After years of hard work,
Ron Paul has finally managed to get a bill to the floor of the House of Representatives that would audit the Fed. Ironically, it was Dennis Kucinich, a Democrat, who became the 218th cosponsor of the bill, thus forcing it to the floor for debate. This bill now has 222 cosponsors.
The Constitution delegates the power over money to Congress, and Congress broke the law by handing over all this power to a private corporation, with ABSOLUTELY NO OVERSIGHT. Make no mistake about it. Federal Reserve is no more of a Federal entity than Federal Express is. Yet they have been given an important power of Government, and make no mistake about this either. When it all comes out, the extent of the Federal Reserve's abuse of illegitimate power will stagger the imagination.
Even the Mafia at it's peak never had it this good. The Fed negates free markets, as it manipulates money, prices, interest rates, and other economic factors, in violation of free market principles, and for the benefit of themselves and their cronies. The Fed should not just be audited. It should be shut down.
Read this article by Ron Paul to see why. It's not just common sense. It's the Constitutional thing to do. The Fed is an illegal entity.
Well, putting aside all the populist hyperbole, let's look at the FACTS and role of a Federal Reserve System. I am hard pressed to think that banks operating in a vacuum as they had prior to the establishment of the Federal Reserve system was better than the system we have now; low cost banking, security of a Federal Deposit Insurance system spreading the risk of banking across all banks for depositors and the ability to expand the money supply as the economy expands which I think is VERY important.
In addition, it begs the question why it is bad for people/companies/systems to NOT make any money doing this. It also begs the question of what people like Ron Paul offer as a reasonable alternative; REASONABLE being the KEY terms.
A few interesting facts about the Federal Reserve:
The Federal Reserve Act passed Congress in late 1913 on a mostly partisan basis,
with most all Democrats in support and most Republicans against it. The plan that was adopted as the Federal Reserve Act had similarities to the Aldrich plan, except that the public, rather than the banking community, was more in control of the system.
The primary motivation for creating the Federal Reserve System was to address banking panics. Other purposes are stated in the Federal Reserve Act, such as "to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes."
In the current system, private banks are for-profit businesses
but government regulation places restrictions on what they can do.
The Federal Reserve System is the part of government that regulates the private banks. The balance between privatization and government involvement is also seen in the structure of the system.
Private banks elect members of the board of directors at their regional Federal Reserve Bank while the members of the Board of Governors are selected by the President of the United States and confirmed by the Senate. The private banks give input to the government officials about their economic situation and these government officials use this input in Federal Reserve policy decisions. In the end,
private banking businesses are able to run a profitable business while the U.S. government, through the Federal Reserve System, oversees and regulates the activities of the private banks.
Addressing the problem of bank panics
Bank runs occur because all banking institutions in the United States practice fractional-reserve banking and do not keep enough cash in reserve to give to all of their depositors simultaneously. Bank runs can lead to a multitude of social and economic problems. The Federal Reserve was designed as an attempt to prevent or minimize the occurrence of bank runs, and possibly act as a lender of last resort if a bank run does occur.
Elastic currency
One way to prevent bank runs is to have a money supply that can expand when money is needed. The term "elastic currency" in the Federal Reserve Act doesn't just mean the ability to expand the money supply, but also to contract it. Some economic theories have been developed that support the idea of expanding or shrinking a money supply as economic conditions warrant. Elastic currency is defined by the Federal Reserve as:[22]
Currency that can, by the actions of the central monetary authority, expand or contract in amount warranted by economic conditions.
Monetary policy of the Federal Reserve System is based partially on the theory that it is best overall to expand or contract the money supply as economic conditions change. In practice, the Federal Reserve has never contracted the monetary supply since the Great Depression, on the fear that contracting the money supply may cause a deflationary recession, and because according to the operating theory of the Federal Reserve, monetary supply should expand as the economy expands to accommodate larger volumes of transaction.
Check clearing system
Because some banks refused to clear checks from certain other banks during times of economic uncertainty, which increased financial problems, a check-clearing system was created in the Federal Reserve System. It is briefly described in The Federal Reserve System—Purposes and Functions:
By creating the Federal Reserve System, Congress intended to eliminate the severe financial crises that had periodically swept the nation, especially the sort of financial panic that occurred in 1907. During that episode, payments were disrupted throughout the country because many banks and clearinghouses refused to clear checks drawn on certain other banks, a practice that contributed to the failure of otherwise solvent banks. To address these problems, Congress gave the Federal Reserve System the authority to establish a nationwide check-clearing system. The System, then, was to provide not only an elastic currency—that is, a currency that would expand or shrink in amount as economic conditions warranted—but also an efficient and equitable check-collection system.
Lender of last resort
The Federal Reserve has the authority to act as “lender of last resort” by extending credit to depository institutions or to other entities in unusual circumstances involving a national or regional emergency, where failure to obtain credit would have a severe adverse impact on the economy.[24]
Through its discount and credit operations, Reserve Banks provide liquidity to banks to meet short-term needs stemming from seasonal fluctuations in deposits or unexpected withdrawals. Longer term liquidity may also be provided in exceptional circumstances. The rate the Fed charges banks for these loans is the discount rate (officially the primary credit rate).
In making these loans, the Fed serves as a buffer against unexpected day-to-day fluctuations in reserve demand and supply. This contributes to the effective functioning of the banking system, alleviates pressure in the reserves market and reduces the extent of unexpected movements in the interest rates. For example, on September 16, 2008, the Federal Reserve Board authorized an $85 billion loan to stave off the bankruptcy of international insurance giant American International Group (AIG). The Federal Reserve System's role as lender of last resort is criticized for shifting risk and responsibility away from lenders and borrowers and placing them on others in the form of taxes and/or inflation.
Central bank
In its role as the central bank of the United States, the Fed serves as a banker's bank and as the government's bank. As the banker's bank, it helps to assure the safety and efficiency of the payments system. As the government's bank, or fiscal agent, the Fed processes a variety of financial transactions involving trillions of dollars. Just as an individual might keep an account at a bank, the U.S. Treasury keeps a checking account with the Federal Reserve through which incoming federal tax deposits and outgoing government payments are handled. As part of this service relationship, the Fed sells and redeems U.S. government securities such as savings bonds and Treasury bills, notes and bonds. It also issues the nation's coin and paper currency. The U.S. Treasury, through its Bureau of the Mint and Bureau of Engraving and Printing, actually produces the nation's cash supply and, in effect, sells it to the Federal Reserve Banks at manufacturing cost, currently about 4 cents per bill for paper currency. The Federal Reserve Banks then distribute it to other financial institutions in various ways.
Federal funds
Federal funds are the reserve balances that private banks keep at their local Federal Reserve Bank. These balances are the namesake reserves of the Federal Reserve System. The purpose of keeping funds at a Federal Reserve Bank is to have a mechanism through which private banks can lend funds to one another. This market for funds plays an important role in the Federal Reserve System as it is what inspired the name of the system and it is what is used as the basis for monetary policy. Monetary policy works by influencing how much money the private banks charge each other for the lending of these funds.
[ame=http://en.wikipedia.org/wiki/Federal_Reserve]Federal Reserve System - Wikipedia, the free encyclopedia[/ame]
