how to fix the american economy

8/12/2019 How to fix the American Economy

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include conducting the nation's monetary policy,

supervising and regulating banking institutions,

maintaining the stability of the financial system and

providing financial services to depository institutions, the

U.S. government, and foreign official institutions. The

Fed also conducts research into the economy and

releases numerous publications, such as the Beige Book.

The Federal Reserve System's structure is composed of

the presidentially appointed Board of Governors (or

Federal Reserve Board), the Federal Open Market

Committee (FOMC), twelve regional Federal Reserve

Banks located in major cities throughout the nation,

numerous privately owned U.S. member banks and

various advisory councils. The FOMC is the committee

responsible for setting monetary policy and consists of all

seven members of the Board of Governors and the

twelve regional bank presidents, though only five bank

presidents vote at any given time (the president of the

New York Fed and four others who rotate through one-year terms). The Federal Reserve System has both private

and public components, and was designed to serve the

interests of both the general public and private bankers.

The result is a structure that is considered unique among


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central banks. It is also unusual in that an entity outside

of the central bank, namely the United States

Department of the Treasury, creates the currency used.]

According to the Board of Governors, the Federal

Reserve System "is considered an independent central

bank because its monetary policy decisions do not have

to be approved by the President or anyone else in the

executive or legislative branches of government, it does

not receive funding appropriated by the Congress, and

the terms of the members of the Board of Governors

span multiple presidential and congressional terms."

The authority of the Federal Reserve System is derived

from statutes enacted by the U.S. Congress and the

System is subject to congressional oversight. The

members of the Board of Governors, including its chair

and vice-chair, are chosen by the President and

confirmed by the Senate. The federal government sets

the salaries of the Board's seven governors. Nationally

chartered commercial banks are required to hold stock inthe Federal Reserve Bank of their region; this entitles

them to elect some of the members of the board of the

regional Federal Reserve Bank. Thus the Federal Reserve

system has both public and private aspects The U.S.


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Government receives all of the system's annual profits,

after a statutory dividend of 6% on member banks'

capital investment is paid, and an account surplus is

maintained. In 2010, the Federal Reserve made a profit

of $82 billion and transferred $79 billion to the U.S.

Treasury.

Now here comes the fun part, where the money begins

to weaken at Elastic currency will soon become a term

that you will be friends with. One way to lessen thelikelihood and the effect of bank runs is to have a money

supply that can expand when money is needed. The use

of the term "elastic currency" in the Federal Reserve Act

does not imply only the ability to expand the money

supply, but also the ability to contract the money supply.

Some economic theories have been developed thatsupport the idea of expanding or shrinking a money

supply as economic conditions warrant. Elastic currency

is defined by the Federal Reserve as:

Currency that can, by the actions of the central monetary

authority, expand or contract in amount warranted byeconomic conditions.


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Monetary policy of the Federal Reserve System is based

partially on the theory that it is best overall to expand or

contract the money supply as economic conditions

change.

Check clearing system:Because some banks refused to

clear checks from certain others during times of

economic uncertainty, a check-clearing system was

created in the Federal Reserve system. It is briefly

described in The Federal Reserve SystemPurposes andFunctions as follows:

By creating the Federal Reserve System, Congress

intended to eliminate the severe financial crises that had

periodically swept the nation, especially the sort offinancial panic that occurred in 1907. During that

episode, payments were disrupted throughout the

country because many banks and clearinghouses refused

to clear checks drawn on certain other banks, a practice

that contributed to the failure of otherwise solvent

banks. To address these problems, Congress gave theFederal Reserve System the authority to establish a

nationwide check-clearing system. The System, then, was

to provide not only an elastic currencythat is, a


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currency that would expand or shrink in amount as

economic conditions warrantedbut also an efficient

and equitable check-collection system.

Lender of last resort:In the United States, the Federal

Reserve serves as the lender of last resort to those

institutions that cannot obtain credit elsewhere and the

collapse of which would have serious implications for the

economy. It took over this role from the private sector

"clearing houses" which operated during the FreeBanking Era; whether public or private, the availability of

liquidity was intended to prevent bank runs.

Fluctuations

Through its discount window and credit operations,

Reserve Banks provide liquidity to banks to meet short-term needs stemming from seasonal fluctuations in

deposits or unexpected withdrawals. Longer term

liquidity may also be provided in exceptional

circumstances. The rate the Fed charges banks for these

loans is called the discount rate (officially the primary

credit rate).

