Fed (Federal Reserve System)

What is the Fed in simple words?

The Federal Reserve System (FRS) is a private organization in the United States responsible for issuing dollars, regulating inflation, economic growth and the key interest rate. It is sometimes called the “Fed” or “Fed” for short.

The founding date of the Federal Reserve System is December 23, 1913. The central office is located in Washington.

A distinctive feature is that the Federal Reserve has a decisive economic influence on the country’s economy, but at the same time remains a private structure. This will seem strange to anyone. How can a private organization have so much power? This situation arose at the time of its founding, when the then US President signed a decree to this effect just before Christmas. Later he regretted his decision, but it was too late.

The independence of the Federal Reserve is ensured by the fact that its decisions on determining the size of the discount rate (“Federal funds rate”) do not require approval by Congress and the President of the United States. The Federal Reserve is not funded by Congress, and the term of office of any member of the Board of Governors (14 years) covers several terms of office of members of Congress and the President.

The governing body of the Federal Reserve is the Board of Governors of the Federal Reserve System, consisting of 7 members, who are appointed by the President of the United States with the approval of the Senate.

Note Please note what is written on US dollars: “Federal Reserve Note” - a Federal Reserve note. Which further emphasizes the fact that the Fed is not a government organization.

The Fed is the only central bank in the world whose shares can be purchased. Owners include more than 3,000 small US banks.

The Federal Reserve's authorized capital is fully pledged by private commercial banks. However, they do not have the right to participate in annual meetings and generally influence anything. The shares pay an annual dividend of 6%. In fact, it is a security similar to a bond or, in other words, a “quasi-share”.

The Federal Reserve consists of 12 regional banks. Their branches are distributed throughout the United States. Federal Reserve Banks are located in the following cities:

Boston (https://www.bos.frb.org);
New York (https://www.newyorkfed.org);
Philadelphia (https://www.philadelphiafed.org);
Cleveland (https://www.clevelandfed.org);
Richmond (https://www.richmondfed.org);
Atlanta (https://www.frbatlanta.org);
Chicago (https://www.chicagofed.org);
St. Louis (https://www.stlouisfed.org);
Minneapolis (https://www.minneapolisfed.org);
Kansas City (https://www.kansascityfed.org);
Dallas (https://www.dallasfed.org);
San Francisco (https://www.frbsf.org);

FOMC (“Federal Open Market Committee” - “Federal Open Market Committee of the US Federal Reserve”) is responsible for price stability in the country, ensures economic growth, regulation of the labor market, for issues of international trade and external payments.

What issues does the Federal Reserve address?

The official website reports that the US Federal Reserve performs several functions:

Regulates the monetary policy of the state . Due to this, stability of rates over a long distance, moderate price changes, and high employment are achieved.
Ensures stability of the financial system.
Ensures uninterrupted operation of individual financial institutions and financial institutions.
Responsible for the stability of payment systems operating within the United States and abroad.
Studies trends emerging in the economic development of society, protects consumer rights.

The Federal Reserve has serious powers. It is the regulator who decides the issue of increasing/lowering the interest rate and is actually involved in issuing the dollar. Such broad powers are a reason for criticism, because the US Federal Reserve does not belong to the state. That is, the body responsible for the monetary policy of a superpower is not owned by the states.

Functions of the Federal Reserve

The main function of the Fed is the issue and management of money. To receive money into the federal budget, the Treasury must issue government bonds (Treasuries), then the Federal Reserve buys them back with the printed money. As a result, the state got money, and the Fed got government bonds.

The Fed performs the functions that are defined by the Federal Reserve Act:

Performing the functions of the Central Bank;
Regulating the balance between the interests of private banks and the United States;
Ensuring supervision and regulation of banking institutions;
Protection of the rights of consumers of banking services;
Money issue management;
Ensuring the stability of the US financial system;
Participation in the international payment system;
Participation in the internal payment system;
Elimination of liquidity problems;
Single emission center of the country;
Bank of Banks (lender of last resort);
Government banker - performing settlement transactions for the government;
Storage of gold and foreign exchange reserves;
Body regulating the economy using monetary methods;
Regulator and controller of the financial sector;
Decrease in unemployment rate;

The functions of regional branches are somewhat more modest:

Set discount rates with the permission of the Federal Reserve Board of Governors;
Monitor the status of local economic and financial institutions;
Provide financial services to the US government and other depositories;

From Wikipedia: what is a beige book: The Beige Book is an economic review of the US Federal Reserve System, which is published based on the reporting documents of the 12 regional banks that are part of it. The official title of the document is: “Summary of Commentary on Current Economic Conditions by Federal Reserve District.”

