Federal Reserve Corporation

The Federal Reserve is an agency of U.S. Government created by Congress in 1913. The member banks under Federal Reserve are actually private corporations and all the stocks of Federal Reserve are owned by member banks. Federal reserve notes are in theory backed by the assets of the Federal Reserve, but primarily by the power of Congress to lay taxes on people. See excerpts of interview with Mr. Ron Supinski of the Public Information Department of the San Francisco, Federal Reserve Bank on October 8, 1992. 

The Federal Reserve is "independent" in its policy-making. The Federal Reserve neither requires nor seeks the approval of any branch of Government for its policies. The System itself decides what ends its policies are aimed at and then takes whatever action it sees fit to reach those ends. For details see "MONEY FACTS 169 Questions and Answers on Money - A Supplement to A Primer on Money", prepared by the Subcommittee on Domestic Finance, House of Representatives, 88th Congress, 2d Session, September 21, 1964 ,

"The Federal Reserve earns interest on the government securities it owns." ("The Hats The Federal Reserve Wears", published by the Federal Reserve Bank of San Francisco). When the government needs $100 billion, action is taken as follows: (1) The U.S. Treasurer advises the Bureau of printing and engraving to print $100 billion of U.S. Bonds (2) The Treasurer advises the Federal Reserve it will need $100 billion of Federal Reserve Notes (3) The Federal Reserve advises the Bureau of printing and engraving to print $100 billion of Federal Reserve Notes and pays $20.60 per thousand denomination (4) The slight of hand trick takes place when the Federal Reserve Notes are swapped for the U.S. Bonds that pay interest. (See House of Representatives, Banking and Currency Committee hearing of September 30, 1941) It should be pointed out the Federal Reserve does not always exchange Federal Reserve Notes for U.S. Securities. They can simply create the money by a simple bookkeeping journal entry and eliminate the cost of printing and engraving. 

Related SourceWatch articles

 * Bank
 * Federal Reserve Act
 * Federal Reserve Board