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Darbio16's avatar

Why does the Federal Reserve have a monopoly on the issuing of American Currency?

Asked by Darbio16 (767 points ) August 22nd, 2009

The U.S. Treasury can sell bonds, so why not currency? Both are essentially the same. Cash is instant, but bond you wait to collect. Why does the Federal Reserve exist to loan us money at interest if Congress has the right to print money interest free?

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39 Answers

dpworkin's avatar

What leverage would you use to control inflation and the money supply if you couldn’t set rates?

Darbio16's avatar

That is up to Congress to decide, but they sold us out in 1913 when the Federal Reserve was created.

dpworkin's avatar

I’m asking you, since you raised the question. What do you suggest?

Darbio16's avatar

There wouldn’t be inflation if under a fiat money system if you only print enough money to sustain commerce. They start the printing presses and bam! you have inflation. For every dollar they print beyond what is necessary for commerce, the dollar goes down in value

Darbio16's avatar

Abolish the Fed, then have Congress begin minting gold and silver coins to be used. Also, let people find/mine their own gold so they can take it to a local treasury to be melted down into U.S. Currency. Whether we are using Federal reserve note, gold coins or seashells, if it is in the hands of the bankers we are doomed to economic slavery.

dpworkin's avatar

You have a very nostalgic. cute, old 19th Century brand of paranoia in this reasoning.

Darbio16's avatar

You have a modern. shameful, new 21st Century brand of denial in yours. Let me hear it from you then. What is the cause of inflation? Then, tell me where the money comes from and at what cost? Then tell me your solution to this very evident economic problem.

Rsam's avatar

Hey. i have an idea! Lets just barter! no Debt there! ever!

quarkquarkquark's avatar

@kevbo, we usually disagree, but that was an uncommon and correct point few would have thought of.

@Darbio16, http://en.wikipedia.org/wiki/U.S._Mint

YARNLADY's avatar

The comments seem to be leaning toward what causes inflation, rather than the specifics of who should or shouldn’t be minting money. Congress is in the habit of farming out the day to day work of the country to entities they form, such as The various departments of Justice, (CIA, FBI, etc) and the FCC and all the entire list of ABC’s

A lot of “new money” is created by the credit card companies and other lenders, and it is very difficult (read impossible) to control that.

dpworkin's avatar

The Fed rebates its net earnings to the treasury. Here are the figures from 1994–1997:

Summary of Recent Federal Reserve Earnings
(figures in billions)

Income, Expenses, & Profits: 1994 1995 1996 1997

Interest on Treasuries $19.2 23.8 23.9 25.7
Other income 2.3 1.6 1.2 1.2
——————————————
Total income 21.5 25.4 25.1 26.9
Net expenses 1.8 1.9 1.9 2.0
——————————————
Profit 19.7 23.6 23.2 24.9

Payments & transfers to Treasury 20.5 23.4 20.1 20.6

The Fed is audited every year. You could look it up.

cbloom8's avatar

Because it makes huge profits from this ownership. It loans the currency to the government on interest, but because there is no place from which money can be used to pay off the debt, the government is such in a never ending road to doom. Look up the movie Zeitgeist on YouTube, it talks about this in depth (Part 3 at least).

Darbio16's avatar

First off, Quark you have provided the establishment that coins the money. That should not be confused with the private banking institution know as the federal reserve from which we borrow the money in order to turn it into coin.

Secondly, pdworkin, where the hell do you think the profits come from? By way of taxation on us because there is interest on the money they give to the government. Then the treasury along with the 12 federal reserve banks distribute the money for us all to use. If congress would just print its own money, which is what the constitution says we should do, we would not have interest attached to our public money. By printing only what is necessary for commerce you beat inflation.

You say they get audited, not by our government they don’t. Right on their friggin website they say this.

“Why did Congress want the Federal Reserve to be relatively independent?

The intent of Congress in shaping the Federal Reserve Act was to keep politics out of monetary policy. The System is independent of other branches and agencies of government. It is self-financed and therefore is not subject to the congressional budgetary process.
Since the Federal Reserve has considerable discretion in carrying out its responsibilities, to whom is it accountable?

The Federal Reserve’s ultimate accountability is to Congress, which at any time can amend the Federal Reserve Act. Legislation requires that the Fed report annually on its activities to the Speaker of the House of Representatives, and twice annually on its plans for monetary policy to the banking committees of Congress. Fed officials also testify before Congress when requested.