How the Fed influences the economy and the Forex market

The Fed's decisions primarily affect the dollar and the American economy . But since the dollar is the world's reserve currency and the economy is one of the largest in the world, these decisions affect the rest of the world.

Without going into details, the key thing that investors and traders pay attention to is interest rate decisions. When it rises, the dollar exchange rate rises; when it falls, it becomes cheaper.

With a sharp increase in the rate:

Inflation in the US will increase . In the short term, this is a positive factor for the economy.
The demand for the dollar will increase . Investors are migrating into the American economy, leaving lower-yielding assets.
The popularity of carry trading is decreasing (due to a reduction in the spread between the rates of the two countries), investments in risky currencies, for example, the ruble, are decreasing.
In the long term, a high rate will create problems for the US government as it will be more difficult to service the debt.
The volume of savings of citizens will increase.

On Forex, traders react sharply not only to the fact of a rate change, but also to the rhetoric of regulator representatives. For example, a comment by Jerome Powell (head of the Federal Reserve) and a negative assessment of the growth rate of the US economy could trigger a sell-off in the dollar. An unexpected rate change guarantees a surge in volatility in financial markets.

To track news related to the Fed, just filter the statistics by “weight” in any economic calendar. The dates of publication of FOMC minutes, interest rate decisions, dates and times of speech by the head of the Federal Reserve are displayed. Before events of this magnitude, it is better to secure open positions.

You should not trade directly on the news - it is impossible to predict the Federal Reserve's decision. The market may react unexpectedly, and you will not have time to react to the increase in volatility.

The importance of the Fed and its tasks

It is difficult to underestimate the importance that the Fed plays in the modern world. The effect of his actions is enormous and has a global impact on the economies of countries.

The interest rates for which he is responsible are extremely important. As practice has shown, ideally it should be around 2-4%. In this case, smooth GDP growth is achieved without jumps and crises.

Too rapid economic growth inevitably leads to collapse. This can be explained as follows: the country begins to produce more. People's salaries are rising, everyone is starting to consume more.

Industry is increasing its capacity. However, demand is growing faster than factories are able to expand their production. This results in a situation where demand exceeds supply. Companies begin to raise prices, inflation begins to rise. Which leads to a reverse circle, when supply begins to exceed demand, and prices are expensive.

Salaries are falling, demand is falling sharply, warehouses are filled with unsold goods. Production is idle because the old one must first be sold off. A crisis is coming. At such a moment, the Fed must fight inflation by raising interest rates, which leads to a slowdown in the issuance of loans and spending by the population.

The Fed always deals with a very difficult issue regarding interest rates, since any careless movement can cause serious problems in the US economy and then in the global economy.

The key rate determines the “strength” of the dollar in the world. And since most trade transactions and transfers are calculated in it, any small change leads to large changes in other industries. Currency pairs involving USD on Forex and the stock market react especially sharply.

Can the US Federal Reserve be called a private company?

The US Federal Reserve website states that the regulator does not belong to anyone. It also states that this impression is erroneous because the Reserve Banks are structured like private corporations. In part, this statement is true, but a detailed study of the documentation still reveals a clear connection between several companies and world-famous names.

The problem of identifying key shareholders is that the names of the owners of banks that own significant blocks of securities are not disclosed.

The main shareholders own 200,000+ shares of the regulator, about 65% of this amount belongs to foreign residents, the remainder is owned by a number of large banks. We are talking about National City Bank, Chase Manhattan, Morgan Guaranty Trust and First National Bank. It is curious that the first 2 structures belong to the Rockefellers, and the second to the Morgans; in total, both the first and second own 36,000 shares of the Federal Reserve.

The publisher of The Reaper reports that a controlling stake in the securities belongs to three New York banks Lehman Brothers, Goldman Sachs, Kuhn Loeb, as well as Warburg, Lazard Brothers, Israel Moses Sieff and Rothschild structures in Berlin and London. That is, individual families really do have influence on the Fed.