By making these loans, the Fed serves as a buffer against

unexpected day-to-day fluctuations in reserve demand


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and supply. This contributes to the effective functioning

of the banking system, alleviates pressure in the reserves

market and reduces the extent of unexpected

movements in the interest rates. For example, on

September 16, 2008, the Federal Reserve Board

authorized an $85 billion loan to stave off the bankruptcy

of international insurance giant American International

Group (AIG).

Central bank

In its role as the central bank of the United States, the

Fed serves as a banker's bank and as the government's

bank. As the banker's bank, it helps to assure the safetyand efficiency of the payments system. As the

government's bank, or fiscal agent, the Fed processes a

variety of financial transactions involving trillions of

dollars. Just as an individual might keep an account at a

bank, the U.S. Treasury keeps a checking account with

the Federal Reserve, through which incoming federal tax

deposits and outgoing government payments are

handled. As part of this service relationship, the Fed sells

and redeems U.S. government securities such as savings


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bonds and Treasury bills, notes and bonds. It also issues

the nation's coin and paper currency. The U.S. Treasury,

through its Bureau of the Mint and Bureau of Engraving

and Printing, actually produces the nation's cash supply

and, in effect, sells the paper currency to the Federal

Reserve Banks at manufacturing cost, and the coins at

face value. The Federal Reserve Banks then distribute it

to other financial institutions in various ways. During the

Fiscal Year 2008, the Bureau of Engraving and Printing

delivered 7.7 billion notes at an average cost of 6.4 cents

per note.

Federal funds Main article: Federal funds

Federal funds are the reserve balances (also calledFederal Reserve Deposits) that private banks keep at

their local Federal Reserve Bank. These balances are the

namesake reserves of the Federal Reserve System. The

purpose of keeping funds at a Federal Reserve Bank is to

have a mechanism for private banks to lend funds to one

another. This market for funds plays an important role inthe Federal Reserve System as it is what inspired the

name of the system and it is what is used as the basis for

monetary policy. Monetary policy is put into effect partly


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by influencing how much interest the private banks

charge each other for the lending of these funds.

Federal reserve accounts contain federal reserve credit,

which can be converted into federal reserve notes.

Private banks maintain their bank reserves in federal

reserve accounts.

Balance between private banks and responsibility of

governments

The system was designed out of a compromise between

the competing philosophies of privatization and

government regulation. In 2006 Donald L. Kohn, vice

chairman of the Board of Governors, summarized the

history of this compromise:

Agrarian and progressive interests, led by William

Jennings Bryan, favored a central bank under public,

rather than banker, control. But the vast majority of thenation's bankers, concerned about government

intervention in the banking business, opposed a central

bank structure directed by political appointees.


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The legislation that Congress ultimately adopted in 1913

reflected a hard-fought battle to balance these twocompeting views and created the hybrid public-private,

centralized-decentralized structure that we have today.

In the current system, private banks are for-profit

businesses but government regulation places restrictions

on what they can do. The Federal Reserve System is a

part of government that regulates the private banks. The

balance between privatization and government

involvement is also seen in the structure of the system.

Private banks elect members of the board of directors at

their regional Federal Reserve Bank while the membersof the Board of Governors are selected by the President

of the United States and confirmed by the Senate. The

private banks give input to the government officials

about their economic situation and these government

officials use this input in Federal Reserve policy decisions.

In the end, private banking businesses are able to run aprofitable business while the U.S. government, through

the Federal Reserve System, oversees and regulates the

activities of the private banks.


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Government regulation and supervision

Ben Bernanke Chairman of the Federal Reserve Board of

Governors, at a House Financial Services Committee

hearing on February 10, 2009. Members of the Board

frequently testify before congressional committees such

as this one. The Senate equivalent of the House Financial

Services Committee is the Senate Committee on Banking,

Housing, and Urban Affairs.

The Federal Banking Agency Audit Act, enacted in 1978

as Public Law 95-320 and 31 U.S.C. section 714 establish

that the Board of Governors of the Federal Reserve

System and the Federal Reserve banks may be audited bythe Government Accountability Office (GAO). The GAO

has authority to audit check-processing, currency storage

and shipments, and some regulatory and bank

examination functions, however there are restrictions to

what the GAO may audit. Audits of the Reserve Board

and Federal Reserve banks may not include:


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Transactions for or with a foreign central bank or

government, or non-private international financing

organization;

Deliberations, decisions, or actions on monetary policy

matters;

Transactions made under the direction of the Federal

Open Market Committee; or

a part of a discussion or communication among or

between members of the Board of Governors and

officers and employees of the Federal Reserve System

related to items (1), (2), or (3).

