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Fed begins monetizing the deficit - buying U.S. Treasuries

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  • #31
    Originally posted by StevoJH View Post
    Could someone please give a brief overview of the US financial system, specifically the relationship between the federal reserve and US government and where the federal reserve gets its money?....
    Steve:

    Highseas gave you a pretty good cynic's-eye view of the Federal Reserve, and he has the circular path of the money flow down pretty good. But I feel constrained to fix it up a bit.

    First, it's not a corporation. It's a part of, but independent of the US government. It is the U.S. central bank and is comprised of 8 or 9 federal reserve banks and some private banks. Unlike all other central banks in the world, it is detached from control of the treasury, yet the treasury prints the money. It was formed by an Act of Congress in the early 20th century after a series of financial panics, and it could be dissolved by Congress. So it isn't sacrosanct. Its primary job is to carry out monetary policy, supervise the US banking system and other sundry functions. The money it earns from interest (it's a bank too) is paid into the general fund of the US Treasury every year. The only political control the president and the Congress have over the Fed is in the appointment and confirmation respectively of its chairman. Some people hate it; some love it. But that is another story.
    To be Truly ignorant, Man requires an Education - Plato

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    • #32
      Originally posted by 7thsfsniper View Post
      It was corruption by design if you ask me...
      To this day I still can't understand why the Fed didn't see back in 2004-5 that we would have a financial melt-down if they didn't put the kabosh on mortgage backed derivatives. All they had to do was raise the prime rate which would have sucked cash into money market funds and drained the pool for no doc loans, which later were being handed out on street corners to anyone who wanted them. I remember wondering back in 2005-6 when home prices were rocketing up and people were flipping houses left and right why the Fed was keeping the prime rate so low. It was crazy, lot prices doubled in 4 years, houses that weren't worth piss were selling 40-50 percent over replacement value, and people who couldn't get a $5 loan from a minister were getting mortgages... I had secretaries calling me to build them $300k homes on $100k lots. I knew the sh*t was going to hit the fan, and it was going to be another dot.com bubble, only worse. Imagine 2 bubbles in one decade. Usually it's 1 a century, if that.
      To be Truly ignorant, Man requires an Education - Plato

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      • #33
        Originally posted by JAD_333 View Post
        To this day I still can't understand why the Fed didn't see back in 2004-5 that we would have a financial melt-down if they didn't put the kabosh on mortgage backed derivatives. All they had to do was raise the prime rate which would have sucked cash into money market funds and drained the pool for no doc loans, which later were being handed out on street corners to anyone who wanted them. I remember wondering back in 2005-6 when home prices were rocketing up and people were flipping houses left and right why the Fed was keeping the prime rate so low. It was crazy, lot prices doubled in 4 years, houses that weren't worth piss were selling 40-50 percent over replacement value, and people who couldn't get a $5 loan from a minister were getting mortgages... I had secretaries calling me to build them $300k homes on $100k lots. I knew the sh*t was going to hit the fan, and it was going to be another dot.com bubble, only worse. Imagine 2 bubbles in one decade. Usually it's 1 a century, if that.
        Hence my post....put on your tin hat.;)

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        • #34
          Originally posted by 7thsfsniper View Post
          Hence my post....put on your tin hat.;)
          Hell, I knew that...it was just my turn to yak and yours to drink...
          To be Truly ignorant, Man requires an Education - Plato

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          • #35
            Originally posted by JAD_333 View Post
            ...First, it's not a corporation. It's a part of, but independent of the US government. It is the U.S. central bank and is comprised of 8 or 9 federal reserve banks and some private banks.
            Well, it is a corporation.

            4. General Corporate Powers
            Upon the filing of such certificate with the Comptroller of the Currency as aforesaid, the said Federal reserve bank shall become a body corporate and as such, and in the name designated in such organization certificate, shall have power --
            First. To adopt and use a corporate seal.

            Second. To have succession after the approval of this Act until dissolved by Act of Congress or until forfeiture of franchise for violation of law.

            Third. To make contracts

            Fourth. To sue and be sued, complain and defend, in any court of law or equity.

