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Email Response from the Fed

19 October 2008 Comments Written by: Sean Liebel
Federal Reserve Districts

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Recently I emailed the Federal Reserve Bank and asked them the following questions:

Why is the fed a private bank? Why does it choose to bail out those that scam us? Why profit off of middle class and destroy them? Why does the fed refuse to admit that “paper” currency will fail miserably against a “gold” standard?

Here is their response:

Response to your e-mail concerning: Board Members

FRB.Mail@frb.gov to me

Dear Mr. Liebel:

Thank you for your interesting questions concerning the Federal Reserve System and the gold standard.

As you know, there is considerable misunderstanding about the Federal Reserve. Many people think that the Federal Reserve is not part of the government or responsible to the government, but is a profit-making private bank. In fact, while the Federal Reserve has been granted a degree of independence in its operations, it is a part of the federal government. The Federal Reserve is the nation’s central bank. It was created by an Act of Congress on December 23, 1913. The Federal Reserve System consists of a seven-member Board of Governors (an independent agency of the federal government with headquarters in Washington, D.C.), plus a nationwide network of 12 Federal Reserve Banks and 25 Reserve Bank branches.

In addition to exercising general supervision over the Federal Reserve Banks, the Board acts as a supervisor and regulator of banks and bank holding companies under a number of laws passed by the Congress over the years. As provided by law, the stock of the Federal Reserve Banks is owned by the commercial banks in each Reserve Bank’s District that are members of the Federal Reserve System. These consist of national banks, which by law are required to be member banks, and those state-chartered banks that choose to be members.

With regard to your question about returning to the gold standard, please know that, throughout most of the 1800s, the United States was on some sort of gold standard; yet this standard did not prevent prices from fluctuating widely even though the value of a dollar as measured in gold stayed relatively stable. Gold is a raw material that has commercial, industrial, and decorative uses. Therefore, the supply of gold available for use in the economy and for these other purposes also fluctuated, depending upon how much gold was being discovered and processed from ore compared to the price the public was willing to pay to hold it or to use it. The financial panics that occurred in the 1800s and early 1900s proved that even when the dollar is backed by gold and silver, private market forces may upset the stability in the government-specified price between dollars and gold.

One of the reasons for establishing the Federal Reserve System and for the demonetization of gold in the 1930s was to provide a mechanism to make money supply elastic. Thus, the money supply matched fluctuations of the economy rather than fluctuations in the supply of a commodity, such as gold, which may be unrelated to the growth of the economy at large.

Public law 96-389 directed the Secretary of the Treasury to establish and chair a commission to assess and make recommendations with regard to U.S. policy concerning the role of gold in domestic and international monetary policy systems. That commission’s report concluded that a return to a hard money standard would not be appropriate.

Finally, the Federal Reserve’s actions are not aimed at influencing any segment of the population. The goal of monetary policy is to foster conditions conducive to sustaining sound, noninflationary economic growth over time and policymakers must make decisions that provide the greatest benefit to the economy overall.

I hope this information is helpful. Again, thank you for writing.

Sincerely,

JPD
Board Staff

Do you think they did a good job answering my questions?

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Viewing 10 Comments

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    • v
    hello,

    You should also ask the robbers and the banksters at the FED why the US government has to borrow money from the FED at interest if the FED " is a part of the federal government and The Federal Reserve is the nation’s central bank...?"

    rgds,

    Arya
    • ^
    • v
    No! The answer tries to justify the Feds existence because of price fluctuations under the Gold standard, but no where does it mention how the current system of constant devaluation of the dollar (theft) is better.
    • ^
    • v
    Yes they did. Look at the volatility of gold just this year:

