Senator Nelson W. Aldrich

The Federal Reserve

I am sure that many of you know that the Federal Reserve (also just called the FED) is neither Federal not does it have any reserves. You probably leaned this in high school or university. I know that I didn't! In high school I only remember some teachers praising the work of the Federal Reserve. In university I have to admit I only took one course in economics but in that course not one word of the workings of the central banking system were mentioned. A large amount of time was spend talking about free markets, how supply and demand work, and inflation but not a word about banks, fractional reserve banking, or the Federal Reserve.

When I decided I wanted to really understand money, finance and the economy I found that there was one simple question that I didn't have an answer to. "How is money created?" I know that paper currency is printed. That all paper currency in circulation in the U.S. today is the Federal Reserve Note (FRN). But I also knew that the money supply is forever expanding, it's growing, you can see that if you look at the growth in M3. Oh sorry you can't the FED doesn't publish that number anymore. But it used to grow and I am very sure that it still does and with the government spending today it is probably growing very fast.

So I set off to answer the question of how is money created, when is that instant when it comes into existence and does the FED chairman slap it on the ass and whisper to it that the world is not fair?

My first trip to the font of information about the FED left me more confused than enlightened. It took a lot of research, note taking and pondering to finally get my arms around the way the FED works. Not that it is necessarily a complex process; rather it is shrouded by obfuscation and what I started to call FED speak. The problem is compounded by people that I have started to call FED apologists. They act like they are on the payroll of the FED or it's member banks but actually they are so narrow minded in their thinking that they can envision no other financial systems even with so many successful ones throughout the course of history.

If you research the FED you will find a few people who heap praises upon it. These people are generally from the banking industry, former FED employees, or government officials who receive large contributions from the financial services industry. You will also find a very large group of people who are highly critical of the FED. In some cases critical is being far to kind.

I discovered that there are a lot of people out there that also don't understand what the FED does and how. At first I wanted to create an illustrated guide to the FED. But I am not an artist and I could not do justice to the convoluted flow of financial instruments, meetings and structure of the FED. Now you will find illustrated guides to the FED published by, guess who, why the FED silly. They might make a nice coloring book and will bring a tear to your eye when you read about how there poor hard working people are keeping you employed, housed, free and safe in your democracy, gag.

I have also found that a large group of people still believe that the FED is a part of the U.S. government. it is not. The Fed is a private central bank. The shareholders of the FED are the major commercial banks. The exact shareholders today are not a matter of public record.

I finally took the easy way out and compiled a list of FED Facts, which you might find enlightening. It is still encumbered by FED jargon but I have tried to explain that and simplify the structure and operation of the FED as much as possible.

As to the question of how money is created. Well I found the answer; it is all tied up in the process of debt creation, fractional reserve banking, and the FED Open Market Committee. Foe a more humorous version of how money is created you might want to read the short story titled 'The Earth Plus Five'.

Oh, if anyone reading this is a good illustrator and would like to help create an illustrated guide to the FED please contact me. It would make a good calendar that they would probably never give out at your bank.