            Fifth. To appoint by its board of directors a president, vice presidents, and such officers and employees as are not otherwise provided for in this Act, to define their duties, require bonds for them and fix the penalty thereof, and to dismiss at pleasure such officers or employees. The president shall be the chief executive officer of the bank and shall be appointed by the board of directors, with the approval of the Board of Governors of the Federal Reserve System, for a term of five years; and all other executive officers and all employees of the bank shall be directly responsible to him. The first vice president of the bank shall be appointed in the same manner and for the same term as the president, and shall, in the absence or disability of the president or during a vacancy in the office of the president, serve as chief executive officer of the bank. Whenever a vacancy shall occur in the office of the president or the first vice president, it shall be filled in the manner provided for original appointments; and the person so appointed shall hold office until the expiration of the term of his predecessor.

            Sixth. To prescribe by its board of directors, by-laws not inconsistent with law, regulating the manner in which its general business may be conducted, and the privileges granted to it by law may be exercised and enjoyed.

            Seventh. To exercise by its board of directors, or duly authorized officers or agents, all powers specifically granted by the provisions of this Act and such incidental powers as shall be necessary to carry on the business of banking within the limitations prescribed by this Act.

            Eighth. Upon deposit with the Treasurer of the United States of any bonds of the United States in the manner provided by existing law relating to national banks, to receive from the Secretary of the Treasury circulating notes in blank, registered and countersigned as provided by law, equal in amount to the par value of the bonds so deposited, such notes to be issued under the same conditions and provisions of law as relate to the issue of circulating notes of national banks secured by bonds of the United States bearing the circulating privilege, except that the issue of such notes shall not be limited to the capital stock of such Federal reserve bank.
            Originally posted by JAD_333 View Post
            ...Unlike all other central banks in the world, it is detached from control of the treasury, yet the treasury prints the money.
            'Cept the Treasury has given that over the the Fed. So the Fed prints the money now (technically it orders the money from the bureau of printing), but yes- under the Treasury's authority.
            "We will go through our federal budget – page by page, line by line – eliminating those programs we don’t need, and insisting that those we do operate in a sensible cost-effective way." -President Barack Obama 11/25/2008

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            • #36
              Originally posted by highsea View Post
              Well, it is a corporation.
              The Federal Reserve Banks and it's member banks are, but the Federal Reserve System, of which they are a part, is not. The system itself it's not even a bank per se, but a policy making organ, although I will admit it's damn confusing to me.

              I know you know the following, but bear with me.

              The Federal Reserve System is governed by a board appointed by the president and confirmed by the Senate. The board is made up of the presidents of the 12 Federal Reserve Banks and is presided over by a powerful chairman. Each member has one vote which is not weighted according to the size of bank they represent. One bank, one vote. And they cannot be compelled to vote any which way by the stockholders of the Federal Banks they administer. Thus, the Federal Reserve Banks, which are incorporated and owned by member banks, do not and cannot vote their members' stock in arriving at policy at the system level (FOMC).

              To further reinforce that point, note that each member bank gets only one shareholder vote no matter how many shares it owns. That is why the Federal Reserve System claims not to be a corporation. Sorry if I covered ground old to you. Just wanted to run the whole thing through.

              Donald J. Winn, Assistant to the Board of Governors in response to an inquiry by a Congressman, the Honorable Norman D. Shumway, on March 10, 1983. Mr. Winn states that "The Federal Reserve System was established by an act of Congress in 1913 and is not a 'private corporation'." On the next page, Mr. Winn continues, "The stock of the Federal Reserve Banks is held entirely by commercial banks that are members of the Federal Reserve System." He offers no explanation as to why the government has never owned a single share of stock in any Federal Reserve Bank, or why the Federal Reserve System is not a "private corporation" when all of its stock is owned by "private corporations".
              Secrets of the Federal Reserve Table of Contents and Foreword


              'Cept the Treasury has given that over the the Fed. So the Fed prints the money now (technically it orders the money from the bureau of printing), but yes- under the Treasury's authority.
              There's a semblance of check and balance in that, although I don't know if that was the purpose.
              To be Truly ignorant, Man requires an Education - Plato

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