Inaccuracies on the Fed by Infowars You Should Know

Federal Reserve

I happened across a blog post by Infowars that gave 25 “facts” about the Federal Reserve that everyone should know about. Taking a quick glance I saw how absolutely uninformed this list was. I decided to take a moment to go through this list and show you how little the Infowars/conspracy people actually know about the state bank. In multiple places I point out how other central banks do not behave or work the same way the Federal Reserve does. The reason for this is because the Infowar/conspiracy people or libertarians believe that all central banks operate the same way. This is not true and important to mention when discussing the Fed itself.

#1 “The greatest period of economic growth in U.S. history was when there was no central bank.”

The period it is referring to is from the Civil War to 1913. In fact this is true. The problem is that its source doesn’t actually give a reason why it is attributable to there being no central bank. They are essentially making the correlation equals causation fallacy. Growth in capitalism slows down over time, its called stagnation, Marx wrote extensively about it as a part of economic theory. It was perfectly predictable from a Marxist view that this would happen.

#2 “The United States never had a persistent, ongoing problem with inflation until the Federal Reserve was created. In the century before the Federal Reserve was created, the average annual rate of inflation was about half a percent. In the century since the Federal Reserve was created, the average annual rate of inflation has been about 3.5 percent, and it would be even higher than that if the inflation numbers were not being so grossly manipulated.”

There has never been “a persistent, ongoing problem with inflation”. Inflation has a natural tendency to increase as economies increase in size. Several percent is not a “problem with inflation”, as it is not a problem. The only relevant moment in inflation was during the gas shortage in the 70s. This problem had nothing to do with the central bank; it was caused by a sudden increase in the cost of commodities due to a fuel shortage, which affected most of the production process.

#3 “Even using the official numbers, the value of the U.S. dollar has declined by more than 95 percent since the Federal Reserve was created nearly 100 years ago.”

The same thing happened with currency between the Revolution and the creation of the fed. There is no link between this loss in value and the Federal Reserve. Besides it doesn’t mean anything as long as purchasing power rises faster than the loss in value. These two things aren’t inherently connected anyway.

#4 The secret November 1910 gathering at Jekyll Island, Georgia during which the plan for the Federal Reserve was hatched was attended by U.S. Senator Nelson W. Aldrich, Assistant Secretary of the Treasury Department A.P. Andrews and a whole host of representatives from the upper crust of the Wall Street banking establishment.

Yes. The Federal Reserve’s job is to help regulate finance due to the inherent instability of capitalism. When this regulation was written the richest most powerful people in finance had a vested interest in being a part of its creation. Obviously it is probably not a good idea to let them in on it, but the system is owned and operated by finance capital. No one else wields that much power. This is part of the class nature of the government and society we live in. This is no conspiracy, it is very obvious.

#5 In 1913, Congress was promised that if the Federal Reserve Act was passed that it would eliminate the business cycle.

This was very ignorant; the business cycle is an inherent feature of capitalism. They actually thought this would stop it.

#6 The following comes directly from the Fed’s official mission statement: “To provide the nation with a safer, more flexible, and more stable monetary and financial system. Over the years, its role in banking and the economy has expanded.”

And? What is this supposed to mean?

#7 It was not an accident that a permanent income tax was also introduced the same year when the Federal Reserve system was established. The whole idea was to transfer wealth from our pockets to the federal government and from the federal government to the bankers.

There is no demonstration that this is true. The point of the Federal Reserve is to regulate finance. It was many decades later those bailouts happened. There is no evidence whatsoever that those bailouts were planned from the beginning. The addition of the permanent income tax is not related to the creation of the Federal Resave. It costs money to run a government; they’re making a conspiracy out of it when there isn’t one.

#8 Within 20 years of the creation of the Federal Reserve, the U.S. economy was plunged into the Great Depression.
Correlation is not causation. The creation of both was in the works as a part of an economic overhaul. The Fed is not related to income tax. This is a very cheap attempt at claiming a conspiracy.

#9If you can believe it, there have been 10 different economic recessions since 1950. The Federal Reserve created the “dotcom bubble”, the Federal Reserve created the “housing bubble” and now it has created the largest bond bubble in the history of the planet.

