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Is the Fed privately owned? Does it matter?

Market Analyst & Professional Speculator, Owner of The Speculative Investor
April 10, 2007

Below is an extract from a commentary originally posted at on 3rd April 2007.

In our research we occasionally come across articles in which the writer rails against the 'fact' that the Fed is privately owned, the implication -- whether intentional or not -- being that everything would be fine if the Fed were a government agency. That is, the implication of such complaints is that private corporations can't be trusted to do the right thing when it comes to management of the monetary system whereas the government can. This, however, is a case where two wrongs -- the belief that the Fed is privately owned and the belief that government ownership would represent a significant improvement -- definitely don't make a right.

First, let's deal with the myth that the Fed is privately owned*. As noted by G. Edward Griffin in "Creature from Jekyll Island":

"The federal government does not own any stock in the [Federal Reserve] System. In that sense, the Fed is privately owned. That, however, is misleading in that it implies a typical private-ownership relationship in which the stockholders own and control. Nothing could be further from the truth. In this case, the stock carries no proprietary interest, cannot be sold or pledged as collateral, and does not carry ordinary voting rights. Each bank is entitled to but one vote regardless of the amount of stock it holds. In reality, the stock is not evidence of "ownership" but simply certificates showing how much operating capital each bank has put into the System. It is not a government agency and it is not a private corporation in the normal sense of the word. It is subject to political control yet, because of its tremendous power over politicians and the elective process, it has managed to remain independent of political oversight. Simply stated, it is a cartel, and its organization structure is uniquely structured to serve that end."

To operate as a commercial bank in the US a bank must own the stock of the Federal Reserve, but, as Mr. Griffin points out, this stock does not confer any of the normal rights of ownership. Furthermore and as explained elsewhere in Mr. Griffin's book, the members of the Fed's National Board of Governors -- the seven most senior executives of the Fed -- are appointed by the US President and confirmed by the Senate. These 7 senior executives dominate the 12-member Federal Open Market Committee (FOMC), not just because they form a majority but also because they have veto power over who the other 5 members of the Committee will be.

In other words, a small group of people appointed by the US President exerts almost total control over the Fed, while the stockholders are stockholders in name only. Of course, banks are major beneficiaries of the Federal Reserve System in that the existence of the Fed paves the way for banks to grow their assets at a much faster pace than would otherwise be possible. Also, the private banking system exerts considerable influence over the government and, therefore, over the President's appointees to the National Board of Governors. It's important to understand, though, that this influence has nothing to do with the ownership of Federal Reserve stock. In fact, some of the most important US financial corporations in terms of their influence on the government -- Goldman Sachs springs to mind -- are not even members of the Federal Reserve and hence own no Federal Reserve stock.

This leads us to the question: does it matter whether the Fed is, or isn't, privately owned?

The answer is no, it doesn't; the question of the Fed's ownership is really just a "red herring".

The main issue (problem) is that the Fed, regardless of its ownership, has the legal power to counterfeit money in unlimited amounts. This power, in turn, enables the unfettered growth of both the Federal Government and the banking system. Specifically, due to the existence of the central bank there are no rigid limits on how much the government can borrow and spend because the Fed stands ready to monetise (purchase using money created out of 'thin air') every dollar of new debt not purchased by private investors. As a result, the rampant expansion of government gets 'paid for' by the devaluation of the existing stock of money. And due to the potentially unlimited quantity of money that can be created by the Fed, the private banks are able to grow their balance sheets to a much greater extent than their equity levels would otherwise dictate.

In summary, the issue is not the Fed's ownership; the issue is its ability to create an unlimited amount of "legal tender" money out of 'thin air'.

*Some writers have claimed that the US Fed is not only privately owned, it is privately owned by a small group of FOREIGN banks. Dr Edward Flaherty specifically addresses, and refutes, this foreign ownership claim in an essay at

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Steve SavilleSteve Saville graduated from the University of Western Australia in 1984 with a degree in electronic engineering and from 1984 until 1998 worked in the commercial construction industry as an engineer, a project manager and an operations manager.  In 1993, after studying the history of money, the nature of our present-day fiat monetary system and the role of banks in the creation of money,  Saville developed an interest in gold.  In August 1999 he launched The Speculative Investor (TSI) website. Steve Saville has  lived in Asia (Hong Kong, China and Malaysia) since 1995 and currently resides in Malaysian Borneo.  

Gold was first discovered in U.S. at the Reed farm in North Carolina in 1799, a 17-pound nugget.
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