Eustace Mullins conducted a full investigation. It turned out that despite the rather complex structure, the decisions of the New York Federal Reserve Bank are decisive. Whoever controls it actually controls the Fed as a whole.

Mullins built several schemes in which he reflected the connection between various banks, corporations, and investment holdings. Structures associated with the Rothschilds, Morgans, and Rockefellers can be traced almost everywhere.

But the US Federal Reserve's connection with individual companies does not mean that someone alone controls the Federal Reserve. This is impossible; there is no puppeteer who would be responsible for the actions of the American regulator.

The Fed is not the center of global evil, it is just a regulator that ensures the functioning of the largest economy in the world. The Speaker of the House of Representatives annually receives a report from the Federal Reserve, and twice a year the regulator informs a special committee in Congress about its work. The activities of the Federal Reserve System are transparent, and most myths about it are associated with a lack of understanding of the principles of its work and a reluctance to understand it.

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History of the Fed

The history of US central banks goes back to 1791. At that moment, the First Bank of the United States was founded. The creator was Alexander Hamilton.

Timeline of US central banks:

1791 - 1811: First Bank of the United States;
1811 - 1816: There was no central bank;
1816 - 1836: Second Bank of the United States;
1837 - 1862: “Era of Free Banks”;
1863 - 1913: National banks;
since 1913: Federal Reserve System. At the time of its creation there was a different name: "The Third Series of Banking Panics" in 1873, 1893 and 1907.
In 1910, seven extremely wealthy people met on Jekyll Island (owned by JPMorgan) (their wealth was estimated at approximately 25% of the entire world). It is known that Nelson Aldrich (Senator of Rhode Island) was in that meeting.
The owners of the Fed still remain in the shadows and there are only rumors about who they might be. At the moment, it is believed that with a high degree of probability this includes: the Rothschild dynasty, Lazard Frere, Kuhn and Loeb, Warburg, Lehman Brothers, Rockefeller, JPMorgan and Goldman Sachs.
In 1913, the agreement on the functioning of the Federal Reserve System was signed for 100 years. There were rumors that it would not be extended, but in 2013 it was successfully extended and nothing has changed radically in the world after a century of history.

Notes in the margins

The scenario of the financial crisis of 2008 was the same: create conditions under which a large number of companies will get stuck depending on financial institutions, including loans, pull money from the economy, “crash the market” and acquire bankrupt enterprises and countries for “a colossal pittance” .

Some believe that the Fed cannot do this, and even more so cannot print unaccounted money, which at the time of crisis is used by special institutions to buy up necessary enterprises, because this is illegal in principle. But how can the law concern those who write it for their own purposes? Moreover, who and on what grounds will check those people who financially run America, and not only?

In May-June 2009, the Bloomberg channel reported that from September 2008 to April 2009, the Fed printed unaccounted for 9 trillion. dollars and issued them in the form of loans to unknown banks and companies. A fragment has been posted on the Internet in which US congressmen are trying to get an answer from the Federal Reserve Inspector General whether she is familiar with the fact that 9 trillion was secretly printed. dollars and to whom they were issued, as well as where 1 trillion was sent. dollars printed by the Fed? The congressmen could not get a clear answer to any of their questions.

Apparently, the underground emission of US dollars by the Federal Reserve has not stopped since the inception of the Fed. In any case, it is very difficult, almost impossible, to check the Fed. The fact is that the Federal Reserve is the highest authority, which can finally “determine” which of the bills with the same serial numbers were actually issued by the Federal Reserve, and which (with its 100% identity) is allegedly a counterfeit.

No one can refute the Fed’s conclusion, even if everyone understands that all banknotes—both “real” and “fake”—are printed on the same machine. And the likelihood that bills with the same numbers will “meet” in one place is negligible. It is not even necessary to use the same numbers and series - you can print unaccounted series and distribute them through controlled banks away from the United States.

It took another three years after their meeting in 1910 before they were able to convince the government of the need for an independent central bank. Shortly before Christmas 1913, President Woodrow Wilson, who had only recently taken office, finally signed the Federal Reserve Act. Most senators at that time had already gone on Christmas leave. Later, on his deathbed, the ex-president recalled this landmark act with regret.