Yea I can believe it; capitalism goes through cycles of boom and bust. The Federal Reserve did not create the “dotcom bubble” or the “housing bubble”. People and companies borrowing money investing in internet companies that went bust caused the “dotcom bubble”. Banks offering sub-prime mortgages based on the fact there had never been a massive crash of home values since the Great Depression caused the “housing bubble”. The Fed is not responsible for either of these events. Bad investing and the removal of regulation that was intended to combat this caused them. Blaming the Fed for this is absolutely downright stupid.

#10 According to an official government report, the Federal Reserve made 16.1 trillion dollars in secret loans to the big banks during the last financial crisis. The following is a list of loan recipients that was taken directly from page 131 of the report…

Citigroup – $2.513 trillion
Morgan Stanley – $2.041 trillion
Merrill Lynch – $1.949 trillion
Bank of America – $1.344 trillion
Barclays PLC – $868 billion
Bear Sterns – $853 billion
Goldman Sachs – $814 billion
Royal Bank of Scotland – $541 billion
JP Morgan Chase – $391 billion
Deutsche Bank – $354 billion
UBS – $287 billion
Credit Suisse – $262 billion
Lehman Brothers – $183 billion
Bank of Scotland – $181 billion
BNP Paribas – $175 billion
Wells Fargo – $159 billion
Dexia – $159 billion
Wachovia – $142 billion
Dresdner Bank – $135 billion
Societe Generale – $124 billion
“All Other Borrowers” – $2.639 trillion

Yes, the Federal Reserve did this on orders of Congress and other times without the orders of Congress. Again if Infowars would acknowledge that the government has a class character this would make sense to them. The government serves the wealthy elite and is legally bound to protect the economic system. This was the only way to keep capitalism from crashing. This is not something inherent from central banks. It is something inherent in capitalism. Central banks are not alive, nor do they have minds of their own. They are controlled by people. Notice how central banks in socialist countries didn’t do this. (European countries are not socialist, so stop now.)

#11 The Federal Reserve also paid those big banks $659.4 million in fees to help “administer” those secret loans.

Yep, see above.

#12 The Federal Reserve has created approximately 2.75 trillion dollars out of thin air and injected it into the financial system over the past five years. This has allowed the stock market to soar to unprecedented heights, but it has also caused our financial system to become extremely unstable.

The Federal Reserve purchases assets from banks for that money; they don’t know how the Fed works. Of course they invested it that’s the point. The financial system is always unstable, more so now because regulation is not in place. Bankers, investors don’t learn from mistakes. The Fed create money in a capitalist system. Capitalism does what it does with it. This should be a criticism of capitalism not the central bank.

#13 We were told that the purpose of quantitative easing is to help “stimulate the economy”, but today the Federal Reserve is actually paying the big banks not to lend out 1.8 trillion dollars in “excess reserves” that they have parked at the Fed.

Yes, this is actually true. The Federal Reserve does do this. This is because that while the quantitative easing is designed to repair the economy, the bank and government retain a class context which people like Infowars ignores.

#14 Quantitative easing overwhelming benefits those that own stocks and other financial investments. In other words, quantitative easing overwhelmingly favors the very wealthy. Even Barack Obama has admitted that 95 percent of the income gains since he has been president have gone to the top one percent of income earners.

Yes, this most certainly has, but the post phrases it as though this must be the only that could happen because it is a central bank. This does not happen in socialist countries that have one. They are ignoring the class character of the Fed and the country. QE was created with the specific purpose of having the banks loan out that money. Instead the banks have kept the money and invested it. What has happened here is that capitalist banks have acted in a capitalist manner. The site Infowars makes it out to be some kind of conspiracy, it is not. This is the functioning of a system based on money as a source of power. Capitalists hold the power; they make the rules and have a system based on their benefit.

#15 The gap between the top one percent and the rest of the country is now the greatest that it has been since the 1920s.

This statement is true, however the post is claiming is as a fact of the Federal Reserve. There is no explanation as to why this is related to the Fed. Once again correlation is not causation. The concentration of capital is a phenomenon inherent within capitalism itself.

#16 The Federal Reserve has argued vehemently in federal court that it is “not an agency” of the federal government and therefore not subject to the Freedom of Information Act.

The Fed has made this argument, its claim is false. Other central banks in the world do not do this.

#17 The Federal Reserve openly admits that the 12 regional Federal Reserve banks are organized “much like private corporations“.

This is true.

#18 The regional Federal Reserve banks issue shares of stock to the “member banks” that own them.

There is no need for quotation marks; this is how the bank operates.

