How much control over the Federal Reserve does the U.S. Government have?

Question

Or, in other words: Who does the head of Fed report to? Is the Federal Reserve a private institution?

I'm going to be a bit naive here, have just read about how the Fed has been brought to life and can hardly believe that it did manage to survive for almost a century (!)

I have already checked many sources but cannot get a definite answer, so would appreciate if some people, maybe American, could expand on the topic.

Every country has a central bank. (Well, maybe not every, but literally 99% of all countries, and every major one). There's nothing special about the Fed. I recommend a course in Keynesian macroeconomics :) — Matthew Read, Jan 07 '11 at 18:33
It's not the fact that it's central that bothers me, rather the fact that this is a profit-driven institution, isn't it? Also it has a very bizarre foundations. — matcheek, Jan 07 '11 at 19:44
"Who does the Fed report to?" That's a very good question indeed. — mbhunter, Jan 08 '11 at 07:21
Completely opposite to Matthew Read's comment, I recommend a course in Austrian economics. It will expose the Fed for what it is: a bunch of large banks that exist for the benefit of a bunch of large banks. — mbhunter, Jan 08 '11 at 07:22
If the OP "can hardly believe that it did manage to survive for almost a century" check out how monetary policy worked in the US for the century before the Fed. For example, you don't see political parties named for monetary policy anymore (Greenback, Free Silver, etc). https://en.wikipedia.org/wiki/Greenback_Party — user662852, Aug 02 '17 at 02:59

score 8 · Answer 1 · answered Jan 07 '11 at 17:15

It has both public and private entities. Calling it a 'private institution' is a little naive, but has some validity.

http://en.wikipedia.org/wiki/Federal_Reserve_Act

You can read the easy stuff about it on wikipedia, but the official legislative act that created it will give you better info: http://www.law.cornell.edu/uscode/12/usc_sup_01_12_10_3.html

score 7 · Answer 2 · answered Jan 08 '11 at 02:37

It's a central bank with public and private aspects.

It consists of US Government and member bank appointed board members.
It operates without the need for direct ratification of decisions by the Congress or Executive, but is subject to Congressional regulation.
It is a for-profit institution, but all profits in excess of the dividend to member banks are paid to the US Treasury.

It has attributes that are unique compared to central banks like the Bank of England or Bank of Canada. But the US has always had an unusual financial system, traditionally driven by lots of small banks, which were mostly state-regulated for most of US history.

Muro · Accepted Answer · 2011-01-07T19:10:17.250

3

The Fed board members are appointed by the US President and approved by the Senate. That is the only control the US government has over the Fed. Otherwise it is a private, unaudited bank that has the unique ability to print money.

The Fed was created in secret (or for a shorter article) on Jekyll Island by a bunch of bankers who disguised their identities so no one would know what they were meeting about. That seems like a great way to start a central bank.

The Fed was created by bankers for bankers. The citizens of the US were not clamoring for a central bank. The bankers were the ones who desired a central bank since all fractional reserve banks are always teetering on the verge of bankruptcy.

List of participants at the meeting on Jekyll Island:

Senator Nelson W. Aldrich, Rockefeller in-law
Henry P.Davison, Morgan partner (banker)
Paul M.Warburg, Kuhn, Loeb & Co. partner (banker)
Frank A. Vanderlip, vice-president of Rockefeller's National City Bank (banker)
Charles D. Norton, president of Morgan's First National Bank of New York (banker)
A. Piatt Andrew, Harvard economist and staff assistant to Aldrich on the Monetary Commission.

edited Jan 07 '11 at 19:10

answered Jan 07 '11 at 19:04

Muro

7,575
2
34
42

in light of these facts why do American people tolerate such an institution? In my simple mind, it seems to me that they are being ripped off. Their government could take care of regulating financial market by itself without borrowing money from a profit-driven institution, couldn't it? – matcheek Jan 07 '11 at 19:40
2

How many people do you know who care about banking? When the Fed was created it was sold to the people as being this great institution that would alleviate banking crisis and smooth out boom/busts in the economy. The people weren't told the truth about it actually being a way to cartelize banking. The people will not care until it is too late. That is the history of central banking. Look at this website. Most people on this website think I'm crazy for buying gold. They have complete faith in fiat currency when history shows a very poor record track record for them. It's bizzaro world. – Muro Jan 07 '11 at 20:48
2

@Muro I often take opposite sides of issues from you, but my disagreement doesn't mean that I think you are crazy. Buying gold or any commodity is an investment, and as with all investments, you should buy low and sell high. – duffbeer703 Jan 08 '11 at 02:26
@duff - HA! You're right - if I think that people who disagree with me are crazy then I'm not rationally considering the opposing view. Thanks for setting me straight. I do enjoy discussing issues with you. I look forward to many more discussions. – Muro Jan 08 '11 at 02:58
@Muro: I hardly talk about it anymore, except with a few people who are like-minded. Who wants to hear that gold has gone up more than fivefold in the past decade while their stock funds have stayed flat (before inflation)? I just shut up about it. I don't want to be an object of envy. – mbhunter Jan 08 '11 at 07:27
@mbhunter - If you bought gold over a decade ago then you are doing well. Congratulations. I just recently got into gold. The 2008 financial crisis was the best thing to happen to me. I lost a lot of money but it woke me up and I have done a lot of reading about economics, money, and history. – Muro Jan 08 '11 at 12:39
1

The only reason I think you're crazy, Muro, is because you think Gold isn't a fiat currency. All currency is fiat ;) – Benjamin Chambers Jan 08 '11 at 19:29
@Benjamin - definition of fiat: "an arbitrary order". So gold obtains its value because of an arbitrary order of government? I don't think so. Here is a nice short history of truly fiat currencies that have landed on the trash heap: (http://money.stackexchange.com/questions/5388/what-would-happen-if-the-euro-currency-went-bust/5522#5522). Gold outlived them all. – Muro Jan 08 '11 at 23:19
2

This isn't the right place for a discussion, so I'll just link to the points I make elsewhere: http://money.stackexchange.com/questions/1767/why-does-gold-have-value/5343#5343 – Benjamin Chambers Jan 08 '11 at 23:46

score -1 · Answer 4 · edited Jan 07 '11 at 21:19

-1

The Federal Reserve is not Federal and it is not a reserve. It is independent of our government. If you want a very good inside look of the Federal Reserve, purchase a book titled The Creature from Jekyll Island.

edited Jan 07 '11 at 21:19

Michael Pryor

8,693
4
32
64

answered Jan 07 '11 at 18:30

Randy Minder

791
3
14

This is almost identical to the selected answer here http://money.stackexchange.com/questions/5502/how-much-control-over-the-federal-reserve-does-the-u-s-government-have/5507#5507 – Ellie Kesselman Jul 14 '11 at 03:48

How much control over the Federal Reserve does the U.S. Government have?

4 Answers4