5 ms·

Calling the Fed a private entity is really misleading. It was created by an act of Congress and its highest ranking officials, the Board of Governors, are all a

by Meekro 6y ago

Calling the Fed a private entity is really misleading. It was created by an act of Congress and its highest ranking officials, the Board of Governors, are all appointed by the President. Yes, it shares some power with the banks it regulates (who can elect representatives), but the US government didn't "coopt a seat at the table." It built the table and had most of the seats from the start. And it's true that member banks own stock in the Fed, but it's a super-funky kind of stock ownership. That stock can't be sold or traded, and doesn't grant the kind of voting rights one normally associates with stock ownership. It only entitles the stockholder to their share of the dividends the Fed pays every year. The Fed actually returns nearly all of its profits (something like 95%) to the US Treasury, and pays the rest as dividends to shareholder banks.

jerry1979 6y ago
Correct me if I'm wrong, but people constructed a cleavage between the Fed and the US Govt because they thought we shouldn't trust democracy with money creation.
- dragontamer 6y ago
  The proper role of the US Government and Money has been under debate ever since Hamilton was appointed Treasury Secretary under George Washington. (EDIT: actually, even earlier than that, but the country didn't exist yet...) Jefferson wanted one system, Hamilton wanted another. And the two sides have been arguing for the past 200+ years. Sometimes, the central bank appears, sometimes it disappears. Then silver+gold, then removal of the silver standard (gold-only standard), then etc. etc. etc. The Revolutionary War required money and bonds. Immediately upon the end of that war came the question of how to organize and pay those loans. Should it be held by the states? Or by the national government? Should a central bank even exist, or is a loose collection of banks good enough? Should there be a national currency, or should the States make their own currency? The Continental Congress's dollar was hit severely by inflation: losing 99% of its value in just a decade or so. Not a big deal: most Americans used Spanish Pesos back then due to their reliable silver weight. The money issue was front-and-center at the birth of this country. Lots of debate and discussion (and duels!!) occurred over the issue. Arguing about money (literally to death) is a proud American tradition.
  - dragonwriter 6y ago
    > The proper role of the US Government and Money has been under debate ever since Hamilton was appointed Treasury Secretary under George Washington. (EDIT: actually, even earlier than that, but the country didn't exist yet...) In regard to the parenthetical, the country existed either from the First Continental Congress, the Declaration of Independence, the Articles of Confederation, or the surrender at Yorktown, but in any case before the adoption of the Constitution, much less Hamilton's appointment under it as the first Secretary of the Treasury, which is a really odd point to chose as the starting point of the nation.
- Meekro 6y ago
  You're right-- the Fed Board of Governors members are appointed by the President for 14-year terms, which is supposed to make them more independent. I'd say that what you're describing isn't limited to just fears about money creation, though. It's part of the broader notion in most Western democracies that permanent (or semi-permanent) bureaucrats are more trustworthy than elected officials. It's not just the Fed: Presidents who tamper with the Department of Justice too much, for example, are often criticized for intruding on its "independence." This notion has both practical problems-- who can fire an "independent" bureaucrat run amok?-- and constitutional problems-- the Constitution says "the Executive power is vested in the President" and makes no allowances for any Executive power to be wielded outside the President's control. The Supreme Court has been known to remind everyone of this fact when it's forgotten. For example, the Consumer Financial Protection Bureau has a director who is appointed by the President for a 5 year term, and can only be fired for a narrow list of reasons. The Supreme Court struck down that restriction and said, roughly, that any inquiry into why the President is firing a particular bureaucrat would infringe on the Executive power that is vested in the President alone. Nonetheless, this idea that some power is "too dangerous to be wielded by elected officials" is alive and well, like with the Federal Reserve. It just can't be wielded too far from the President-- and yes, the President can remove members of the Fed Board of Governors, though it isn't commonly done.