#19 The Federal Reserve system greatly favors the biggest banks. Back in 1970, the five largest U.S. banks held 17 percent of all U.S. banking industry assets. Today, the five largest U.S. banks hold 52 percent of all U.S. banking industry assets.

This literally has nothing to do with the Federal Reserve. Capital concentrates in ALL capitalist systems and sectors, banks are not immune from this effect. This is a complete non-sequitur.

#20 The Federal Reserve is supposed to “regulate” the big banks, but it has done nothing to stop a 441 trillion dollar interest rate derivatives bubble from inflating which could absolutely devastate our entire financial system.

The Federal Reserve is not supposed to regulate derivatives; the Commodity Futures Trading Commission and Securities and Exchange Commission have limited power to do so via the Dodd-Frank law. The Federal Reserve has no authority over derivatives and isn’t supposed to.

#21 The Federal Reserve was designed to be a perpetual debt machine. The bankers that designed it intended to trap the U.S. government in a perpetual debt spiral from which it could never possibly escape. Since the Federal Reserve was established nearly 100 years ago, the U.S. national debt has gotten more than 5000 times larger.

The source for this claim misrepresents how the Federal Reserve operates by leaving out information which I think the authour just isn’t aware of. He literally says: “That is why I call the Federal Reserve a perpetual debt machine.” This is his opinion, one that is shared by many, but it is an opinion. National debt is the result of deficit spending by political actions. It is not controlled by the Federal Reserve.

#22 The U.S. government will spend more than 400 billion dollars just on interest on the national debt this year.

This is correct, but not related to the Federal Reserve.

#23 If the average rate of interest on U.S. government debt rises to just 6 percent (and it has been much higher than that in the past), we will be paying out more than a trillion dollars a year just in interest on the national debt.

This is correct, but not related to the Federal Reserve.

#24According to Article I, Section 8 of the U.S. Constitution, the U.S. Congress is the one that is supposed to have the authority to “coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures”. So exactly why is the Federal Reserve doing it?

The U.S. Congress doesn’t have to do the job, it can delegate the function as follows:

“…on other occasions has recognized more forthrightly, as Chief Justice Marshall did in 1825, that, although Congress may not delegate powers that “are strictly and exclusively legislative,” it may delegate “powers which [it] may rightfully exercise itself.” … The Court has long recognized that administration of the law requires exercise of discretion, and that “in our increasingly complex society, replete with ever changing and more technical problems, Congress simply cannot do its job absent an ability to delegate power under broad general directives.”

#25 There are plenty of possible alternative financial systems, but at this point all 187 nations that belong to the IMF have a central bank. Are we supposed to believe that this is just some sort of a bizarre coincidence?

The only countries in the word that are not members of the IMF are Cuba, North Korea, Monaco, Andorra and Nauru. Monaco, Andorra have no central bank, while Nauru is a part of the Asian Development Bank. Cuba and North Korea have central banks and they are not a part of the IMF. This post makes it sound like (as well as many libertarians claim) the IMF forces central banks on people. Or that somehow central banks are permanently linked to the IMF. This is not the case with Cuba and North Korea. It’s often claimed by such people that the IMF is a socialist conspiracy to force all countries under one bank. Yet the socialist countries are not members of the so-called one world government bank. Interestingly, the Soviet Union applied to be a member of the IMF, but only on the eve of its planned dismantling and conversion to capitalism.

Some other ridiculous claims were made in the post as well outside the list:

“Unelected, unaccountable central planners from a private central bank run our financial system and manage our economy.”

This sentence is horribly disconnected from reality. The Fed is semi-autonomous; it is not a private bank. The bank does not plan the economy; it has a hand in organizing monetary policy. For example the Fed does not dictate how much steel should be produced per year. This is economic planning, monetary policy is not. While the people of the Fed are not elected, they are accountable. Both Alan Greenspan and Ben Bernanke have been head of the Fed and both have been called before Congress to testify. “As stipulated by the Banking Act of 1935, the President appoints the seven members of the Board of Governors; they must then be confirmed by the Senate and serve for 14 years.”

In addition, it says that “the Fed is at the very heart of our economic problems.” This literally removes any investigation into the economic system that exists and places blame entire on a single entity. Doing this effectively claims capitalism is a perfect system that can’t have any flaws. This cult-like mentality towards the free market demonstrates the shear ignorance of the Infowars crowd. It largely applies to libertarians as well, as their beliefs are the same in this regard.

Original Infowars Post: