"The Fed implements the Treasury Dept's monetary policy strategy."

But Congress, with the full weight of the Constitution on it's side, cannot?

"The Fed is effectively a Government agency"

Effectively? Or is? It either is or it isn't. Congress, on the other hand IS a government agency WITH the full weight of the Constitution to empower it to coin and regulate money. Again, what benefit does the Fed serve if Congress has full authority to issue money without interest.

No problem spyman, clearly I'm learning here too. :)

Another unsupported generalisation....
You may not agree with it but I think it is difficult to claim that the FRA is CLEARLY" unconstitutional (especially as it was passed by congress, the Senate and signed by Wilson)

The Fed caries out the day to day functions on behalf of the US Treasury. Would you prefer congressmen/women to go round the world asking people to lend money to the Government? Which of them exactly would arrange overnight deposits?
I really don't understand your point about interest....you seem to think that charging interest leads to inflation, where-as the opposite is true...to raise money for the Treasury without paying interest would require them to print money which WOULD lead to inflation

Congress is a Goverment Agency? This made me laugh out loud....

It either is or isn't? This is just ignorant...what is or isn't a US Government agency is VERY subjective. Do you know what the word "agency" means?

I think your lack of understanding of all things financial and/or economic is leading to you making a whole bunch of crass comments

Withnail, you like to dance I see. :)

Let me make this easy for you to stand still for once...

"The Fed caries out the day to day functions on behalf of the US Treasury."

Why? What added value does it serve? The Constitution is explicit in granting Congress the power to coin and regulate money.

"I really don't understand your point about interest"

Speaking of laughing out loud. :) For someone who is determined to rebut my "lack of understanding of all things financial and/or economic", you are sorely misrepresenting what I said.

I said that charging interest on something that was created from nothing is perpetual debt which leads to complete control of inflation.

@Darwyn,
But the congress clearly delegated that power to the Fed when it was created.
Unless you actually think that such provisions in the constitution mean that Congress has to actually make every single day to day decision about money, on it's own, without being able to set up any institutions to do so, then I don't see how this is unconstitutional.

I'll say again, that I may agree with some of your points, that perhaps congress should take back SOME of it's authority here, by perhaps requiring some more transparency and increasing it's oversite of the Fed, but I don't think that congress creating an institution and delegating some of their authority to it to run day to day operations is in any way unconstitutional.

Taken to it's extreme, your statement would imply that the Congresspeople had to actually personally mint all the coins too (since they have been given the power to coin money). So is the US Mint CLEARLY unconstitutional?

"But the congress clearly delegated that power to the Fed when it was created. "

Yes, they did. But without going into how they did this, I think that in order to change any part the Constitution, an amendment needs to be passed. The Constitution does not authorize Congress to simply give away it's powers.

So... Congress can't delegate powers? I guess I just have a different interpretation of the constitution than you do. Here they have been given the power to "regulate" something. It doesn't say anything in the constitution (that I'm aware of at least) about how they need to go about doing that. They have decided to delegate a part of that regulation to a body that they created. I don't really see how that's a violation of the constitution. The power still ultimately rests with them. They could pass a new bill revoking the powers of the Fed and set up another system (as I beleive a number of congressmen try to do every year).

That being said, I might agree with a statement saying that they are being too lax in their duties, that they SHOULDN'T give away so much of their authority to this other body, that they SHOULD do a better job of regulating it and giving oversight, but I don't think it's unconstitutional.

(I'd agree even more with the idea that congress should take back more of it's authority from the President in regards to declaring war and such. I don't think it's actually unconstitutional for them to have given more of that authority to the President, but I do think they SHOULD take back more of that authority.)

Perhaps, more clearly, it seems to me that congress has set up the Fed, to enforce the fiscal policy system they decided to set up. The Fed only has so much authority to make different decisions, and that authority is set out within the terms under which the Fed was created. This is why something like the bail out bill needed to come through congress. The Fed couldn't just do this on their own.

Darwyn

Yes - the constitution does exactly that. So how do you expect Congress to carry out this function? (As I previously asked) Do you expect the members of congress to go round the World trying to borrow money from people in order to pay for their spending plans? Maybe you do...however, being lazy, they instead delegated this power to a newly established organisation call the Federal Reserve. The difference between the Fed and the IRS (the agency that Congress delegates the collection of tazes to rather than going round people's house to collect it themselves) is that the Fed has a degree of independence which makes it harder to label it as a pure agency of the Government

Maybe I misrepresented what you said about interest for which I apologise. You don't really seem to understand how Government finances ACTUALLY work though. How can the Fed (or Congress or whatever delegated authority of the people you wish to appoint) raise money without paying for it (ie paying interest)? The only way to do so is to print money (effectively granting itself an interest free forgivable loan). Printing new money WILL lead to inflation and almost certainly devalue the dollar (unless other Goverments' delgated authorities also print the exact same proportion of their existing money supply in new money all at the same time)

No part of the Constitution has been (or needs to be) changed to achieve this. Most of the functions of Government set out in the US Constitution are delegated to a Government agency or quasi agency

My dancing steps tend to be limited in scope but very accurate...you prefer to profess excellence in all forms without much practice in any :)

yes, Congress can delegate, but the Constitution granted them them the power to coin and regulate. To coin a currency is to make actual coins from the gold or silver bullion already owned by the public. In other words, the Constitution didn't give Congress the power to CREATE money.

