You should probably read this whole post before responding to any part of it.
putting the majority of the money in
You've said "put in" twice and I don't think I really understand into what you think the money is being put. Do you mean the Fed itself or do you mean the U.S. money supply? Perhaps you mean neither and do mean something else?
In writing, sure it's owned and operated by federal govt,
but we all know that whatever is in writing isn't what decides policy.
Here again I'm not sure I follow what you are getting at. What's in writing is the policy that's been decided upon. The decision happens
before "whatever" is put in writing, at which point decision becomes policy.
That is my point, not the literal by itself, but practically who is putting the money in and using that to pull strings.
Okay...I think I am beginning to understand the conundrum you aim to resolve. Here, I'll just note that the Fed is the bank of banks. Think about what that really means, in economic, business and financial terms, and not in terms of personal loans -- like, say, a tuition or car loan -- and personal credit. Businesses borrow money to use it in order to make more money. A classic example is
inventory financing (for a more detailed discussion of inventory financing or "floorplan" financing, see
this), which is short term borrowing to generate near term revenue people/consumers do that too, but consumers largely borrow money because they want to buy and possess "now" non-income producing property for which they lack the money to pay for outright. (There are some other minor reasons too, but the preceding is largely what consumer lending is about.)
Later in this post I'll provide some links that I think will provide you with everything you'll need to make "heads and tails" of what's bothering you. Some of the linked content is geared toward a lay audience and some aimed at trained economists and/or economists in training -- the latter content being included because depending on how closely one reads the "lay" stuff, one may come up with questions that are answered in the more rigorously developed writings.
when we don't pay right away we are charged extra for that.
By this point in reading your post, I began to glean what you're getting at: how the U.S. monetary system actually works. I'm beginning to sense that you've come by one of the folks who's quick to ridicule the process that does indeed underpin the whole of the U.S. monetary policy and operations, but who also have no actionable ideas on with what to replace the current system. I could be wrong in that supposition and about the stimuli that led you to create this thread.
Right or wrong, however, I think
this essay may be an accurate presentation of the things about which you are asking.
Can either of you help with me "language" to explain what I mean by the private banks that buy shares and get paid the 6% interest are influencing the process, and that's why it is skewed toward private interests and not purely public and answerable through Congress.
I don't know that I can, but what I can do, as noted earlier is point you to some very good references that have the information I think you need and that upon having that information, you can revise your "language" as necessary to be clearer in your own mind as well as to your readers. I am very reluctant about restating others' words/ideas when I don't entirely understand what ideas they are actually they are trying to convey.
Here are the links I promised. I have tried to begin with the most high level ones -- I've also taken a stab at copying-and-pasting what I think are the most relevant parts of the second article (the first is too short to bother) -- but click the link all the same to be sure I guessed correctly -- and work toward the more detailed discussions on the topic.
Operation of the Federal Reserve in Terms of Monetary Policy and Money:
- Understanding the Fed -- Very high level, but a good starting place.
- How the Fed Works -- At this link, which is a great high level layman's overview, among other things, you'll find the following (I've speculated on which :
- Who owns the Fed?
The Fed as a whole is a government organization that is not really owned by anyone, but each regional Federal Reserve bank is technically owned by the private commercial banks in its district.
Each of the regional Fed banks has its own board of governors and issues stock to commercial banks, which are required to purchase shares equal in value to 6 percent of their capital. The regional Fed bank actually holds only half of that money, the rest being “subject to call” by the governors in case of an extreme liquidity crisis. Owning stock, however, does not grant authority, much less control. Member commercial banks do receive a 6 percent dividend on their paid-in stock, but they cannot sell the stock or use it as collateral for loans. In addition, the Fed’s Board of Governors in Washington—not the boards of the regional Reserve banks—is responsible for regulatory functions.
- Where does the Fed get its money?
The Fed has its own source of funds, so Congress cannot guide monetary policy through withholding or bestowing appropriations.
The main source of income is seigniorage revenue. Whenever the Fed increases the amount of money in circulation, it purchases new currency from the U.S. Treasury for cents on the dollar. For example, if a member bank needs an extra million dollars, it calls the Fed to order currency, and the Fed asks the Treasury to print the amount. The Fed gives the money to the bank, and debits the bank’s reserve account. The Fed then invests the reserves in government securities as collateral, and profits from the interest that accrues to its own account. In 2006, after accounting for expenses, the Fed returned $29 billion in profits to the U.S. Treasury.