  - dragonwriter 6y ago
    > This notion has both practical problems-- who can fire an "independent" bureaucrat run amok? The President; “independent” officers and agencies (to the extent that this is a formal distinction, “independence” is often attributed on a softer political basis to regular executive agencies and officers, too) are those who (or, for agencies, whose group of principals are) legally protected against Presidential removal except for specified cause. And also Congress, as such officers are civil officers subject to impeachment. > For example, the Consumer Financial Protection Bureau has a director who is appointed by the President for a 5 year term, and can only be fired for a narrow list of reasons. The Supreme Court struck down that restriction and said, roughly, that any inquiry into why the President is firing a particular bureaucrat would infringe on the Executive power that is vested in the President alone. No, it didn't. It struck down the combination of that protection and a single-director government structure, declaring that because Congress had established a single-responsible-officer structure, it could not also (even though the CFPB exercised quasi-legislative and quasi-judicial functions, do which the Court had allowed similar arrangements for multidirector agencies) restrict dismissal of the director to limited cause. It very much did not find that any legal restriction on why the President is firing a particular bureaucrat “would infringe on the Executive power that is vested in the President alone” (and, in fact, a wide array of bureaucrats in the federal executive enjoy exactly the kind of protection that was not permitted to the head of the CFPB because of the structure of the agency.) And it even moreso did not find that any inquiry into such a firing (such as the Congress might do before applying after-the-fact, discretionary consequences like impeachment and removal) would violate the Executive Power.
- rsj_hn 6y ago
  That cleavage is de facto, not de juris. From the Federal Reserve Act, Section 10.6 "Nothing in this Act contained shall be construed as taking away any powers heretofore vested by law in the Secretary of the Treasury which relate to the supervision, management, and control of the Treasury Department and bureaus under such department, and wherever any power vested by this Act in the Board of Governors of the Federal Reserve System or the Federal reserve agent appears to conflict with the powers of the Secretary of the Treasury, such powers shall be exercised subject to the supervision and control of the Secretary." The constitution gives Congress the power to create money, then congress delegated this right to Treasury by passing the legal tender act in 1862. This right has been delegated to the Federal Reserve system so they now issue Federal Reserve Notes, but is subject to the supervision and control of the Secretary of the Treasury as specified in 10.6 But in practice we give the Fed leeway so as to not be seen as interfering in money creation and reserve policy because that is what financial markets demand and is what the general class of educated and influential people believe is the best approach.
- dragonwriter 6y ago
  > Correct me if I'm wrong, but people constructed a cleavage between the Fed and the US Govt because they thought we shouldn't trust democracy with money creation. Not exactly. The government created a cleavage between the Fed (and, therefore, monetary policy) and Congress/Treasury (and, therefore, fiscal policy), because they perceived that faith in the currency would be enhanced and government borrowing would be cheaper if currency users (including potential dollar-denominated debt holders) knew that the entity responsibly for borrowing and repaying the debt had a strong (even if only political, and not strictly binding) barrier to monetization of the debt.
natchy 6y ago
Yes created by an act of Congress but is not under the jurisdiction of congress or the president, apart from appointments.
- Meekro 6y ago
  The Fed is completely under the US government's control. Congress created it by passing a law, and could pass another law to restructure it if they ever wanted to. The President fills the Board of Governors who run it with his chosen nominees, and can remove and replace them at will. How much more "jurisdiction" do you want?
  - kemofo 6y ago
    The government has passed laws against insider trading, speeding, and murder, and I wouldn't say these things are "completely under the US government's control". The fed does what it wants, congress is powerless to stop it, even though there are pieces of paper with laws written on them.