“I betrayed my country. The fate of a nation is in the hands of a few people,” he said before his death.

The answer to the question “Who benefits from this?” is that the banks themselves benefit the most from the design of the Federal Reserve System. What's true in gambling is also true on Wall Street: The bank always wins. Of course, states themselves can also benefit from cheap money to a certain extent. State economies can get a boost, which in turn helps prices during surges in the capital markets. But first of all, money houses that make money on consumer loans benefit from this.

Thanks to the Fed's policies, the US government owes tens of trillions of dollars. This huge debt must be paid to creditors who are unlikely to be known by US officials or presidential candidates.

This was confirmed by Alan Greenspan (Fed Chairman from 1987 to 2006) in a television interview:

“First and foremost, the Federal Reserve is an independent agency. This means that there is no government agency that can undo our actions.”

This circumstance can be both a curse and a blessing. As Henry Ford once said:

“In fact, it is good that the people of the nation do not understand the principles of our monetary system. If they understood them, then before tomorrow morning a revolution would break out here.”

As a result of the Fed’s policy, the total US public debt as of June 1, 2017 is $19.9 trillion , including approximately 30% , which in fact is the purchase of US Treasury bonds by other countries.

US Treasury bonds are a form of borrowing and giving money to the US government, the interest on them is quite low, but it is considered to be a reliable instrument.

Even Russia now holds US bonds worth 105 billion dollars (as of December 15, 2017).

Federal Reserve building

The name “Federal Reserve System” suggests that in the case of this issuing bank we are talking about a government agency. But this statement is far from the truth. The Federal Reserve System is not actually government owned and does not hold reserves.

Rather, the Fed, with its current head, Janet Yellen, is a complex system, headed by various owners, that consists of twelve regional banks with various branches. Their owners, in turn, are some of the largest commercial banks in the United States.

Exactly which banks we are talking about is a matter of speculation at best. There are lists circulating on the Internet that list supposedly the most important owners of the Fed.

Among them are banking dynasties such as Rothschild, Lazard Freres, Kuhn and Loeb (Kuhn, Loeb & Co), Warburg, Lehman Brothers, Rockefeller's Chase Manhattan, JPMorgan and Goldman Sachs. The federal aspect of the name "Federal Reserve System" is more or less legitimized by the fact that the Fed's board is appointed by the President of the United States, and the Fed itself must maintain limited accountability to the US Congress. Accountability is limited by the fact that American authorities have neither the ability, nor even the right, to inspect the Federal Reserve's books. However, the state, under the federal Dodd-Frank Act (2010), which was adopted in response to the financial crisis, is given the opportunity to obtain information about the actions of the Federal Reserve in certain areas. But the US government does not have a complete overview of the Fed’s actions.

No one knows what structures the US Federal Reserve actually owns. Only the close friendly and family ties of all the heads of the Fed with the Rothschilds and Rockefellers, as well as the history of the creation of the Federal Reserve, point to them as the true owners. However, in the 70s of the last century, some information leaked to the press through investigative journalist Rob Kirby, who published a list of organizations that own the Federal Reserve System. However, all these banks have long disappeared through mergers or acquisitions with others. All except one - Bank of England (Bank of London). Here is the list:

Rothschild Bank of London
Warburg Bank of Hamburg
Rothschild Bank of Berlin
Lehman Brothers of New York
Lazard Brothers of Paris
Kuhn Loeb Bank of New York
Israel Moses Seif Banks of Italy
Goldman Sachs of New York
Warburg Bank of Amsterdam
Chase Manhattan Bank of New York

So, on the one hand, the rich families of America have existed and prospered for centuries, on the other hand, through the Fed, they influence both the United States itself and other countries, because the dollar still remains the main reserve currency.

In addition, if necessary, the US government can always borrow from the Federal Reserve, for example, $5 trillion for a small “victorious” war in the Middle East, if the interests of the parties coincide. Since Bush came to power, this measure has been used so often that the national debt has grown to record levels.

At the same time, it is worth saying that the debts of US individuals and corporations amount to more than $10 trillion and the total amount of debt is approaching the volume of US GDP (https://www.econominews.ru/mirovaja-jekonomika/359-vvp-stran-mira-2017.html — GDP indicator).