    http://www.marketwatch.com/quotes/?sid=1633395

    How would you like your dollar to vary in it's buying power by that much in that short amount of time? What isn't said about paper money is that INFLATION IS HELPFUL (big bold claim, because it runs contrary to popular belief) to some extent in that it encourages investments. Who benefits from investments? Everyone, the investor, the company and all the people who use their goods/services. Inflation can essentially be considered a tax on hording money, if you stuff it in your mattress no one can use it. Similarly for gold, it just sits there and does nothing to contribute. Now, this may seem like a nasty plan, but wait the government allows you to buy t bills which won't earn you lots of money but are 100% safe and can be used to avoid inflation. The only ones who lose in this system are those who horde cash.
    • ^
    • v
    The problem here Ryan is not that gold is volatile, but rather fiat currencies. Gold has been uses as a store of value for all of time. If you had a certain amount of gold at the start of the federal reserve, and the same amount of cash, the gold would have about the same buying power, while the cash would have lost 95% of it's value. Even if your proposition that inflation is helpful was true, shouldn't we admonish this in a free society> What moral authority does government have to devalue the currency and force people to spend? You are correct in stating that this is a tax. In fact, it's more than that - it's robbery. There is no distinction between the value of money in your bank account going down and someone stealing money from that account. Even worse, this little trick that most people (unlike you and me) don't understand allows the government to create money at will for it's own purposes without having to raise taxes. It's politically dishonest and leaves voters without a remedy because both parties endorse this system. I suggest you do some reading from the Austrian School of Economics at mises.org
    • ^
    • v
    You're exaggerating what a tax is. I suppose you could call it robbery, but that would discredit the positive aspects taxes. There are plenty of other incentives the government gives out that maybe you would call robbery too. I'm sure your dad was happy to take advantage of the tax incentives the government gave him when he could claim you as a dependent child. Our government provides additional investment incentives through devices like the Traditional and Roth IRA's, should people who use these feel immoral?

    Lastly, our government is not just without limits printing money. Check out Zimbabwe:

    http://edition.cnn.com/2008/BUSINESS/08/19/zimb...

    It makes our historic average inflation rate look pretty good huh?
    • ^
    • v
    You support Ayn Rand right? Did you know that she was friends with Ludwig von Mises and the promoted each others work? Check it out here:

    Ayn Rand's Contribution to the Cause of Freedom --> http://mises.org/story/1738

    So apparently you won't listen to my 'conspiracy theories', but perhaps you'll listen to Ayn Rand's economist of choice? It's his views we're spreading here. I'm not pulling this out of my @$$ Ryan.
    • ^
    • v
    I support Ayn Rand's philosophy as a good tool to reference in making decisions, however it has a number of very fatal flaws. First, it is incompatible with any sort of non-market policy. This is a flaw, because unless we brainwash everyone in the world to accept and adhere to objectivism, there will be people making non-market decisions/policies. Two, the requirement from the previous point will never be reached due to what I would describe as the socialist aspect of human nature. You and me, as economics students are socialists?? Seems a crazy statement, but look at family life, something that is inherently socialist. I've only read Fountainhead and Atlas Shrugged, but do you notice how Rand completely leaves out family life in her novels?? Would John Galt keep a tab on all the expenditures he made raising kids and expect them to pay him back to the penny as adults? Even Rand can't explain this or apply her philosophy because it would be ridiculous. I respect Rand greatly and think her philosophy is an excellent reference, but it is not perfect.

    I'll see if I can check out Mises, someone I've never heard of before, but will give you an example of one of Rand's disciples who recently has be undermining the belief that free markets are flawless:

    Alan Greenspan

    http://en.wikipedia.org/wiki/Alan_Greenspan
    http://news.yahoo.com/s/ap/20081024/ap_on_bi_ge...

    Under biography you can read about Greenspan and Rand's relationship. The yahoo article begins with the premise:

    "Badgered by lawmakers, former Federal Reserve Chairman Alan Greenspan denied the nation's economic crisis was his fault on Thursday but conceded the meltdown had revealed a flaw in a lifetime of economic thinking and left him in a "state of shocked disbelief.""

    Need I say more? Have you taken Public Finance at U of R yet? If not I'd highly recommend it, if only because it provides a good study of where the free-market and non-market intersect in policy.
    • ^
    • v
    I've got news for you. Despite his claims, Alan Greenspan is hardly a free market advocate. He's a price-fixer because he fixes the price of money. That's very detrimental to our economy and that's why Ron Paul said that he, Paulson and Bernanke need to be tried for their crimes and locked up.
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    Didn't the Federal Reserve Act (passed by congress) give Greenspan and Bernanke the right to fix the price of money?

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

    See 1913 through present:

    "After the war, the Fed, led by Paul Warburg and New York Governor Bank President Benjamin Strong, convinced Congress to modify its powers, giving it the ability to both create money, as the 1913 Act intended, and destroy money, as a central bank could."

    Its irresponsible to call for imprisonment of these people if they haven't committed any crimes. Ron Paul must be an idiot or a fascist if he thinks we should lock people up for using the powers granted to them by congress.
    • ^
    • v
    a crime by any other name...
 

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