Paying interest on the national debt to the Federal Reserve / by kevin murray

For fiscal year 2013, which ended on September 30, our national government made a total payment of $227.75 billion on net interest payments on our debt of nearly 17 trillion dollars, as reported by pewresearch.org.   Our nation's debt is held by various entities, including Social Security, the Federal Reserve, Japan, China, other federal government agencies, other foreign nations, state and local governments, mutual funds, and various other government and private entities.  Of the 17 trillion dollars of our national debt, about $2.1 trillion is owed to the Federal Reserve System.  However, despite it being called the Federal Reserve System, the Federal Reserve is not federally or governmentally own, it is, in fact, privately owned and acts as the United States central bank.

 

The ostensible purpose of the Federal Reserve is to help stabilize the currency and to provide liquidity to the financial system, by becoming a monetary lender to the United States government.  Yet, you would think that the United States is more than capable of financing itself through bond offerings to the general public, bond offerings to multi-national corporations, bond offerings through foreign nations, asset sales, and the like.  There doesn't seem to be a compelling reason why the USA would need to fund its government through the non-government member banks of the Federal Reserve System.    That is to say, the credit worthiness of the USA should not necessitate our government ever needing to go hat-in-hand to privately held banks to borrow money. 

 

The question then becomes when dealing with our national debt to the Federal Reserve, to who does this really benefit?  It would seem to substantially benefit the lender, since the credit worthiness of the United States is not seriously questioned; consequently making that money from our government, must on the face of it, is the surest way to become rich or richer for those Federal Reserve bank members.  Additionally the Fed is able to easily protect its money that has been borrowed by our government by controlling the interest rates of that money, in which they know ahead of time, in which direction interest rates will or won't go.

 

The cost of borrowing money is a huge component in business decisions, private investing, public investing, debt related deals, and also equity related buys and sells.  If you, and your member banks, know those decisions ahead of time, this essentially gives you the opportunity to trade "ahead of the tape" which gives you a massive advantage over those that lack that inside information.  The Federal Reserve System member's banks are privately held, non-governmental banks that are massive conglomerates and corporations.  Their membership in the Federal Reserve, in and of itself, gives them an unfair advantage over similar corporations in the same or similar business.  Additionally, the fact that the Feds make easy money interest on essentially the backs of the American taxpayers to the tune of servicing the debt of $2.1 trillion dollars, year after year, is a very nice business in and of itself.

 

Proverbs 22 states: "the rich ruleth over the poor, and the borrower is servant to the lender."