In a 2009 article, the Huffington Post went into considerable detail about the number of people with PhD degrees in economics employed by the Board of Governors of the Federal Reserve System. This is the government’s branch of the Federal Reserve. It is not one of the 12 regional Federal Reserve banks, all of which are privately owned.
The Board of Governors at the time the article was written had 220 full-time economists on its staff. The author did attempt to find out how many economists are on the payroll of the 12 regional banks, but he could not. These are major institutions. Each of them publishes its own monthly magazine.
In terms of the number of people with PhD degrees in economics who specialize in money and banking nationally, there may be as many as 1500, but it could be as few as 1000. Anyway, that was the case in 2009. So, we’re talking about a situation in which perhaps as many as a third of all the specialists in the field are employed by some branch of the Federal Reserve.
But this is only the tip of the iceberg. The Federal Reserve has part-time contracts that it doles out to economists in the field. It sets aside almost half a billion every year to pay economists. That is an enormous amount of money to flow in the direction of a single profession.
The article concluded that the Federal Reserve has basically bought control of the field. Almost nobody challenges the Federal Reserve in any serious way.
Here’s a situation in which the agency that controls monetary policy for the United States has an unlimited amount of money to buy support, compliance, or at least silence within that segment of professionally trained economists that specializes in money and banking. The Federal Reserve gets to keep all the money that it wants for operations.
It has to turn back over to the Treasury Department any money that is not used for operations, but it does not answer to Congress or the Treasury with respect to how it spends its money. This means that the Federal Reserve has essentially unlimited funds available to buy off those critics who might challenge Federal Reserve policy.
The Federal Reserve System is a cartel. It operates for the benefit a relatively small number of banks, probably fewer than two dozen, which constitute at least 80% of all bank deposits in the United States.
I am aware of no other institution in the United States whose main claim to fame is that the federal government has no control over it.
Really, the Federal Reserve is dealing with about a dozen of these enormous banks. It does not answer to close to 7,000 small banks. They have no clout. They have so few deposits, compared to the giants, that whether they survive or not is basically irrelevant to the Federal Reserve System.
The organization is truly untouchable today. It has never been audited by an agency not employed by it. It is not going to be audited. Nobody knows how much gold is in it. Nobody knows what liabilities or claims against this gold there are.
In other words, the central agency that controls the central economic institution in modern society, meaning commercial banking, is beyond control of the vast majority of those banks, and it is beyond the control of Congress. No President ever challenges the Federal Reserve System.
Under these circumstances, what possible effect does criticism from outside the Federal Reserve have? We know how much effect it has. None. If Congress, which is supposedly in charge, does not have the votes to get an audit of the Federal Reserve by the Government Accountability Office, then the Federal Reserve is truly independent of the government. It may go along with a particular presidential administration, but it does not have to.
I do not think there is any other institution in the United States that has this degree of autonomy from government. It proclaims itself as independent of government. It is lauded in the textbooks because it is independent of the government. I am aware of no other institution in the United States whose main claim to fame is that the federal government has no control over it.
In textbooks written by leftist authors who want to see control, or least severe regulation, over every aspect of the capitalist economy, they all give a free ride to the Federal Reserve System.
In this one case, they pull back from their ideological position, and they claim that the great advantage of the Federal Reserve is its independence from politics. This is completely contradictory to the party line of the American Left, yet there are almost no deviants from this party line.
It is an arcane system. Almost nobody understands how it works. Nobody is supposed understand how it works. Those inside the system who publish their unreadable articles in the regional Federal Reserve magazines never get to the heart of the system.
You don’t even get a clear explanation of what constitutes excess reserves. You don’t get an explanation of how it is that, since late 2008, the excess reserves had climbed almost 3 trillion dollars, when those reserves were virtually nonexistent prior to 2008. There is no open discussion of this. It is the central fact of monetary policy today, yet it is not openly discussed. This kind of silence is not random. It is imposed.
If the central institution of an economy is the monetary system, and this institution is controlled by a government-created cartel, and this cartel is independent of the government, then what possible opportunity does the general public have to reclaim freedom for monetary affairs? The answer is obvious: none.
[Ed. note: Check back tomorrow for the second part of Gary North’s article.]
for The Daily Reckoning
Ed. Note: The Federal Reserve may soon push Congress to close off the last money loophole in the U.S. And with their obvious influence, they could get their way very soon. Readers of today’s issue of Laissez Faire Today were given a chance to discover this loophole for themselves, and how they can still benefit from it. Sign up for the FREE Laissez Faire Today email edition, right here, for your chance to discover incredible opportunities like this in every single issue.
This article originally appeared here.
No one is asking the Congress to pay up. No one is asking abroad for the United States to pay up. The foreigners earn the position of the tailor. They are accumulating the checks, and the king, the United States, is essentially insolvent, but not aware of it.
Gary Kilgore North is an American economic historian. Writing from a Christian Reconstructionist perspective, North has authored or coauthored over fifty books on topics including Christian theology, economics, and history.
According to the EIA, U.S. oil production is set to peak in May as shale drillers cut back enough to actually cause a decrease in oil output. As Matt shows, we can expect oil prices to stabilize soon after, meaning now is a great time to pick up well-run oil companies before they too rebound.
China is a buy on the dips market until the dips don't pop or we get the fireworks of a blow-off top. I'm not trying to oversimplify things--but buying the dips is the best way to handle a manic market like this one.
Notes from Jim Rickards' recent trip to Istanbul, where he met with “the Donald Trump of Turkey"... central bank officials... and others. It was a great chance for him to gather market intelligence on the world’s eighth-largest emerging market. Read on...
Few understand how to value gold, and even fewer understand that gold is not really an investment — it is money. Jim Rickards illustrates this point further and gives you actionable methods to accumulate wealth in gold. Read on...
With summer vacation on the horizon across the United States, kids who are carrying measles from states hard hit like California and Arizona will be mingling to with kids from other states with almost no cases. And officials are still wary about this year’s mini-epidemic. Stephen Petranek has more…
Rice is one of the world’s most important crops. Three billion people depend on it as a staple every day. But climate change is wreaking havoc on rice production. Stephen Petranek has more on the steps researchers are taking to protect one of the world’s most important foods.
Traders have two options in this market: speed up...or slow down. And since I hope you have a life outside of watching a computer monitor between 9:30 and 4, I suggest you put your daytrading dreams on hold for a bit and hit the brakes.