The Fed

A Short Explanation of the Fed

If you took last week’s quiz, you know that the Federal Reserve System (aka “The Fed”), in spite of its name, really isn’t a government entity. It’s a centralized banking system, established in 1913, owned and largely run by the member (“National”) banks. However, the Office of the Comptroller of the Currency does oversee what the Fed does.

The Fed is further divided into twelve regional banks, so that no one area can unduly influence the Fed’s operations. The idea behind a central banking system is to “formulate monetary policy,” (according to their website). The Fed sets what portion, or reserve, banks should hold of depositor’s money, depending on the state of the economy. When they raise the reserve, banks can’t make as many loans, effectively tightening credit availability.

The Fed also loans money to banks. When it raises or lowers the interest rate it charges, the banks react accordingly in their dealings with their borrowers; thus, the Fed effectively controls borrowing nationwide.

It’s also in the Fed’s purview is the governance of consumer credit laws and practices.

And what happens if the Fed needs even more money to meet all these needs? Easy, with a few strokes on a computer, it creates all the money it needs. The Fed, by definition, can never go bankrupt. Thus, they also exercise control over the supply of money in this country, which affects inflation or deflation.

Okay, so what could go wrong?

The interests of the banking industry do not dovetail perfectly with those of the nation.
. . . Or those of other private industries.
. . .Or those of consumers.
In large part, the Fed justifies its existence by increasing the supply of money to provide its services, resulting in constant inflation.
By law, the Fed is largely above the law.

Great, but what does this mean to us? Well, the Fed’s been cranking out money like nobody’s business lately. This means that the greenbacks in your pocket are rapidly being devalued. It’s a stealth tax that punishes savers and rewards borrowers. So, what do you do?

Make sure that the interest on your savings will keep ahead of inflation.
Make sure the stocks you own will keep ahead of both inflation and the tax hit you will incur on the “gains” from selling.
Make your home more self-sufficient, so you’ll need to buy less. Yes, this means a garden, solar panels, wind mill, a well, grey water recapture, raising food animals, sturdy bicycles, etc. You’ve certainly heard me harp on this before.
Stockpile food and water. A lot of purchases can be put off, but not the necessities, so plan ahead.
Buy durable goods that can make an income for you that can rise with the money tide. Examples would be commodities like precious metals, or even something useful that you could rent out. Real estate would be obvious here, but it comes with property taxes, so be careful!
Buy durable goods that can be bartered.

I know that the pundits are saying blue skies are coming soon, but I don’t agree. This year, the federal government is borrowing half its budget just to go about the nation’s business. Our national debt is expected to soar in coming years, and the nations that have been lending us the money to allow us to live so well are starting to flag in their enthusiasm to loan us more. It’s time to read the wind and protect your wealth as best as your can because you’re really going to need it when the U.S. is finally forced to tighten its belt.