- This "seigniorage revenue" thing is important to understand given the topic here, so here are some additional links that explain it. I've provided them in case the mathematical explanation of it at the link just above doesn't "work" for you.
Oversimplifying to a nearly criminal extent, seigniorage is the difference between the value of money and the cost to produce it - in other words, the economic cost of producing a currency within a given economy or country. If the seigniorage is positive, then the government will make an economic profit; a negative seigniorage will result in an economic loss. Seigniorage may be counted as revenue for a government when the money that is created is worth more than it costs to produce it. This revenue is often used by governments to finance a portion of their expenditures without having to collect taxes. If, for example, it costs the U.S. government $0.05 to produce a $1 bill, the seigniorage is $0.95, or the difference between the two amounts.
That extremely simplistic explanation is provided only to provide a starting point for actually understanding it because I think it'll help you to have some sort of "relatable" frame of reference from which to begin your foray into the meat of what seigniorage is.
- Seigniorage Definition from Financial Times Lexicon -- This is a bit clearer but still kept simple.
- Seigniorage -- This is basically a full definition, with historic context, implications and full explanation, absent the math. It's what would be explained in an "monetary policy and the Fed for non-economics majors" course. (This should be enough for your purposes here -- it's only three pages long.)
- Seigniorage -- This is the "full on whole story" of seigniorage. It's about what a economics and public policy master's degree candidate would be expected to, well, master (<chuckling> -- a little pun intended) about seigniorage.
- Do Congress and the President influence the Fed?
The founders of the Federal Reserve understood that sound monetary policy requires central bankers to make unpopular decisions. As a result, the 1913 law gave the Fed a much higher degree of independence than other government agencies. The Fed has its own source of funds, so Congress cannot guide monetary policy through withholding or bestowing appropriations. Governors are appointed for 14-year terms, tenure that is second in length only to the lifetime appointments of federal judges.
But the independence has boundaries. Each member of the seven-person Board of Governors is appointed by the President and confirmed by the Senate. The Federal Reserve must report annually to the Speaker of the House and twice annually to the banking committees of Congress. Of course, Congress can pass new laws affecting the Fed at any time. And Fed bankers read the newspapers. They aren’t completely insulated from politics.
- The Structure and Functions of the Federal Reserve System & What We Do -- This is the Fed's high level discussion of what they do.
- Monetary Policy and Commercial Banking -- This ups the level of detail a bit. It's an NYY economics lecture on the topic.
- What is Money and How Is It Created? -- This is a layman's essay published by Forbes. This is a good and easily approached article that provides some context to the matter you've raised with this thread. It provides a sense of the spectrum of views folks have about money and it helps put what the Fed does in terms and contexts that are easily understood.
Like some of the earlier linked content, it's an oversimplification, but it's good to read before diving into the "heavy" stuff that one will want to understand before engaging in an honest discussion about the matter and before entreating "partisan laymen" on the topic. Understanding the "gory details" is what'll allow you to know immediately when you are interacting with someone -- a lay partisan -- who doesn't know what they are talking about even as they have strong views on the matter.
(Beware. Lay partisans (and occasionally willfully ignorant folks who just want to "say their piece") will almost certainly disparage you personally and rarely or never directly address the substance of your thoughts/remarks at a comparable level of topical acumen. Have a "thick skin" before engaging these people, or be prepared to just stop talking "with" them when they get unruly.)
- Challenges to the Dual Banking System: The Funding of Bank Supervision -- You'll want to read this to understand what is relevant about the 6% dividend (it's not interest although non-accountants will often enough call it interest because it is very similar) that "member banks" receive from the Fed. No, reading it won't give you the whole answer to your line of inquiry, but it's a digression you should take to understand what it means to be a member bank of the Federal Reserve system (federally chartered bank) and what it means not to be a member (state chartered bank). This paper has section heads that will help you "skim-n-read" and determine by doing so whether you need to read the whole thing.
Money Creation:
- How Banks Create Money -- Very similar to the next paper, but squarely aimed at a high school level audience. It has some helpful graphics examples.
- Money creation in the modern economy -- This is an excellent and approachable baccalaureate level discussion of the economics around money creation. This is probably a bit more than you want to know, but given that you're asking here rather than in a classroom, it's almost certainly all you need to know about money creation. It's not a long paper, but reading it will leave you "over informed" on the topic.