And it surely did not grant them the power to loan or create money from nothing like the Fed does.

So in effect, Congress delegated powers to the Fed that it never had in the first place.

Otherwise, I am in full agreement with you DrOct...

@Darwyn

That's a pretty strict interpretation of the constitutional wording there with your mention of coining HAVING to mean creating coins from metal. I'm not sure I think that really makes sense, or even that it would have necessarily been interpreted that strictly at the time of it's writing.

Now if that's your interpretation of the constitution, then I suppose we are at an impass. I simply don't think the term "coin" needs to be interpreted that strictly, and so we will never agree on the rest of it if we disagree on that level. However I'd also point out that if you're going to be that strict in interpreting the constitution, you should also be opposed to paper money too, because that is not coinage, and it's not made of metal.

My interpretation of that is simply that it empowers the congress to create regulations and policies on how the nations money is to work, and exist (and how it is to come into and out of existence). I just don't think there is anything inherently wrong with or illegal about the government deciding to "create money out of nothing" as you keep saying. I just don't think anything in the constitution says that money has to be backed by metal, or anything else in particular.

Outside of constitutional concerns I just don't think it's necessary or even good for the system to have that sort of restriction on it. As someone else pointed out, as the supply of goods and services in the economy and world grows, at some point you will start to run out of gold to back it up with, and your money will begin to increase in value so much that it becomes more or less useless for everyday transactions.

Another danger of having a gold standard that I haven't thought of in some time, but is something that has been tried (fortunately unsuccessfuly), is the danger of private individuals attempting to corner the market on gold/silver/whatever we're using to back our currency. Assuming the government doesn't just seize all the gold in the world/all the gold it can, gold would continue to be traded and sold, right? Maybe even used as currency itself, right? What's to stop some private individuals/some cartel somewhere from attempting to grab enough of it that they can set the value of it? DeBeers does that with diamonds (which are in reality so common on the earth that they should be quite cheap, but because a company/family controls 80% of the supply of them, they can effectively set the value. I also think DeBeers is arguably one of the more evil entities on the earth, but that's another discussion entirely.). Wouldn't that be even more dangerous than something like the Fed which at least has some regulatory oversight? These individuals wouldn't even have to be in or from the United States, hell it could be a cartel made up of other governments!

I'm not saying it's very likely that that would happen, and maybe I'm probably overblowing the danger of someone actually taking control of enough of the worlds gold supply to be able to dictate it's value. But it would, it seems to me, make it easier for individuals and other countries to exercise a potentially dangerous level of influence over our currency, without much we could do about it.

People HAVE tried to corner the market on gold in the past.

You definitely make some good points...and I'm not sure I can comment on them without being accused of not knowing what I'm talking about. Thanks to Whitnail for putting me in my place. :)

However, I think that everyone c. 1776 knew how dangerous central banks were/are. There are quotes upon quotes throughout US history warning of such. The Constitution itself was created in part to prevent tyranny from all angles.

Let's face it, money makes the world go round. If you are the one who controls it...well, let's just say that I'm sure there are ways to get or do what you want.

Anyway, I think I've said all I needed to say at this point.

Thanks spyman, DrOct and Whitnail and anyone else I missed for the points and counter-points. The wealth of knowledge on this board is amazing sometimes...and even if I'm not correct (read: talking out my ass), I do appreciate the sometimes straight-up, sometimes sarcasm-laced discourse.

:)

@Darwyn

I fully agree! I've enjoyed this discussion quite a lot. I've learned a lot from others, and from being forced to research things a bit more to participate in the discussion. Thanks for challenging me, and certainly getting me to learn a bit more and think a bit more about how money works!

OK - now I feel bad. I may have some aggressive tendencies. Im just getting my own back for previous stabs, you dog :) I will get down off my high-horse....

@DrOct

You're last statement about Congress giving its authority to the president is exactly right. Congress has the ability to delegate certain aspects of its powers necessary for those powers to be used. It's unrealistic to think that the congress would have the time to do everything by itself. However, It ultimately can revoke those powers and can control those groups which it has delegated power too. This is why oversight and transparency are so crucial.