The financial crisis which began in 2007, corporate

bailouts, and concerns over the Fed's secrecy have

brought renewed concern regarding ability of the Fed toeffectively manage the national monetary system. A July

2009 Gallup Poll found only 30% of Americans thought

the Fed was doing a good or excellent job, a rating even

lower than that for the Internal Revenue Service, which

drew praise from 40%.The Federal Reserve Transparency

Act was introduced by congressman Ron Paul in order to

obtain a more detailed audit of the Fed. The Fed has

since hired Linda Robertson who headed the Washington

lobbying office of Enron Corp. and was adviser to all


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three of the Clinton administration's Treasury

secretaries.

The Board of Governors in the Federal Reserve System

has a number of supervisory and regulatory

responsibilities in the U.S. banking system, but not

complete responsibility. A general description of the

types of regulation and supervision involved in the U.S.

banking system is given by the Federal Reserve:

The Board also plays a major role in the supervision and

regulation of the U.S. banking system. It has supervisory

responsibilities for state-chartered banks that are

members of the Federal Reserve System, bank holdingcompanies (companies that control banks), the foreign

activities of member banks, the U.S. activities of foreign

banks, and Edge Act and "agreement corporations"

(limited-purpose institutions that engage in a foreign

banking business). The Board and, under delegated

authority, the Federal Reserve Banks, supervise

approximately 900 state member banks and 5,000 bank

holding companies. Other federal agencies also serve as

the primary federal supervisors of commercial banks; the


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Office of the Comptroller of the Currency supervises

national banks, and the Federal Deposit Insurance

Corporation supervises state banks that are not members

of the Federal Reserve System.

Some regulations issued by the Board apply to the entire

banking industry, whereas others apply only to member

banks, that is, state banks that have chosen to join the

Federal Reserve System and national banks, which by law

must be members of the System. The Board also issues

regulations to carry out major federal laws governing

consumer credit protection, such as the Truth in Lending,

Equal Credit Opportunity, and Home Mortgage

Disclosure Acts. Many of these consumer protection

regulations apply to various lenders outside the banking

industry as well as to banks.

Members of the Board of Governors are in continual

contact with other policy makers in government. They

frequently testify before congressional committees on

the economy, monetary policy, banking supervision and

regulation, consumer credit protection, financial

markets, and other matters.


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The Board has regular contact with members of the

President's Council of Economic Advisers and other keyeconomic officials. The Chair also meets from time to

time with the President of the United States and has

regular meetings with the Secretary of the Treasury. The

Chair has formal responsibilities in the international

arena as well.

Regulatory and oversight responsibilities [edit]

The board of directors of each Federal Reserve Bank

District also has regulatory and supervisory

responsibilities. If the board of directors of a district bank

has judged that a member bank is performing orbehaving poorly, it will report this to the Board of

Governors. This policy is described in United States Code:

Each Federal reserve bank shall keep itself informed of

the general character and amount of the loans andinvestments of its member banks with a view to

ascertaining whether undue use is being made of bank

credit for the speculative carrying of or trading in


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securities, real estate, or commodities, or for any other

purpose inconsistent with the maintenance of sound

credit conditions; and, in determining whether to grant

or refuse advances, rediscounts, or other credit

accommodations, the Federal reserve bank shall give

consideration to such information. The chairman of the

Federal Reserve Bank shall report to the Board of

Governors of the Federal Reserve System any such undue

use of bank credit by any member bank, together with

his recommendation. Whenever, in the judgment of the

Board of Governors of the Federal Reserve System, any

member bank is making such undue use of bank credit,

the Board may, in its discretion, after reasonable notice

and an opportunity for a hearing, suspend such bank

from the use of the credit facilities of the Federal ReserveSystem and may terminate such suspension or may

renew it from time to time.

National payments system

The Federal Reserve plays an important role in the U.S.payments system. The twelve Federal Reserve Banks

provide banking services to depository institutions and to

the federal government. For depository institutions, they


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maintain accounts and provide various payment services,

including collecting checks, electronically transferring

funds, and distributing and receiving currency and coin.