To ensure financial accountability, the financial statements of the Federal Reserve Banks and the Board of Governors are audited annually by an independent outside auditor. In addition, the Government Accountability Office, as well as the Board’s Office of Inspector General, can audit Federal Reserve activities.
Are the Federal Reserve System and Reserve Banks ever audited?

The Board of Governors, the Federal Reserve Banks, and the Federal Reserve System as a whole are all subject to several levels of audit and review. Under the Federal Banking Agency Audit Act (enacted in 1978 as Public Law 95–320), which authorizes the Comptroller General of the United States to audit the Federal Reserve System, the Government Accountability Office (GAO) has conducted numerous reviews of Federal Reserve activities. In addition, the Board’s Office of Inspector General (OIG) audits and investigates Board programs and operations as well as those Board functions delegated to the Reserve Banks. Completed and active GAO reviews and completed OIG audits, reviews, and assessments are listed in the Board’s Annual Report (before 2002, the reviews were listed in the Board’s Annual Report: Budget Review).

The Board’s financial statements, and its compliance with laws and regulations affecting those statements, are audited annually by an outside auditor retained by the OIG. The financial statements of the Reserve Banks are also audited annually by an independent outside auditor. In addition, the Reserve Banks are subject to annual examination by the Board. The Board’s financial statements and the combined financial statements for the Reserve Banks are published in the Board’s Annual Report.”

Here is the link

http://www.federalreserve.gov/generalinfo/faq/faqfrs.htm#6

after reading this crap you will see that, while congress can watch this whole nasty cherade unfold with their tin cups out and buget propasals already prepared, all over the auditing is done by outside independent agencies. Last time i checked i dont think the new name for the government is “outside independent agency”.

I’m not even near done on this subject. Now there is a bill in congress called h.r. 1207, the Audit the Fed bill. That should end the discussion right there. A bill in congress called Audit the Fed. Alan Greenspan , former chairman of the federal reserve, had this to say. “Well, first of all, the Federal Reserve is an independent agency, and that means, basically, that there is no other agency of government which can overrule actions that we take. So long as that is in place and there is no evidence that the administration or the Congress or anybody else is requesting that we do things other than what we think is the appropriate thing, then what the relationships are don’t, frankly, matter.” Is it all adding up yet?

These guys know that all to well. A recession, or depression for that matter, is nothing more than a restriction in the amount of money the federal reserve allows to out in the market. By calling in old loans and refusing to extend new ones economic disaster ensues. That’s why Bernanke these days is saying shit like “We learned a lesson from the Great Depression never to hold back the availability of funds”. However, what we are seeing these is a dramatic increase in the availability of credit and of course the bailouts. There has never been a problem for a politician getting funding for a spending program. We seem to have an endless supply of money for just about any purpose. But did anyone ever take the time to consider just where the hell that money came from?

They say that money doesn’t grow on trees, well it does if you have a paper money printing machine. Deficit spending in our personal lives is hardly something that anyone would argue to be good in any individuals personal life. So why do we accept this behavior from our government. Did anyone ever consider how we have a defecit? Because we spend borrowed money. That is wholly what the national debt is. Interest we owe on money that this generation, and generations since 1913, have borrowed from the Federal Reserve.

Kevbo, Don’t go thanking Quark just yet, like i said, the us mint only turns the already borrowed money into coin. Secondly, i really wanna thank you for mentioning about other various currency that have sprung up across the nation. I would really like to stare a currency in my town. What’s great is that it is totally legal, it just pisses the Fed off tremendously.

Zuma's avatar

@Darbio16 Are you aware that when a bank issues a credit card with a new line of credit that it is equivalent to printing money? In this respect, the Federal Reserve does not have a monopoly on money creation.

Are you advocating that we return to a gold standard? Do you understand the contractionary implications of such a policy?

YARNLADY's avatar

@Darbio16 Everytime someone agrees to lend money to someone else in exchange for repayment at a later date, they have effectively added purchasing power (currency) to the system. You could loan your neighbor money to buy something and you would be creating the equivalent of currency.(Future earnings spent now).

Zuma's avatar

@YARNLADY Yes, but unless you could persuade a third party to buy the debt paper, you really haven’t created a currency in the sense Darbio is talking about. On the other hand, once someone accepts a credit card as payment, the dollar accepted gets passed on, and on, and on, as a dollar of a credit until the Fed tightens up interest rates forcing the person or bank to cancel his credit cards.

Even if the card holder defaults on his promise, the tax laws are written in such a way that the credit card companies get a tax credit, that is to say, a dollar for dollar write off for their ‘loss.” That is equivalent to several times the value of taking a profit on the interest that would be otherwise paid. Were it not for the Fed’s ability to exert such contractionary effect on the economy, banks would flood the economy with cheap credit and we really would have a serious problem with inflation, which we don’t now.

