Eco 200 820 Principles
of Macroeconomics
Myths vs. Realties for the United States Federal Reserve
System
The Internet gives a forum to all sorts of crackpot theories, many of
which sound convincing, but contain blatant historical inaccuracies. Here
are a few about the Fed, along with a response. The research into the myths
below was done by Edward Flaherty, who has a web site devoted to debunking
conspiracy theories and myths. (http://members.home.net/flaherty15/conspire.htm)
Myth #1: The Federal Reserve Act of 1913 was the result of a secret
meeting between Wall Street Bankers and government officials on Jekyll
Island, Georgia and gave New York City banks control over the money supply.
Reality: The meeting did take place, but it was not a secret.
Congress rejected the plan for a central banking system that came out of
this meeting. The control over monetary policy was given to the Federal
Reserve Board, a government body, not to banks.
Myth #2: The Federal Reserve Act is unconstitutional. The Constitution
does not give Congress the power to create a central bank.
Reality: Federal and Supreme Court rulings have found the Federal
Reserve to be constitutional, under the "necessary and proper" clause of
the U.S. Constitution (Article I, Section 8, clause 19).
Myth #3: The Federal Reserve is a privately owned bank that profits
at taxpayer expense.
Reality: The member banks in each district privately own each
of the 12 Federal Reserve banks. However, the government-appointed Board
of Governors controls these banks. Also, the Federal Reserve System rebates
almost all of its profits to the Treasury each year, actually REDUCING
the taxpayer burden.
Myth #4: The Federal Reserve is owned and controlled by foreigners,
who dictate monetary policy for their own benefit.
Reality: This is just not true. Each Federal Reserve bank is
owned by member banks in that district. Individuals and non-bank institutions,
foreign or domestic, are not allowed to own shares in any Federal Reserve
bank. Again, the Board sets monetary policy not the Federal Reserve banks.
Myth #5: The Federal Reserve had President Kennedy killed because
he tried to usurp the Fed's power by authorizing the Treasury to issue
silver-backed currency.
Reality: This is my personal favorite. Kennedy actually wanted
to phase out silver certificates, and agreed with the Federal Reserve on
most policy matters. He actually favored legislation to give the Fed more
power, not less.