All the news in DC right now is focused on whether there will be a (partial) Federal government shutdown. (In the spirit of full disclosure, I live here, and many of my neighbors are the ones that would potentially be affected so there's no escaping it.) Should the political impasse continue, all "non-essential" Federal employees stay home tomorrow.
So my question is: are Federal Reserve Board employees "essential" government workers? First of all, let's clarify that they are, in fact, federal government employees. But are they "essential" ones?
Despite lots of baseless perceptions among some of our fellow anti-Fed rabble rousers, no, the Fed is not a private bank. The Federal Reserve Board is a Federal government agency. The regional Reserve Banks are private. The Federal Reserve System is a hybrid. One popular page circulating around "10 Things That Every American Should Know About The Federal Reserve" says:
#1 The Federal Reserve System Is A Privately Owned Banking Cartel
The Federal Reserve is not a government agency.
The truth is that it is a privately owned central bank. It is owned by the banks that are members of the Federal Reserve system. We do not know how much of the system each bank owns, because that has never been disclosed to the American people.
The Federal Reserve openly admits that it is privately owned. When it was defending itself against a Bloomberg request for information under the Freedom of Information Act, the Federal Reserve stated unequivocally in court that it was "not an agency" of the federal government and therefore not subject to the Freedom of Information Act.
To back up his claim, Michael Snyder cites a link to a reputable source. His source says:
"The Federal Reserve System serves as the Central Bank of the United States, and is comprised of the Federal Reserve Board — a federal agency located in Washington, D.C — and 12 regional Federal Reserve Banks. Congress has oversight over the entire system."
So, um, well, if you make a claim that the Fed is not a federal government agency you probably shouldn't cite a reputable source disproving your point. The Federal Reserve Board is a federal agency. The Federal Reserve Board website itself explains the same thing:
The Board of Governors of the Federal Reserve System is a federal government agency. The Board is composed of seven members, who are appointed by the President of the United States and confirmed by the U.S. Senate. The full term of a Board member is fourteen years, and the appointments are staggered so that one term expires on January 31 of each even-numbered year. After serving a full term, a Board member may not be reappointed. If a member leaves the Board before his or her term expires, however, the person appointed and confirmed to serve the remainder of the term may later be reappointed to a full term.
[One Facebook poster in an anti-Fed group argued that the Fed is a private banking cartel as she understood it from G. Edward Griffin's Creature from Jekyll Island. So, I pulled my copy off of my shelf (May 1988 edition), but I couldn't find anything backing up her baseless assertion: p. 69 says Federal Reserve Board required banks to offer loans at less than S&Ls (private banks can't require other banks to change their rates); p. 71 Gov Celeste flew to DC to request Federal assistance from the Fed Board; etc. Nothing saying that the Federal Reserve Board is not a federal government agency.]
Which brings me back to my original thought: since the employees of the Federal Reserve Board are federal government employees, are they "essential" ones? Obviously, all of us here at freebanking.org don't think the Federal Reserve Board employees are essential which is, I guess, honestly, subjective. But does the government itself consider them essential?
Today I went straight to the source and called the Federal Reserve Board itself and posed the question to them: Would a partial federal government shutdown affecting "non-essential" federal government employees apply to Federal Reserve Board employees. The poor guy who answered the phone wasn't prepared for my question (and I suspect alarmed that he might be laid off without pay the next day for an indeterminate amount of time) so he put me on hold.
When he returned, he explained that since the Federal Reserve Board employees are not paid from the Congressional appropriations process that they are immune from the effects of a potential government shutdown. Of course I knew this as I explained in a Daily Caller column:
The Federal Reserve's funding process is little understood, and therefore little scrutinized. That needs to end. Here's how it works: The Fed buys Treasury securities with money it creates out of thin air. The major source of the Fed's revenue is taxpayer-funded interest on those bonds. The Fed spends however much it wants and rebates the remainder to the Treasury. This end-run around the Congressional budget process violates the spirit of the Constitution, which grants all budget power to Congress.
Hopefully the talk of a shutdown and its potential effects on the economy will focus minds on the real culprit causing havoc on the economy: the Federal Reserve. (Not that I don't think that we're lacking requisite leadership from all of the responsible players: the President, Senate Majority and Minority Leaders, House Speaker and Minority Leader.) I stand now by my call then:
The Federal Reserve, which has the power to print money, also sets its own operating budget. That's the wrong kind of independence. Unfortunately, recent proposals to audit the Fed do not address this issue.
Putting the Federal Reserve on a Congressional budget would bring much-needed accountability and fairness, instill a culture of efficiency, and increase effectiveness. An annual Congressional appropriation process would do more to bring long-term accountability to the Fed than the popular audit proposal.
Let's use this government budgeting failure as an opportunity to make needed systemic changes and put the Fed on a budget.