4TH of July Special for ET Stalwart "jem" and the Like-Minded -- Courtesy Mr. Nathan Tankus

[piezoe]

Reading Bloomberg yesterday, as I do most days, I came across an article about a seemingly brilliant young man, Mr. Nathan Tankus. This led me to Mr. Tankus's blog where I found a Remarkable Article entitled "The Federal Government Always Money Finances Its Spending: A Restatement. ( for the entire article see: https://nathantankus.substack.com/p/the-federal-government-always-money )

This is not new to me because I have been a serious student of economics since 2005 and have been reading the works of the MMT economists. But I have not seen this particular topic so thoroughly and clearly treated anywhere else. It certainly leaves my own meager and unsuccessful attempts to convince our own resident conspiracy theorist, known as "TJustice," or more widely as "jem," that the Federal Reserve is a thoroughly Government Operation and not some Clandestine Branch of J.P.Morgan.

So here, for "jem's" benefit, is an excerpt from the young Mr. Tankus's blog. It is the best argument I have seen yet against what to me is the crazy idea that the fed is privately owned for private profit. Happy Fourth of July, jem.

(Technically Mr. Tankus's blog excerpt belongs in the Economics Forum, but I have ruined that by addressing this specifically to our friend "jem", a true "Politics Forum" Stalwart.)

(excerpted from https://nathantankus.substack.com/p/the-federal-government-always-money)

Conspiracy theorists often think that the Federal Reserve System is a private entity, and thus control of our monetary system is completely in private hands because of details surrounding the structure of Regional Federal Reserve Banks. In fairness to them, while this claim is wrong, it's understandable why they think so. Chartered “private” banks are formally authorized by law to act in the interests of shareholders and deliver payouts which are dependent on their own profits. These Chartered banks, in turn, must purchase shares in their local Regional Federal Reserve Bank in order to become a Federal Reserve “member bank” and have access to the Federal Reserve. I can already hear the voices of the conspiracy theorists: “see!! The Bankers OWN SHARES IN THE FEDERAL RESERVE, ITS A PRIVATE ENTITY!!”

This, however, is less than it appears. For while these contracts are called “shares”, they don’t entitle Federal Reserve member banks to anything like what shareholders in big banks like Citibank (or any other company in the Fortune 500) are entitled to. Here, it's worth quoting a Federal court case from last year called Wells Fargo v. United States:

Congress has transferred functional ownership and control of the FRBs [Federal Reserve Banks] to the Treasury and to the [Federal Reserve] Board [...] Further, we are not moved, as the district court was, by the fact that private banks serve as the FRBs’ nominal shareholders [...] Today, the United States, not the nominal shareholders, are the economic owners of the FRBs. Among other things, Congress has provided that the net earnings of the FRBs be “recorded as revenue by the Department of the Treasury,” FRB Amici at 17, and the FRBs are required to remit all their excess earnings to the United States Treasury [...] Thus, the “capital” contributions made by member banks function as debt interests owned by the member banks, not equity interest [...] money created for the Term Auction Facility or the Discount Window is as much a product of the “public fisc” as money that is distributed by the Treasury Department​

To summarize, the “shares” chartered banks own of Regional Federal Reserve Banks are really debt contracts, net profits from the Federal Reserve System are delivered to the U.S. Treasury and the Federal Reserve Board jointly owns and controls the Regional Federal Reserve Banks along with the U.S. Treasury. As a result, the “money” (settlement balances in checking accounts created for the benefit of chartered banks and governments) the Federal Reserve System creates is a product of the Federal Government even though they are “unappropriated dollars”, similar to the Mint. Government owned corporations, such as the Post Office, are regularly consolidated with the rest of the Federal Government for analytical purposes. Similarly, its appropriate to consolidate the entirety of the Federal Reserve System with the rest of the Federal Government.​

 

[piezoe]

Bump

 

[Spike Trader]

Where's Jem . . . . . . . ? . ?

 

[jem]

ridiculous argument....
You personally have made that exact argument multiple times...
because it is the exact argument the Federal makes in the question and answer section of its website. I have quoted it numerous times here on elitetrader.

I have countered that piece of sophistry multiple times.

1. Yes the private share holder arrangements are almost always different from the arrangements shareholders of public companies have. That does not mean the privately owned shares are govt companies.

Your argument is dumb.

I have drafted at least 30 private shareholder agreements in my career... the govt was never a shareholder. Shareholders have the ownership and the control gets divided per the agreement.


2. This profits go to the govt argument is a big dumb misdirection.
The bank gets to create trillions of dollars and distribute it as it sees fit.
That is the power of being the Federal Reserve bank.


Just this year the Fed has created 9 trillion on its own -- to buy up mortgage assets and company bonds and assets... and counting. That is insane power to have without Congress controlling it. Maybe it was wise... probably was... but their power is to create trillion of dollars as they see fit is far more important that giving back the profit it makes. Besides a great deal of the profits it could make are made by the underlying banks.

Creating trillions of dollars causes massive inflation in the long run. (doesn't MMT teach you that? ) Its a massive tax on savers and investors... and when you combine it with progressive and diverse taxation... its tantamount to theft of work. (and prevents competition for assets and politicians)


----

Summary...

The power of the FED is the the creation of trillions of dollars and their ability to spend and use it any way they wish. Our Govt's only true control is to pull their charter.

( to anticipate the next argument....

The idea the president appoints some members to the board is also specious because the board has to operate by unanimous decision to change policy.)


--

Now I will go back to my vacation.

 

[piezoe]

You personally have made that exact argument multiple times...

Thank you for acknowledging that, jem. Every first move toward recovery by a conspiracy theorist requires a first step toward truth, and I can see that you are now on your way toward regaining the respect of your ET colleagues.

 

[jem]

so you pretend that its a novel argument... and then admit you made the argument in the past?

and you agree the FED's shareholders are private banks.

thank you concession as you concession as it is the gravman of the argument...

Proving the FED is not owned by the govt and the FED creates money of its own volition... Trillons and Trillions over the years spent by the FED in excess of the money spent by our govt.

Thank you for acknowledging that, jem. Every first move by a conspiracy theorist requires a first step toward truth, and I can see that you are now on your way toward regaining the respect of your ET colleagues.

 

[piezoe]

Where's Jem . . . . . . . ? . ?

Oh, here he is. Everyone has to be somewhere!

 

[piezoe]

Just this year the Fed has crated 9 trillion on its own -- to buy up mortgage and company bonds and assets... and counting. That is insane power to do with Congress controlling it. Maybe it was wise... probably was... but their power is to creat trillion of dollars as they see fit. Which causes massive inflation in the long run.* Its a massive tax on savers and investors... and when you combine it with progressive and massive taxation... its tantamount to theft.

Oh "Little" jem! -- please allow me a Trumpian term of endearment. As prescient, or not, as your statement above is [may not be] it does not go to the question at hand, which is, simply put, "Is the Federal Reserve Privately owned?"

On the basis of simple reasoning, you have lost, it would seem, this round.

You have, however, expressed well your opinion that you would prefer that the Treasury-Federal Reserve not be able to create Trillions out of thin air. Of course what you wish would lead to economic disaster, just as if you were to snatch the food from the mouths of small children and little babies. But, thankfully, you are entitled to this uninformed, sick and demented opinion as a benefit of living in our Great Nation. And we can all agree that your right is a marvelous right. I salute, every Fourth of July in fact, with both pleasure and humility, your inalienable right to be horribly wrong .

__________________
*Once "the long run finally arrives," please get back to us, with an "I told you so."

 

[piezoe]

so you pretend that its a novel argument... and then admit you made the argument in the past?

and you agree the FED's shareholders are private banks.

thank you concession as you concession as it is the gravman of the argument...

Proving the FED is not owned by the govt and the FED creates money of its own volition... Trillons and Trillions over the years spent by the FED in excess of the money spent by our govt.

Ah, jem, I didn't use the word "novel" which means "new." I said, "I have not seen this particular topic so thoroughly and clearly treated anywhere else." I was heaping praise on young Tukus for the thoroughness, vigor, and clarity of his argument, an argument that went far beyond anything I had the patience for in may meager attempts to convince you that you were full of shit.

 

[jem]

Lately each time I destroy your position and show you that the FED creates trillions of dollars at will and distributes the money as i sees fit...
you resort to this fake condescension.

you are an old govt biologist...(or something like that)
you know next to nothing about the law and about the FED.

and... you are almost alway wrong on this stuff because you have no comprehension of the nuance.

But, this is not even nuanced....

Companies are owned by their shareholders.
If the govt does not own the shares....
it is a private company.


The Regional Federal Reserve banks are inarguably private companies and they own the shares. You have never pointed to even one share being owned by the govt.


You turn into such a moron on Fed Reserve threads.
You should stick with science.

Oh "Little" jem! -- please allow me a Trumpian term of endearment. As prescient, or not, as your statement above is [may not be] it does not go to the question at hand, which is, simply put, "Is the Federal Reserve Privately owned?"

On the basis of simple reasoning, you have lost, it would seem, this round.

You have, however, expressed well your opinion that you would prefer that the Treasury-Federal Reserve not be able to create Trillions out of thin air. Of course what you wish would lead to economic disaster, just as if you were to snatch the food from the mouths of small children and little babies. But, thankfully, you are entitled to this uninformed, sick and demented opinion as a benefit of living in our Great Nation. And we can all agree that your right is a marvelous right. I salute, every Fourth of July in fact, with both pleasure and humility, your inalienable right to be horribly wrong .

__________________
*Once "the long run finally arrives," please get back to us, with an "I told you so."

Ah, jem, I didn't use the word "novel" which means "new." I said, "I have not seen this particular topic so thoroughly and clearly treated anywhere else." I was heaping praise on young Tukus for the thoroughness, vigor, and clarity of his argument, an argument that went far beyond anything I had the patience for in may meager attempts to convince you that you were full of shit.