In regards to aurthority being given to the president, it is completely unconstitutional. It disrupts the checks and balances put forth in the constitution itself. No branch has the ability to effectively give its power to another branch. The fact that the President has created and been given so many new powers over time is rather frightening. It becomes a greater concern when the Court seems to fail, in most cases, at stopping both the Executive and Legislative branch from participating in unconstitutional activity.

But, back to the subject at hand

"Im just getting my own back for previous stabs, you dog :)"

HaHa! I KNEW it!! ;) It was a bad stab on my part, so I apologize again...I only wanted the game to end since everyone wanted their points and no one seemed willing to help us stand up to the leader.

But no worries, I have the tendency to get aggressive at times as well.

I would have done the same thing :)

The Fed doesn't create value out of nowhere. Money is backed by the Fed's capital, the associated debt created in conjunction with money printed, as well as the fact that the American government accepts these printed dollars as acceptable payment for taxes.

Darwyn, I think this article here suitably explains your question of interest and perpetual debt.

http://wfhummel.cnchost.com/timebomb.html

In short, it seems I was correct with my idea that the interest on loans is mostly to cover costs associated with printing, wages, anti-counterfeiting measures etc, which force the banks to borrow money from the non-banking community and pay interest, so that in the end the money returns to the non-banking community.

Arrrg...why you gotta drag me back in this? :)

I think the website you referenced is for commercial banking and is not fully applicable to the Fed. For instance, it mentions "Out of net earnings, banks pay taxes and shareholder dividends"

The Fed does not pay taxes on it's earnings. AND those earnings DO go to it's private shareholders. I don't think the Constitution intended for any public dollars to be used as a profiteering mechanism.

No, the shares that the banks are forced to own to be members of the Fed do not have any potential for capital gain. From the same site on an article about the Federal Reserve System...

"

"Member banks must subscribe to stock in their regional Federal Reserve Bank in an amount equal to 3 percent of their capital and surplus. They receive a 6 percent annual dividend on their stock and may vote for Class A and Class B directors of the Reserve Bank. However the stock does not carry with it the control and financial interest that is normal for the common stock of a for-profit organization. It offers no opportunity for capital gain and may not be sold or pledged as collateral for loans. The stock is merely a legal obligation that goes along with membership. "

You are right to point out that the article is referring to commercial banks, though I think many of the same ideas can be applied to the Federal Reserve. I'll resume my search for a more adequate rebuttal. =)

That's cool...I'd like to hear it.

But whatever you come up with, I'm still left with the questions:

What added value does the (private) Fed serve to add interest to the creation of money? Up until 1913, money creation in the US was interest free.

It's the interest the Fed charges that is the crux of the argument, I think. What purpose does charging interest on government loans (money creation) serve?

AAAAggggggggggghhhhhhhhhhh!

It doesnt add interest to the creation of money!!!!!! It pays people with money interest to borrow it from them......

LOL...sorry, I suppose I'm being stupid today. Could you explain that last sentence? "It pays people with money interest to borrow it from them"

Let's break it down one step further...

The US was perfectly fine going about coining and regulating money on it's own.

WHY does the Fed even exist? What took place in 1913 that changed everyone's mind about how things were run up until then?

I dont really know why it happened particularly in 1913!

But what happens is this:

The Government makes an annual budget (ie public spending). They then estimate how much tax revenue they will generate....the difference is the Public Sector Borrowing Requirement (PSBR). This is communicated to the Fed and they raise this amount by issuing Treasury Bonds. They hire investment banks to arrange auctions of these Bonds who then buy them and sell them on to institutions (Pension Funds and Life Assurance Companies etc)
Then the Treasury has to pay interest on these Bonds and then repay the principal amount at the end of their term (which they will probably borrow more money to do thus creating your idea of "perpetual debt")

The upshot of this is that the Goverment is using a little of your and future generations future output to pay for today's spending

Ok, that seems reasonable and is in line with what I've been reading.

At this point, I just want someone to explain this to me fully. You seem to have a grasp of this, so I have a few questions...

Why bother communicating anything to the Fed? Instead of issuing Treasury Bonds to be auctioned, why not just issue...MONEY? What purpose does the Fed serve here?

"the Treasury has to pay interest on these Bonds and then repay the principal amount".

I don't see the difference in what you said above and what I've been saying this whole time. What justifies the charging of interest on those Bonds?

"The upshot of this is that the Goverment is using a little of your and future generations future output to pay for today's spending"

How is that an upshot?

If they dont ask the Fed to raise money then how are they going to pay for Public Spending?

By "issuing money" do you mean printing dollars? If so then the problem with doing this is that you will cause inflation and you will devalue the currency

By upshot I meant "effect"