YARNLADY's avatar

@MontyZuma Yes, that is the theory. I was responding to @Darbio16 last paragraph on how he could create currency himself. Any time we lend a person money on a promise of repayment with future earnings, we create the equivalent of new currency, and the Feds can’t do anything about it.

Darbio16's avatar

If you are handing out federal reserve notes, you haven’t made your own currency. the last gold standard we had was flawed mostly due to the fact that there was a monopoly on the gold. it would help to allow gold as a form of payment, but due to its limitations it certainly can’t be the only one. the last time we had a gold standard the banking industry was down congress’s throat. they made it so that only gold coins distributed by the gov. were official. If americans were allowed to take their own gold to the treasury to melt it into coins, the system would work better than the last time. The same should apply to silver. Because the Fed has pumped way too much money into the system its almost impossible to do just a gold standard. Gold prices would be like $45,000/oz. to cover all the dollars we got floating around.and that would be insane.

I don’t really have a whole lot against an honest central bank, but these guys are ridiculous. working outside the scope of congress. Doing whatever they want when they want to do it.

Also, credit cards aren’t making new currency either. sure you are borrowing from the future, but your still dealing in federal reserve notes. we are getting screwed bad. follow the money trail and ownership of all the places you shop and you will see an alarming trend. read as i try to tell you the route of the dollar. they print the dollar and loan it to us, so right off the bat they are making interest on the dollar. You could get the dollar and spend it. if you spend it at a big box store or national chain, most likely you have just given another profit to an investor at the federal reserve. if you choose to hold that dollar and would rather do your dealings with a credit card then these guys would probably feel like kissing you, if you weren’t such a low class proletariat. You better make a payment in full, if not your getting charged interest. Take a look at those who own the Fed, the Corporations and the credit card companies and you will see that these guys are profiting big from everything you do.

Even if you decide not to spend it, your losing out. Most people throw their money in the banks. big mistake. these guys use fractional reserve lending. they will take your dollar and loan out 10x that even tho it doesn’t even exist and begin collecting interest payments on it. All the while your gaining maybe a few percent interest yourself an inflation at the same time is taking your dollar value down while at the same time consumer prices rise at an even higher rate.

Fiat money and central banks do have a purpose. Fiat money allows mankind to reach his ultimate goals because there is no limits to how much money can be thrown at a project. They pervert it because when there is a restriction in capital people begin freaking out and the guys in power remain calm, smoothly buying up assets and corporations during the hustle. Just watch the bank run scene in “It’s A Wonderful Life”

Flo_Nightengale's avatar

To make it simple, the Federal Reserve Bank if privately owned. Look up to see who calls the shots.

Zuma's avatar

@Darbio16 Things are much more complicated than your analysis suggests. You really do need to read William Greider’s 700+ page The Secrets of the Temple.

Money is a confidence game; that is why our money is backed by the full faith and credit of the country, not by gold. It is also why a credit card line of credit is not borrowing from the future, it is creating a unit of wealth every bit as surely as if the Federal Reserve had printed it. There are, by the way, petrodollars which are backed, loosely speaking, by oil. When the Fed extends a line of credit to a bank, it creates what’s known as high velocity money, which the bank can then leverage 10:1 in lending to consumers. Currency (dollar bills and coins) are just the medium of exchange of small transactions. It is a small fraction of the total money in the system. When a speculative bubble bursts, as happened last Fall, trillions of dollars can vanish from the system in a matter of days—and that money is truly gone for good.

The interest rates that are being charged to banks for overnight loans and to create liquidity are just the break-pads on the breaks that determine the velocity of money (the break itself is an increase or decrease in the amount being lent). The faster money turns over in the system in a given unit of time, the more it is worth. A dollar that changes hands 10 times a day is worth 10 times a dollar that turns over only once. Its not like the Fed is issuing notes to the Federal Reserve and creaming off profits on the interest. There’s no guy twisting his handlebar moustache as he pockets the dough. These inter-bank interest rates are simply levers that govern the volume and velocity of the money in the system.

The reason our currency is as solid as it is, and why it is the preferred currency in the world, is because other countries believe that we will pay them back. The reason people feel so confident is because we have institutions like FDIC and the Glass-Steagall Act (at least we used to) and other FDR-era regulation that they don’t have in Europe, China or Japan. And also because the Fed has kept a reasonably tight rein on inflation. If other countries lose confidence in the US and start dumping their dollar denominated securities, the dollar’s value falls against other currencies.