Organs of Influence on the Monetary System -- The content linked below is what analyzes and concludes upon the concepts described and explained above, gauging how the workings of the Federal Reserve banking system is susceptible to (and not) influence -- operational, societal, and political -- by various organizations, whether that influence matters (or not) and what be its impact. You'll also find discussions on how the Fed influences the commercial banking sector. Obviously, these are opinion pieces because there is no objectively right or wrong degree of influence and nobody in their right mind is going to argue there is or ever will be no influence.
I know that's a lot of stuff to digest. But, geez...you are asking a question that doesn't simple, cut and dried answer, plus it's a question that has a lot of "gory details" that necessarily underlie any well informed (aka intelligent) opinion about the influence of commercial banks on the Fed and vice versa, regardless of what that opinion is.
Thanks for an educational organized post,
320 Years of History ,
I will reread it in depth/detail when I'm not at work. I think I can actually follow you,
where other people might lose me or talk past me back and forth.
As for replacements, NO, I'm looking to MODEL AFTER THE FED
to set up "equivalent" bank or credit systems like replicating this
for local groups to do the same thing that the reserve does for these larger banks.
My point of showing how there are PRIVATE investors involved is to emphasize how
other PRIVATE citizens can set up similar ourselves. If they can write legislation to
set up their system, so can we set up a similar half-private system to represent
our exchanges and investments as well. Instead of fighting with other private banks,
we can set up similar and make our decisions through that system. So these are equal.
The model I use is the independent currency based on labor by the Greens.
Introducing HOUR Money
Also there is a barter credit database in Washington DC the TIMES bank
started by a retired professor emeritus there.
The part I propose to ADD to this model is to use the currency to
represent SPECIFIC debts for which the public can claim reimbursement for.
Most peopel "give up" and don't think to ASK to be repaid because we assume
"the money isa lready spent and we are stuck with the debt"
But if we think in terms of CREDIT we can track, then we
can reassess these debts, and issue notes against them.
then to SECURE the loans or notes against the debts,
that's where I propose to assign property to the debt,
and value to the property based on the debt. And issue
notes against that property at that value.
This isn't to REPLACE the Fed but to create a local
model based on it, doing something similar, but
reprsenting debt owed to the public so there is a
way to track the exchanges using notes or credits.
[how I explained it to my friend, it's like a bad credit card debt. if we didn't authorize charges on our bill, we complain and we aren't held responsible for fraud or abuse we didn't sign for. We only pay for legit charges we did agree to under contract. So why don't we do the same when govt lets corporations charge millions we the people didn't agree to fund for THEIR private profit. Why not charge that back to the wrongdoers? So we show there was fraud or abuse, and we ask to write that off our tab and reimburse us the credit that was abused by corruption. And it's up to the govt to chase after the wrongdoers to pay back the contested amount. (and in the meantime, to fix the problems associated with the damage and debt, we can take the credit owed to the public, and apply it to where the money SHOULD or COULD have gone had it been spent correctly. and start paying/financing that work in advance, using credit, while the wrongdoers are responsible for paying the cost, not us, since they already spent our money on credit. that becomes their problem to pay back, but we shouldn't be punished if they have the money to pay back yet or not. we turn the tables on govt, and make the crooks pay not the lawabiding taxpayers who didn't commit the abuses).
part 2 - now if the govt can't collect, or the wrongdoers can't pay, what do we do with bad debt? if someone else BUYS the debt then they own the lien on the house or can seize the car associated with that debt. So let's assign property or programs that WOULD have been paid for had the debt been paid back and the money invested where it SHOULD have gone. Then the investors who BUY the debt from govt get shares in THAT collateral to secure the debt.]
Since people aren't sure if this model will devalue the dollars and create false economy and inflation, let's test it out. I want to offer to my friend to set up pilot projects. Pick areas of environmental debts and damages, assess the costs and the areas of collateral that can be used to back loans against the debt, and see if this model can be used to pay back the debt over time while investing in creating jobs/ educational internships FIXING the problem around the damages and debt. If the solution saves money over time, that money goes to the debt. So we use a combination of collateral by real property or programs, and notes to represent the amount of debt paid into jobs/work to FUND the program FIXING the problem, and see if the budget balances out for that project, how long it takes and when it starts making money.