The world has changed significantly over the past 20 years. Back in the mid-1980s, the Americans managed to force Japan to strengthen the yen against the dollar, which was beneficial for the United States, but led to depression in the Land of the Rising Sun. Today there is a China that is growing by leaps and bounds with its own ideas about good and evil, and if you look more broadly - the BRICS countries (Brazil, Russia, India, China) - the invention of the Goldman and Sachs family.

China itself is ready to claim that the yuan will become a reserve currency in Asia, Russia is seeking to take the financial systems of the CIS countries under its wing. At the same time, rumors about a new American currency regularly circulate in the press. How many years has the United States been fighting the “gold dollar”? And Bitcoin is already on the doorstep and, as it recently turned out, the FBI has the largest wallets in the world!

Are powerful families ready to share power over the printing press with their neighbors? Most likely, universal principles for forecasts are not applicable here.

The first audit in the history of the Federal Reserve, conducted in 2012, showed that during and after the 2008 crisis, this private corporation secretly issued and distributed $16 trillion to “its” banks. Among the recipients are Goldman Sachs - 814 billion, Merrill Lynch - 2 trillion, City Group - 2.5 trillion, Morgan Stanley - 2 trillion, Bank of America - 1.3 trillion, The Royal Bank of Scotland and Deutsche Bank each received 500 billion. Noteworthy is the fact that among the recipients of financing there are also foreign banks, which is strictly prohibited by American law. In fact, this is a violation of all the rules, and simply counterfeiting.

Private investors in the Federal Reserve are releasing unaccounted dollars to further their own interests. And uncontrolled emission can lead not only to galloping inflation within the United States itself, but also to the loss of the dollar’s status as a world reserve currency. However, the main danger for America is that the arbitrariness of the Fed, handing out unsecured dollars right and left, makes the American state a debtor, which will be responsible to creditors from China, Japan, Russia and the EU with all its property. In fact, the country no longer belongs to either the government or the people, since US debt obligations have many times exceeded the size of the country's national wealth.

From the first day of the appearance of the Federal Reserve scheme (uncontrolled issuance of the dollar), representatives of American society were aware of the danger of transferring this most important function of the state to a private banking cartel.

In 1923, C. Lindbergh, a Republican from Minnesota, said literally the following:

“The US financial system has been placed in the hands of the Federal Reserve Board. This is a private corporation created solely for the purpose of extracting maximum profit from the use of other people's money."

The Chairman of the Banking Committee of the US Congress during the Great Depression, L. McFadden, criticized the Fed even more sharply:

“This country has created one of the most corrupt organizations in the world. She sent the US people around the world and practically bankrupted the government. The corrupt policies of the moneybags who control the Federal Reserve led to these results.”

Senator L. Bates adds:

“The Federal Reserve is not part of the US government, but has more power than the President, Congress and the courts combined. This organization determines what the profits of legal entities and individuals under US jurisdiction should be, manages the country's domestic and international payments, and is the largest and only creditor of the government. And the borrower usually dances to the lender’s tune.”

The “fathers” of American democracy also saw potential threats posed by the banking system. The author of the US Constitution, D. Madison, said:

“History has proven that money changers use every means of abuse, conspiracy, deception and violence in order to maintain control over the government by controlling the flow of money and the currency issue of the country.”

For many years, attacks on the Fed were not only ineffective, but also dangerous, since they were the best way to ruin your career or lose your life (why was President Kennedy killed?).

“Kennedy’s assassination for global affairs and Trump’s chances of getting into this matrix” https://inance.ru/2016/11/kennedy/

The first success was achieved only in 2012, when the US Congress on July 25, with 327 votes in favor and 98 against, passed Ron Paul’s bill on auditing the Federal Reserve. The bill provides for a full audit of the Federal Reserve, including checking the compliance of the status of this institution with the American Constitution.

What is a bank? In economic terms, this is an institution with incomplete coverage of obligations. Simply put, he cannot fulfill his obligations - there is not enough money. If, for example, a construction or, say, agro-industrial company has liabilities that are at least one and a half times the value of its liquid resources, such a company may be declared bankrupt. And for banks, the degree of coverage of obligations is only... a few percent! Every bank is, by definition, bankrupt from the very beginning.