For the federal government, the Reserve Banks act as

fiscal agents, paying Treasury checks; processing

electronic payments; and issuing, transferring, and

redeeming U.S. government securities.

In passing the Depository Institutions Deregulation and

Monetary Control Act of 1980, Congress reaffirmed its

intention that the Federal Reserve should promote an

efficient nationwide payments system. The act subjects

all depository institutions, not just member commercial

banks, to reserve requirements and grants them equal

access to Reserve Bank payment services. It also

encourages competition between the Reserve Banks and

private-sector providers of payment services by requiring

the Reserve Banks to charge fees for certain payments

services listed in the act and to recover the costs of

providing these services over the long run.

The Federal Reserve plays a vital role in both the nation's

retail and wholesale payments systems, providing a


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variety of financial services to depository institutions.

Retail payments are generally for relatively small-dollar

amounts and often involve a depository institution's

retail clientsindividuals and smaller businesses. The

Reserve Banks' retail services include distributing

currency and coin, collecting checks, and electronically

transferring funds through the automated clearinghouse

system. By contrast, wholesale payments are generally

for large-dollar amounts and often involve a depository

institution's large corporate customers or counterparties,

including other financial institutions. The Reserve Banks'

wholesale services include electronically transferring

funds through the Fed wire Funds Service and

transferring securities issued by the U.S. government, its

agencies, and certain other entities through the Fed wireSecurities Service. Because of the large amounts of funds

that move through the Reserve Banks every day, the

System has policies and procedures to limit the risk to

the Reserve Banks from a depository institution's failure

to make or settle its payments.

The Federal Reserve Banks began a multi-year

restructuring of their check operations in 2003 as part of

a long-term strategy to respond to the declining use of


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checks by consumers and businesses and the greater use

of electronics in check processing. The Reserve Banks will

have reduced the number of full-service check processing

locations from 45 in 2003 to 4 by early 2011.

Now that we are finished with explaining how it works

and all its functions and responsibilities, we will now

discuss historical aspects of it that werent explored

earlier.

Executive Order 11110:was issued by U.S. President John

F. Kennedy on June 4, 1963.This executive order

delegated to the Secretary of the Treasury the

president's authority to issue silver certificates under the

Thomas Amendment of the Agricultural Adjustment Act,as amended by the Gold Reserve Act. The order allowed

the Secretary to issue silver certificates, if any were

needed, during the transition period under President

Kennedy's plan to eliminate silver certificates.

Here is the background story to how and why this order

was requested: On November 28, 1961, President

Kennedy halted sales of silver by the Treasury

Department. Increasing demand for silver as an industrial

metal had led to an increase in the market price of silver


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above the United States government's fixed price. This

led to a decline in the government's excess silver

reserves by over 80% during 1961. Kennedy also called

upon Congress to phase out silver certificates in favor of

Federal Reserve notes.

Kennedy repeated his calls for Congress to act on several

occasions, including his 1963 Economic Report, where he

wrote:

I again urge a revision in our silver policy to reflect the

status of silver as a metal for which there is an expanding

industrial demand. Except for its use in coins, silver

serves no useful monetary function.

In 1961, at my direction, sales of silver were suspended

by the Secretary of the Treasury. As further steps, I

recommend repeal of those Acts that oblige the Treasury

to support the price of silver; and repeal of the special50-percent tax on transfers of interest in silver and

authorization for the Federal Reserve System to issue

notes in denominations of $1, so as to make possible the


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gradual withdrawal of silver certificates from circulation

and the use of the silver thus released for coinage

purposes. I urge the Congress to take prompt action on

these recommended changes.-John F. Kennedy.

The House of Representatives took up the president's

request early in 1963, and passed HR 5389 on April 10,

1963, by a vote of 251 to 122 and passed HR 5389 on

April 10, 1963, by a vote of 251 to 122. The Senate

passed the bill on May 23, by a vote of 68 to 10.Kennedysigned the bill into law on June 4, 1963, and also signed

an executive order (11110) authorizing the Treasury

Secretary to continue printing silver certificates during

the transition period. The act, which became Public Law

88-36 (77 Stat. 54), repealed the Silver Purchase Act of

1934 and related laws, repealed a tax on silver transfers,and authorized the Federal Reserve to issue one- and

two-dollar bills, in addition to the notes they were

already issuing The Silver Purchase Act had authorized

and required the Secretary Treasury to buy silver and

issue silver certificates. With its repeal, the President

needed to delegate to the Treasury Secretary the

President's own authority under the Agricultural

Adjustment Act.


