banks (and both were shot at). 

Jackson himself often referred to them as "snakes in the grass" as well as his usual Jesus-filled rants on usury (which you won't hear today from hypcritical K-Street Republican assholes because the central banks and corporations line their pockets.

If jackson was alive today, he'd buy a shotgun and hunt Bernanke+Company down.  He was the Charlie Bronson of Anti-Central Banking freedom. 

Manthong's picture

I never realized until recently that what is believed to be a tribute is in fact, a farce.

TheSilverJournal's picture

Thanks to the Fed, the world has been brainwashed into thinking that inflation is the normal state of an economy, when in fact deflation is the normal state of an economy. The reason the US has experienced inflation over the last 100 years is because the Fed is printing money at a much faster rate than gold is being mined. In a normal economy, prices would fall as technological gains improve productivity, allowing the amount of goods to increase faster than the money supply. To simplify, with the same amount of gold chasing more goods, prices fall.

Antifederalist's picture

Amen brother. Well said. Refreshing.

Snakeeyes's picture
"Timmy the Weasel" sidesteps question on Fed but admits the IMF (a subsidiary of the US Federal Government) will continue to fund European bailout. FED will bailout Europe, but hide the bailout like they did in 2008. S&P Places EFSF On CreditWatch Negative – EuroSov Reaction is “Meh.” Geithner Sidesteps The Fed Bailout Question, But Admits to Continuing IMF Bailouts

LongSoupLine's picture



The Fed Is simply the greed and power shadow policy of our govt's elected officials and their banking industry puppet masters.  It's a tangled, and multiple backdoor ridden web of utter corruption.

Until the perverse money-to-politics-and-policy-chain is broken by cultural shift, (only via revolution by the masses), nothing will change.


SheepDog-One's picture

End the Central Bank that the Founders warned would be far more dangerous than any standing army...all spending must be done by 3/4th congress approval, and any congressman found taking bribes from bankers is immediately arrested and tried for treason...all politicians pay from city council to US president comes only upon certified budget surpluses, and maximum terms for all politicians is 4 years then you have to go back to the private sector.

francis_sawyer's picture

all politicians pay from city council to US president comes only upon certified budget surpluses

Great... I'm going to get elected to office, then immediately triple everybody's taxes and do nothing with the revenue except INWEST it with RoboTrader & some high rolling hedgies (to max my pay before they kick me out after 4 years where I go to work for the other side)...

I can't wait until 'Government 2.0' starts... Count me in...

YesWeKahn's picture

You want hold someone with unliminited resources accountable? They never count or account.