The truth about the US Federal Reserve

Late last week as Time Magazine announced US Federal Reserve Chairman Ben Bernanke as their ‘Time Person of the Year 2009,’ the US Senate was debating whether to reappoint him as Chairman for another four years.

While Time has said that things could be a lot worse had it not been for Bernanke, he’s been taking heat from US politicians over the central bank’s failure to foresee and stop the sub-prime mortgage crisis and consequent recession.

President Obama and the Senate Banking Committee have nominated him for a second four-year term, but many in the Senate are trying to stop it. More importantly, they also want to get more insight into the Federal Reserve’s decision making.

Bernanke himself has admitted that the Fed made crucial mistakes in the lead up to the crisis, but warned that if their deliberations over interest rate decisions are open to public and political scrutiny (as certain politicians want), then it would undermine the confidence the public and markets have in the organisation to act in the long-term economic interests of the nation.

However, many believe that due to the controversial make up of the Fed itself, it often acts not in the interests of the nation, but in the interests of its wealthy owners.

The truth about the US Federal Reserve System

The US central bank, known as the US Federal Reserve System, is not owned by the government like in most other countries, but by private individuals through private banks.

Simply put, a central or reserve bank is responsible for controlling the price and supply of a country’s money. Its main purpose is to ensure people get wealthier (economic growth) while making sure the price of goods and services don’t skyrocket (inflation).

Their main tools for controlling this is interest rates (the price of money) and printing money (the supply of money). Most central banks are independent of the government to prevent any harmful political interference.

The US Federal Reserve System was created in 1913 to be the country’s central bank. It serves all the main functions of a central bank but with one distinct difference – it is private, rather than government owned.

The Fed system is represented by a Board of Governors in Washington D.C. which is part-appointed by the US Government. These governors represent 12 regional Federal Reserve banks located around the US.

Each of these regional banks is owned by private bank shareholders. Shareholder banks are paid a 6 percent return every year on the amount of money they contribute for lending. Any surplus profit goes to the US government.

The regional banks make money by supplying banking services to the government and commercial banks. But by far the main source of revenue (over 90 percent) is from lending money to the US government by buying Treasury Securities in their ‘Open Market Operations’.

When the government spends a lot of money during a war or recession, the private banks that own the Fed lend most of the money needed. They have already provided over US$5 trillion to help stimulate the economy in the current recession.

All this money must be paid back to the Fed with interest which is why it has been heavily criticised in the past for profiting from recession and war.

But it’s not only the money made from lending that generates criticism, but the knowledge and power that comes from deciding the country’s monetary policy.

The Fed effectively controls boom and bust economic cycles in the US by determining the country’s interest rates. The shareholder banks can use the information they have access to for private gain – in advance of the financial markets.

Trading shares, currency and commodities is dependent on knowledge, and the shareholders of the Fed have access to the most powerful and valuable information in the world.

So who are these people behind the world’s most powerful organisation?

They are, among others, from the Rockefeller, Morgan, Rothschild and Warburg banking families – believed to be the wealthiest in the world (though not open to rich lists because the wealth is mainly held outside of public companies).

They are believed to have established the Federal Reserve after a meeting on Jekyll Island in 1910. The President who signed the law, Woodrow Wilson, later said “I have unwittingly ruined my country...the growth of our great nation and all our activities are in the hands of a few dominant men.”

There are many conspiracy theorists out there who believe these international bankers are behind a large number of world events. But no matter what people choose to believe, the nature of the Federal Reserve is highly controversial.

As Henry Ford, founder of the Ford Motor Company, put it: “It is well enough that people of the nation do not understand the nature of our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”

By The Casual Truth