You aren’t stupid to put your money in a bank. Yes, the bank lends 10 times that money out at interest and makes a profit, and pays you a small interest rate that keeps you up with inflation. Your deposit is a savings account; it is a store of value, not an investment. If you want an investment, you buy a bond, or a stock, or real estate, but you put your money at increased risk when you do. Putting your money in the bank is the safest thing you can do with it, and that’s why the real rate of return on it is so low.

There is nothing nefarious about banks charging you interest on your credit card, or the processing fee that the Federal Reserve gets in clearing the check you wrote for something at a big box store, or the interest on an overnight inter-bank loan, or the interest on a Treasury Bill, etc. What is nefarious is the banking and credit card industries bribing Congress to do away with the usury laws, so that they can charge 30+% interest, or to sock you with late fees that, if annualized, would work out to 3,200%. What is nefarious are the predatory lending practices of an unregulated lending industry, the willy-nilly securitization of these bad loans, the rush to foreclosure so that lenders could reap a windfall by capturing the homeowner’s equity nest egg; the blowing up of the entire housing market which is where 90% of the middle-class’s wealth is; and sticking the taxpaying middle class with the motherfucking TARP bailout.

We could nationalize the whole thing and run the banking system as a public utility, but that would be socialism.

BBQsomeCows's avatar

The Federal reserve is not a bank

The Federal reserve is not federal

The Federal reserve is not constitutional

bolwerk's avatar

Sorta, but not really. The constitution gives states the right to pay debts with gold and silver, though none seem to do this.

Paying in silver or gold may even be technically legal for private entities, though there are tax issues involved that make it difficult.

Nullo's avatar

Unless I’m mistaken, the Constitution appoints the duties of printing currency to Congress.

YARNLADY's avatar

According to wikipedia The authority of the Federal Reserve Banks to issue notes comes from the Federal Reserve Act of 1913.

DrMC's avatar

Um, where the hell did M3 go to?

Don’t give me any bull about modernization. Just look at the price of gold since it disappeared.

john65pennington's avatar

Short answer: the federal law allows this.

Zuma's avatar

Could you imagine if they let everybody print currency?

Nullo's avatar

They have the monopoly on issuing currency (though really, the Constitution lists that as one of Congress’ few powers), but there are other ways to pay for one’s debts.
I read once that a lot of people in a few African countries have started using their cellphone minutes as currency, albeit unofficially.

zen_'s avatar

Sadly, American money is monopoly money.

WestRiverrat's avatar

Technically anyone in the US that wants to can print currency. Just so long as they don’t try to pass it as official US currency, they are breaking no laws. Federal Reserve currency is the only currency that is backed by the US government however.

There are several barter systems that have their own currency printed up for use within their system.

Saoirse's avatar

We all need to start asking ourselves why it is they burn the money after they deem it unusable. And I don’t mean thinking of an answer like they would give to explain it away and rationalize the whole thing. I mean the real reason.

Why wouldn’t someone want you to have enough money to survive and/or live comfortably (like the people that are making these sorts of decisions do) to such an extent that they will burn the extra money and criminally persecute ordinary citizens who print their own money?

This is a very important question and we all owe it to ourselves to think about it.

zenvelo's avatar

Inflation can happen under a gold standard. The greatest inflations in history were caused by the gold fleets from South America to Spain, and the California Gold Rush.

And all this desire to get rid of Federal Reserve notes in favor of a gold backed currency would constrict credit so much that the economy would come to a standstill.

CaptainHarley's avatar

Credit NEEDS to be restricted! Politicians and the average consumer have no self-control when it comes to credit. “Spend to the limit and then we’ll raise the limit!” Idiocy!

zenvelo's avatar

@CaptainHarley The biggest users of credit are corporations. What caused the failure of Lehman Brothers and the fire sale of Bear Stearns was the evaporation of credit almost overnight. Dry up credit and the economy will shrink by 25% in a month. Home sales will evaporate, business expansion won’t be funded, and people will stop spending on anything except bare necessities.

CaptainHarley's avatar

Exactly! And big corporations are run by… all together now .. PEOPLE!

zenvelo's avatar

@CaptainHarley So you think the economy should collapse by drying up credit?

CaptainHarley's avatar

@zenvelo

I would prefer that it NOT collapse at all. Lots of people are going to be hurt. But the collapse is inevitable now. We have borrowed far too much to recover without pain. Better to face it sooner, rather than later.

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