Money for Nothing – What You Don’t Know About The Most Powerful Financial Institution On Earth

The Federal Reserve System‍—‌also known as the Federal Reserve or simply as the Fed‍—‌is the central banking system of the United States. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, largely in response to a series of financial panics, particularly a severe panic in 1907.  Over time, the roles and responsibilities of the Federal Reserve System have expanded, and its structure has evolved. Events such as the Great Depression in the 1930s were major factors leading to changes in the system.

According to the Federal Reserve website, “The Federal Reserve System fulfills its public mission as an independent entity within government.  It is not “owned” by anyone and is not a private, profit-making institution.”

For years now, the Fed has socked away billions and billions in profits that it has earned on its $4.5 trillion portfolio — so much so that as of Nov. 25, the Federal Reserve surplus account totaled $29.3 billion. The Fed, like other government entities, is supposed to send its net profits to the US Treasury.

In addition to the Fed’s surplus account, it has been lining the pockets of banks by paying above-market dividends to them each year. Congress fixed this Thursday with the passing of a 5-year, $305 billion highway bill. The bill will allow for a one-time draw of $19 billion from the Federal Reserve’s surplus account. And it adjusts the Fed’s dividend rate to mimic yields on the 10-year Treasury bond.

During the Civil War, the National Banking Act of 1863 was passed, providing for nationally chartered banks, whose circulating notes had to be backed by U.S. government securities. An amendment to the act required taxation on state bank notes but not national bank notes, effectively creating a uniform currency for the nation. Despite taxation on their notes, state banks continued to flourish due to the growing popularity of demand deposits, which had taken hold during the Free Banking Era.

Although the National Banking Act of 1863 established some measure of currency stability for the growing nation, bank runs and financial panics continued to plague the economy. In 1893, a banking panic triggered the worst depression the United States had ever seen, and the economy stabilized only after the intervention of financial mogul J.P. Morgan. It was clear that the nation’s banking and financial system needed serious attention.

In 1907, a bout of speculation on Wall Street ended in failure, triggering a particularly severe banking panic. J.P. Morgan was again called upon to avert disaster. By this time, most Americans were calling for reform of the banking system, but the structure of that reform was cause for deep division among the country’s citizens. Conservatives and powerful “money trusts” in the big eastern cities were vehemently opposed by “progressives.” But there was a growing consensus among all Americans that a central banking authority was needed to ensure a healthy banking system and provide for an elastic currency.

By December 23, 1913, when President Woodrow Wilson signed the Federal Reserve Act into law, it stood as a classic example of compromise—a decentralized central bank that balanced the competing interests of private banks and populist sentiment.

Nearly 100 years after its creation, the power of the U.S. Federal Reserve has never been greater. Markets and governments around the world hold their breath in anticipation of the Fed Chairman’s every word. Yet the average person knows very little about the most powerful – and least understood – financial institution on earth. Narrated by Liev Schreiber, Money For Nothing is the first film to take viewers inside the Fed and reveal the impact of Fed policies – past, present, and future – on our lives. Join current and former Fed officials as they debate the critics, and each other, about the decisions that helped lead the global financial system to the brink of collapse in 2008. And why we might be headed there again.

https://en.wikipedia.org/wiki/Federal_Reserve_System
http://www.federalreserve.gov/faqs/about_14986.htm
http://nypost.com/2015/12/05/its-time-for-the-federal-reserve-to-give-back-taxpayer-dollars/
https://www.federalreserveeducation.org/about-the-fed/history

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