Rabbits
The Federal Reserve System
 

1. Who owns the Fed? Do some very wealthy secret families own the Fed?
2. Are the IRS and the Federal Reserve System one and the same? After all, the Fed endorses checks written to the IRS. What is going on here?
3. Are the revenues collected from income taxes used to pay the interest on the national debt?
    

Who owns the Fed? Do some very wealthy secret families own the Fed?

This topic is addressed in some of the articles on this web site. The topic is also explained quite thoroughly and unabashedly by Fed publications. However, here is the short answer.

Commonly called the Fed, this public service institution consists of twelve regional private corporations owned by their member commercial banks. Stock is sold for $100 per share, a price fixed by law. All national commercial banks must join and qualified state-chartered banks may join if they wish. By law, each member bank must buy stock in the Fed, the amount required for membership being based on the bank’s capital. Larger banks own more stock. Nearly half of the nation’s commercial banks, holding about 80 percent of all bank deposits, are members of the Fed.

The stock is largely non-performing stock. Member banks have few of the privileges usually associated with private ownership of corporations. That stock, actually “forced subscriptions,” earns dividends of six percent, fixed by law. However, the stock cannot be sold or pledged for loans and carries no proprietary interest. Should Congress dissolve the Fed, all Fed assets recovered after payment of liabilities and repayment of the stock’s purchase price go to the U.S. Treasury.

The stock “owners,” that is, the member banks, do not manage the system. Operations of the Fed are controlled through law, regulations and policy set by Congress and a seven-member Board of Governors. The Board of Governors are appointed by the president and confirmed by the Senate for 14-year terms. The Board of Governors, located in Washington, D.C., is largely responsible for formulating and supervising national monetary policy.

This stock ownership does create a quasi-private ownership, but not in the typical sense of individuals or families.

The Fed’s charter is continuous. The Fed can be abolished, but the charter is not required to be renewed as with the previous U.S. central banks. Congress can abolish the Fed at any time.
 

Are the IRS and the Federal Reserve System one and the same? After all, the Fed endorses checks written to the IRS. What is going on here?

The duties of the Fed and IRS are different. The IRS very much functions as a federal agency, whereas the Fed is a quasi-private, quasi-public organization receiving from Congress its charter and overall instructions through statutory law. Through those foundations, the Fed acts quite independently of the federal government, and this is by Congress’s intent and design.

Many people have bank accounts, and so does the federal government. The Fed operates as a fiscal agent of the U.S. only within the sense of acting as the government’s bank. However, the bank does not externally collect or spend revenues, they act only in fiduciary capacities.

The IRS certainly acts as a fiscal agent as the IRS exists to collect for the government revenues due to the U.S. through taxes.

That the Fed endorses the back of checks is no conspiracy or mystery. One duty of the Fed is to act as the bank for the United States government. Anyone who has inspected the back of any check knows that as a check passes through the various payment and clearinghouse locations, those facilities stamp the back of the checks. There is no mystery.

The IRS collects tax revenues for the U.S. government. That is what the IRS does. The IRS forwards those payments to the Fed because the Fed is the government’s bank. The Fed credits the government’s books and then routes the check back to the original bank on which the check was drawn.

Another duty given to the Fed is that the Fed acts as a clearinghouse for payments routing through the national banking system. This is not a fiscal duty, as there is no spending or collecting of revenues, but a mere administrative duty. The checks are merely passing through the Fed, not going to the Fed for payment.

There need be no mystery about checks passing through the Fed. This is what a clearinghouse does. That is what a bank does.

More importantly, however, the Fed establishes the nation’s monetary policy.

Ideally, the Fed maintains the correct amount of currency in circulation. The Fed controls the quantity of currency in circulation by three mechanisms. In an ideal world, the Fed balances the equation. Unfortunately, Congress finds that having a slight inflation of the money supply to be “politically expedient.” The Humphrey-Hawkins Act of 1978 provides this policy to the Fed.
 

Are the revenues collected from income taxes used to pay the interest on the national debt?

An area where a person might become confused is the often circulated statement from the Grace Commission that the taxes collected are used toward paying the interest on national debt. The claims are made to intimate some sort of bondage to the Federal Reserve System. At best, such a statement is misleading because forwarding the collected revenues to help pay the debt is not the same as forwarding the revenues only for the debt. If in fact the Grace report actually made such a statement, what the report meant was that the total revenues collected equaled the amount of interest owed on the debt. After all, the Grace Commission’s purpose was to investigate ways to reduce the debt and spending expenditures. In other words, enough revenues were collected to pay only the interest portion of the debt, and not the principal. There were no conspiracy implications made through the Grace statement.

More importantly, the debt owed to the Fed is largely a bookkeeping exercise. All excess funds are returned annually to the Treasury. Lastly, much of the national debt is owned by private investors, not the Fed.

Almost anything a person would want to know or learn about the Fed is easily available in numerous Fed publications. The Fed is amazingly forthright in explaining its functions. One also can verify those functions in the statutes, chiefly Title 12 and 31. We also provide links on this web site: the Federal Reserve Banks section and the Banking Regulations will help you start your research to battle the rabbits.

The Fed is not some evil monster. There is little dispute that there are problems with current monetary policy (controlling the supply of money) and fiscal policy (collecting and spending of revenues), but the root problems are in the policies and laws, not in the Fed.