Judy Shelton, senior fellow at the Independent Institute, joined CNBC’s ‘Squawk Box’ to weigh in on the Federal Reserve’s looming interest rate decision. She is probably the smartest person they ever interview imho, but she was denied a Fed Chair and is loathed by the left. This clip is full of financial jargon but towards 2.50 on the tape she explains why no one knows what the true cost of capital in the market is, which makes it so hard for the economy to navigate and find a safe place.
And guess what, she says it’s the leaden hand of the privately owned and controlled Federal Reserve* that tips the scales here.
Did you know about the special interest rate from the Federal Reserve for the banks? This hangover from the 2008 global collapse is utterly messing with the system. No one can agree the true price of capital. That means we don’t know how to loan money to entrepreneurs, homebuyers, or make capital investiture, etc. And it’s incredibly volatile and could trigger a crash at any time.
The Federal Reserve Banks are not a part of the federal government, but they exist because of an act of Congress. Their purpose is to serve the public. So is the Fed private or public?
The answer is both. While the Board of Governors is an independent government agency, the Federal Reserve Banks are set up like private corporations. Member banks hold stock in the Federal Reserve Banks and earn dividends. Holding this stock does not carry with it the control and financial interest given to holders of common stock in for-profit organizations. The stock may not be sold or pledged as collateral for loans. Member banks also elect six of the nine members of each Bank’s board of directors.
- Congress set up the Federal Reserve System in 1913 to make it autonomous and to isolate it from day-to-day political pressures. The members of the Board of Governors are appointed to serve 14-year terms that do not coincide with presidential terms.
Key components of the Federal Reserve System are:
- The Board of Governors—Located in Washington, D.C., Board members are appointed by the U.S. President and confirmed by the U.S. Senate. Board members and staff are civil service employees.
- The 12 regional Reserve Banks—Located around the country, the 12 Federal Reserve Banks are chartered as private corporations. Employees are not civil service.
- The Federal Open Market Committee (FOMC)—Composed of the Federal Reserve Governors and the Federal Reserve Bank presidents, the FOMC is charged with conducting monetary policy.
The 12 Federal Reserve Banks operate like other businesses; each has its own board of directors that selects the Reserve Bank president and first vice president, with approval from the Board of Governors. Each Branch of a Reserve Bank has its own board of directors. A majority of these directors are appointed by the Branch’s Reserve Bank; the others are appointed by the Board of Governors.