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President Kennedy's Executive Order (E.O.) 11110

modified the pre-existing Executive Order 10289 issued

by U.S. President Harry S. Truman in 1951, and stated the

following:

The Secretary of the Treasury is hereby designated and

empowered to perform the following-described

functions of the President without the approval,

ratification, or other action of the President...

The order then lists tasks (a) through (h) which the

Secretary may now do without instruction from the

President. None of the powers assigned to the Treasury

in E.O. 10289 relate to money or to monetary policy.Kennedy's E.O. 11110 then instructs that:

SECTION 1. Executive Order No. 10289 of September 9,

1951, as amended, is hereby further amended (a) By

adding at the end of paragraph 1 thereof the followingsubparagraph (j):


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'(j) The authority vested in the President by paragraph (b)

of section 43 of the Act of May 12, 1933, as amended (31

U.S.C. 821(b)), to issue silver certificates against any

silver bullion, silver, or standard silver dollars in the

Treasury not then held for redemption of an outstanding

silver certificates, to prescribe the denominations of such

silver certificates, and to coin standard silver dollars and

subsidiary silver currency for their redemption,' and (b)

By revoking subparagraphs (b) and (c) of paragraph 2

thereof.

SECTION 2. The amendments made by this Order shall

not affect any act done, or any right accruing or accrued

or any suit or proceeding had or commenced in any civil

or criminal cause prior to the date of this Order but all

such liabilities shall continue and may be enforced as if

said amendments had not been made.

John F. Kennedy,

THE WHITE HOUSE,

June 4, 1963.


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E.O. 11110 was not reversed by President Lyndon B.

Johnson and the section added to E.O. 10289 remained

on the books until President Ronald Reagan issued

Executive Order 12608 on September 9, 1987 as part of a

general clean-up of executive orders.[14] E.O. 12608

specifically revoked the section added by E.O. 11110

which effectively revoked the entire Order. By this time,

however, the remaining legislative authority behind E.O.

11110 had been repealed by Congress when Pub. L. 97

258 was passed in 1982.

In March 1964, Secretary of the Treasury C. Douglas

Dillon halted redemption of silver certificates for silver

dollars. In the 1970s, large numbers of the remaining

silver dollars in the mint vaults were sold to the collecting

public for collector value. All redemption in silver ceased

on June 24, 1968.

Now here comes the fun part, the legendary Conspiracy

Theory:Jim Marrs, in his book Crossfire, presented the

theory that Kennedy was trying to rein in the power ofthe Federal Reserve, and that forces opposed to such

action might have played at least some part in the

assassination. According to Marrs, the issuance of


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Executive Order 11110 was an effort by Kennedy to

transfer power from the Federal Reserve to the United

States Department of the Treasury by replacing Federal

Reserve Notes with Silver Certificates. Actor and author

Richard Belzer named the responsible parties in this

theory as American "billionaires, power brokers, and

bankers ... working in tandem with the CIA and other

sympathetic agents of the government." A 2010 article in

Research magazine discussing various controversies

surrounding the Federal Reserve stated that "the wildest

accusation against the Fed is that it was involved in

Kennedy's assassination." Critics of the theory note that

Kennedy called for and signed legislation phasing out

Silver Certificates in favor of Federal Reserve Notes,

thereby enhancing the power of the Federal Reserve;and that Executive Order 11110 was a technicality that

only delegated existing presidential powers to the

Secretary of the Treasury for administrative convenience

during a period of transition.


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Chapter 2: How to Fix the American Economy.

Now my opinion is that if you veto the Federal Reserve

and get less money into circulation, then based oneconomics because there is less of it then that means it

value raises. The American dollar (USD) will become

higher and higher in value and new money would only be

created to maintain stable levels of flow so we do not go

back to the Great Depression, which for a matter of a

fact was when the American Dollar (USD) was worth themost because it had so little in supply. John F. Kennedy

would have had the problem fixed If he wasnt

assassinated and his successor didnt immediately cancel

his policy that he had put into place, but whether that

was on purpose or not is up to someone other than me

to decide. Once this is put into effect the Americaneconomy should slowly, but surely get better.


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how to fix the american economy

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