How do they manage to exist? It’s very simple: they make money out of thin air. In universities they teach that a bank is a financial intermediary, and the student has the following picture in his head: a person gives 10 rubles to a banker for safekeeping, and he gives them to another person at interest. In fact, for these 10 rubles, the bank can issue loans for at least 100 rubles. It turns out that any bank acts as an issuing institution. In textbooks about banks this is called a “money multiplier”, behind this term there is a simple essence: counterfeiting.

Without waiting for formal recognition of their bankruptcy, bankers withdraw money that people gave them for safekeeping, that is, they actually commit theft on a large scale. Now Nabiullina is revoking banks’ licenses. It has already revoked three hundred licenses. This is a scary process! As a rule, at the time of the recall, everything there has already been swept under a broom, and the owners, as a rule, are abroad. Tens and hundreds of companies in the real sector of the economy, which are clients of these moneylenders, are collapsing. By pulling out bank after bank, Nabiullina is destroying our economy. Individuals receive at least some part of the money at the expense of the Deposit Insurance Agency, and legal entities lose everything completely.

She has in her head the tenets of economic liberalism from Western textbooks, she acts strictly according to instructions and is not obliged to know what the mechanisms of emission are and who the world bankers are. In recent years, the expert international community of financiers has recognized her as the best among the heads of the world's central banks - it is clear that she works for the owners of money. For them she is the best. For us, her activities are very similar to a crime.

Let's remember the collapse of the ruble in 2014. Article 75 of the Constitution reads:

“Protecting and ensuring the stability of the ruble is the main function of the Central Bank of the Russian Federation.”

Nabiullina did not complete this task. The owners from overseas came up with another task for her - control over inflation. In China, the central bank is state-owned, and foreign capital in the Chinese banking sector is 1.7%. In our country it is formally 17%, in reality it is about half (for example, Sberbank, while the share of US companies is 33% of the total number of shareholders (https://www.rbc.ru/finances/26/05/ 2016/5746ceec9a7947e9be79d23b).

Very serious dominance.

Weekly changes

Another chart to look at is the weekly balance change. Anyone who closely monitors the balance will notice that it drops once a month before rising again. Below is how the Fed's balance sheet changes week after week. As you can see, there are several consistent trends:

A portion of the MBS matures approximately every four weeks. This results in a slight decrease in the balance for that week.
Most MBS are purchased every 4 weeks, which exceeds the number of MBS that are due to be redeemed. This leads to a sharp jump in the balance for this week.
Treasury securities are redeemable and are purchased with less volatility.

In the last week, $27 billion of MBS were due for redemption, up from $80 billion purchased the previous week. Debts with maturities of 1-5 years also fell by $31 billion in the previous week.

The table below compares the latest week with 4, 24, 52 and 156 (3 year) week averages. Weekly averages are needed to determine whether the current periods (1 and 4 weeks) are accelerating or decelerating.

Independence of the Federal Reserve System

Central bank independence refers to the question of whether monetary policy supervisors are completely separate from the realm of government. Proponents of independence recognize the influence of politics in promoting monetary policy, which may help re-election in the near future but cause lasting economic damage in the future. Critics of independence say that the central bank and the government should closely coordinate their economic policies and that central banks should have regulatory oversight.

The Fed is also considered independent because its decisions do not have to be ratified by the president or other government official. However, it remains under congressional oversight and must operate within the government's economic and fiscal policy goals.

Concerns about the Federal Reserve's expanding balance sheet and risky bailouts of firms such as American International Group, Inc. (AIG) have led to demands for greater transparency and accountability. Washington's recent calls for an "audit" of the Federal Reserve could potentially undermine the independent status of the US central bank.

The Fed is considered independent because its decisions do not require ratification.

How much has the Fed balance sheet reached?

In the United States, the quantitative easing policy was carried out in three stages: in 2008, 2010–2011 and 2012–2014.

Janet Yellen announced the end of the asset purchase program on October 29, 2014. At that time, the Fed's balance sheet reached $4.48 trillion. Due to reinvestment of bond payments, it has remained at approximately this level for almost two years.

The bulk of the balance sheet consists of Treasuries ($2.5 trillion) and mortgage-backed securities ($1.8 trillion), according to official filings.