by Meekro 6y ago

jerry1979 6y ago

Correct me if I'm wrong, but people constructed a cleavage between the Fed and the US Govt because they thought we shouldn't trust democracy with money creation.

dragontamer 6y ago
The proper role of the US Government and Money has been under debate ever since Hamilton was appointed Treasury Secretary under George Washington. (EDIT: actually, even earlier than that, but the country didn't exist yet...) Jefferson wanted one system, Hamilton wanted another. And the two sides have been arguing for the past 200+ years. Sometimes, the central bank appears, sometimes it disappears. Then silver+gold, then removal of the silver standard (gold-only standard), then etc. etc. etc. The Revolutionary War required money and bonds. Immediately upon the end of that war came the question of how to organize and pay those loans. Should it be held by the states? Or by the national government? Should a central bank even exist, or is a loose collection of banks good enough? Should there be a national currency, or should the States make their own currency? The Continental Congress's dollar was hit severely by inflation: losing 99% of its value in just a decade or so. Not a big deal: most Americans used Spanish Pesos back then due to their reliable silver weight. The money issue was front-and-center at the birth of this country. Lots of debate and discussion (and duels!!) occurred over the issue. Arguing about money (literally to death) is a proud American tradition.
- dragonwriter 6y ago
  > The proper role of the US Government and Money has been under debate ever since Hamilton was appointed Treasury Secretary under George Washington. (EDIT: actually, even earlier than that, but the country didn't exist yet...) In regard to the parenthetical, the country existed either from the First Continental Congress, the Declaration of Independence, the Articles of Confederation, or the surrender at Yorktown, but in any case before the adoption of the Constitution, much less Hamilton's appointment under it as the first Secretary of the Treasury, which is a really odd point to chose as the starting point of the nation.
Meekro 6y ago
You're right-- the Fed Board of Governors members are appointed by the President for 14-year terms, which is supposed to make them more independent. I'd say that what you're describing isn't limited to just fears about money creation, though. It's part of the broader notion in most Western democracies that permanent (or semi-permanent) bureaucrats are more trustworthy than elected officials. It's not just the Fed: Presidents who tamper with the Department of Justice too much, for example, are often criticized for intruding on its "independence." This notion has both practical problems-- who can fire an "independent" bureaucrat run amok?-- and constitutional problems-- the Constitution says "the Executive power is vested in the President" and makes no allowances for any Executive power to be wielded outside the President's control. The Supreme Court has been known to remind everyone of this fact when it's forgotten. For example, the Consumer Financial Protection Bureau has a director who is appointed by the President for a 5 year term, and can only be fired for a narrow list of reasons. The Supreme Court struck down that restriction and said, roughly, that any inquiry into why the President is firing a particular bureaucrat would infringe on the Executive power that is vested in the President alone. Nonetheless, this idea that some power is "too dangerous to be wielded by elected officials" is alive and well, like with the Federal Reserve. It just can't be wielded too far from the President-- and yes, the President can remove members of the Fed Board of Governors, though it isn't commonly done.
- dragonwriter 6y ago
  > This notion has both practical problems-- who can fire an "independent" bureaucrat run amok? The President; “independent” officers and agencies (to the extent that this is a formal distinction, “independence” is often attributed on a softer political basis to regular executive agencies and officers, too) are those who (or, for agencies, whose group of principals are) legally protected against Presidential removal except for specified cause. And also Congress, as such officers are civil officers subject to impeachment. > For example, the Consumer Financial Protection Bureau has a director who is appointed by the President for a 5 year term, and can only be fired for a narrow list of reasons. The Supreme Court struck down that restriction and said, roughly, that any inquiry into why the President is firing a particular bureaucrat would infringe on the Executive power that is vested in the President alone. No, it didn't. It struck down the combination of that protection and a single-director government structure, declaring that because Congress had established a single-responsible-officer structure, it could not also (even though the CFPB exercised quasi-legislative and quasi-judicial functions, do which the Court had allowed similar arrangements for multidirector agencies) restrict dismissal of the director to limited cause. It very much did not find that any legal restriction on why the President is firing a particular bureaucrat “would infringe on the Executive power that is vested in the President alone” (and, in fact, a wide array of bureaucrats in the federal executive enjoy exactly the kind of protection that was not permitted to the head of the CFPB because of the structure of the agency.) And it even moreso did not find that any inquiry into such a firing (such as the Congress might do before applying after-the-fact, discretionary consequences like impeachment and removal) would violate the Executive Power.
rsj_hn 6y ago
That cleavage is de facto, not de juris. From the Federal Reserve Act, Section 10.6 "Nothing in this Act contained shall be construed as taking away any powers heretofore vested by law in the Secretary of the Treasury which relate to the supervision, management, and control of the Treasury Department and bureaus under such department, and wherever any power vested by this Act in the Board of Governors of the Federal Reserve System or the Federal reserve agent appears to conflict with the powers of the Secretary of the Treasury, such powers shall be exercised subject to the supervision and control of the Secretary." The constitution gives Congress the power to create money, then congress delegated this right to Treasury by passing the legal tender act in 1862. This right has been delegated to the Federal Reserve system so they now issue Federal Reserve Notes, but is subject to the supervision and control of the Secretary of the Treasury as specified in 10.6 But in practice we give the Fed leeway so as to not be seen as interfering in money creation and reserve policy because that is what financial markets demand and is what the general class of educated and influential people believe is the best approach.
dragonwriter 6y ago
> Correct me if I'm wrong, but people constructed a cleavage between the Fed and the US Govt because they thought we shouldn't trust democracy with money creation. Not exactly. The government created a cleavage between the Fed (and, therefore, monetary policy) and Congress/Treasury (and, therefore, fiscal policy), because they perceived that faith in the currency would be enhanced and government borrowing would be cheaper if currency users (including potential dollar-denominated debt holders) knew that the entity responsibly for borrowing and repaying the debt had a strong (even if only political, and not strictly binding) barrier to monetization of the debt.

natchy 6y ago

Yes created by an act of Congress but is not under the jurisdiction of congress or the president, apart from appointments.

Meekro 6y ago
The Fed is completely under the US government's control. Congress created it by passing a law, and could pass another law to restructure it if they ever wanted to. The President fills the Board of Governors who run it with his chosen nominees, and can remove and replace them at will. How much more "jurisdiction" do you want?
- kemofo 6y ago
  The government has passed laws against insider trading, speeding, and murder, and I wouldn't say these things are "completely under the US government's control". The fed does what it wants, congress is powerless to stop it, even though there are pieces of paper with laws written on them.