FEDERAL RESERVE: BEYOND MONETARY POLICY

Federal Reserve:Beyond Monetary Policy

10 Sessions

Two holidays:

Fall Retreat –

10/26 thru 10/29

Thanksgiving Break –

11/23 thru 11/27

Last class: 12/7

Federal Reserve:Beyond Monetary Policy

CLASS FLOW

To be mindful of your expenditure…I start on time

Administrative items from Duke at Olli via Larry Mason

Brief review and/or pick up of the previous session

Session via PowerPoint – Webley and/or Facebook

Breaks…individual need

Handouts…as often as possible to enrich session

DUAL ORIENTATION

Handout Questions

FEDERAL RESERVE: BEYOND MONETARY POLICY

United States currency is comprised of:

25% Linen

75% Cotton

Life Span of Currency

$1 22 months

$5 16 months

$10 18 months

$20 24 months

$50 55 months

$100 89 months

Federal’s role regarding currency:

In 2012, the Reserve Banks distributed approximately $747.2 billion in currency and $6.3 billion in coin to depository institutions.

Notes that are too worn for recirculation (unfit notes) and those that are suspected of being counterfeit are culled out.

Notes are held in Reserve Bank vaults until they are needed to meet demand.

What sport is associated with the Federal Reserve?

Wm. McChesney Martin

Contributions to Tennis:

President of the National Tennis Foundation

Chairman of the International Tennis Hall of Fame

Chairman of the Federal Reserve Board 1951-70

How many central banks has the United States had in the course of its history?

• First Bank of the United States (1791-1811)

• Second Bank of the United States (1816-1836)

• Federal Reserve System (1913)

The Federal Reserve System receives appropriations from Congress and/or are Reserve Banks supported by tax dollars?

Yes and No.

Reserve Banks are not directly supported by tax dollars. They are mainly financed by interest earned on the Fed’s portfolio of income-producing government securities and interest earned on loans to depository institutions.

However, Reserve Banks are required to transfer excess earnings to the U.S. Treasury. Reserve Banks are indirectly supported by tax dollars because earnings returned to the U.S. Treasury reduce the portion of government spending that taxpayers finance.

Release Date: January 9, 2015

For release at 11:00 a.m. EST

The Federal Reserve Board announced preliminary unaudited results indicating that the Reserve Banks provided for payments of approximately $98.7 billion of their estimated 2014 net income to the U.S. Treasury.

Under the Board's policy, the residual earnings of each Federal Reserve Bank are distributed to the U.S. Treasury, after providing for the costs of operations, payment of dividends, and the amount necessary to equate surplus with capital paid-in.

The Federal Reserve, like many other central banks, is an independent government agency but also one ultimately accountable to the public and Congress.

The Congress structured the Federal Reserve to ensure that its monetary policy decisions focus on achieving long-run goals and do not become subject to political pressures that could lead to undesirable outcomes.

So, members of the Board of Governors are appointed for staggered 14-year terms and the Chairman of the Board is appointed for a four-year term. Elected officials and members of the Administration are not allowed to serve on the Board. 

The Federal Reserve does not receive funding through the congressional budgetary process. The Fed's income comes primarily from the interest on government securities that it has acquired through open market operations.

The Federal

Reserve is

Independent

within

government.

FedAccountability

• The Federal Reserve is accountable to the public and the U.S. Congress.

• The Fed has long viewed transparency as a fundamental principle of central banking that supports accountability. In the area of monetary policy, the Federal Reserve reports twice annually on its plans for monetary policy. In addition, the Chairman and other Federal Reserve officials often testify before the Congress.

• To foster transparency and accountability in monetary policy, the Federal Open Market Committee publishes a statement immediately following every FOMC meeting that describes the Committee's views regarding the economic outlook, and provides a rationale for its policy decision. Full minutes for each meeting are published three weeks after each FOMC meeting.

Longest Period of Economic Expansion: 1990s

Two months after Alan Greenspan took office as the Fed chairman, the stock market crashed on October 19, 1987. In response, he ordered the Fed to issue a one-sentence statement before the start of trading on October 20:

“The Federal Reserve, consistent with its responsibilities as the nation’s central bank, affirmed today its readiness to serve as a source of liquidity to support the economic and financial system.”

The 10-year economic expansion of the 1990s came to a close in March 2001 and was followed by a short, shallow recession ending in November 2001. In response to the bursting of the 1990s stock market bubble in the early years of the decade, the Fed lowered interest rates rapidly.

The Federal Reserve prints money.

The Fed does not actually print money.

Economists sometimes say “the Fed created money” rather than saying “the Fed increased the supply of reserves.”

Source: “Federal Reserve Today”…former Richmond Reserve Bank President, Robert Black

How was the late publisher of the Washington Post, Katharine Graham, connected to the Federal Reserve?

Katharine GrahamEugene Meyer

Chairman, 1930 - 1933

Fed’s Insulation from Politics:

President Harry Truman

refused to reappoint

both Chairmen Eccles and McCabe.

McCabe resigned while Eccles was not re-appointed he reserved the option to “step down” from the chairmanship but remain as a member of the Board.

Wm. McChesney Martin, Jr. worked at the Treasury before being appointed Fed chair.

He confronted, graciously and successfully, LBJ who wanted him to alter Fed policy to assist with the Vietnam war.

Presidents who lost the confrontation

Both Presidents Carter and Bush

“lost” the battle against PAV.

Carter = trucks blocked WDC due to double-digit inflation.

For Bush #41, it was “the economy stupid…”

Between the actor and the economist…eventually, the actor won out when Paul Volcker resigned in 1987 making way for the more politically acceptable Alan Greenspan

What is the official title of the central bank of the United States?

The Board of Governors of the

Federal Reserve System.

Also referred to as:The Fed

The Board

The Federal Reserve

The Federal Reserve System

The Federal Reserve Board of Governors

Does the Federal Reserve have offices outside (beyond) its headquarters in Washington, DC? If so, how many?

Reserve BankDesignations

Number

Letter

Name of Reserve Bank

Branch offices (25)

Von Brunn, white supremacist Holocaust museum shooter, dies (headline)

• Von Brunn was known for decades as a loner and white supremacist who spun elaborate conspiracy theories about Jews and black people in leaflets, in books and on his Web site.

• In December 1981, he walked into the Federal Reserve with a handgun and threatened to take the members of the Board of Governors hostage. He had hoped his actions would lead to the deportation of all Jews and black people from "the white nations" of the world.

• He was convicted and served a little more than six years in federal prison.

By Del Quentin Wilber, Washington Post Staff Writer 

• The elderly white supremacist charged with killing a security guard at the U.S. Holocaust Memorial Museum in June died Wednesday afternoon at a North Carolina hospital, authorities said.

Staff writer Michael E. Ruane and researcher Madonna Lebling contributed to this report.

Thursday, January 7, 2010

What is the tragic link between the Federal Reserve and the Holocaust Museum?

Who was the first African American to serve on the FederalReserve Board?

Andrew Brimmer, First Black Member on Fed Board, Dies at 86By STEPHANIE STROM OCT. 12, 2012 NY Times

• Andrew F. Brimmer, a Louisiana sharecropper’s son who was the first black member of the Federal Reserve Board and who led efforts to reverse the country’s balance-of-payments deficit, died on Sunday in Washington. He was 86.

• Dr. Brimmer was the assistant secretary of commerce for economic affairs when President Lyndon B. Johnson named him to the Fed board in 1966.

• At the time, the Federal Reserve was bitterly divided over monetary policy. The chairman, William McChesney Martin Jr., threatened to resign if Mr. Johnson appointed a liberal who would vote in favor of lower interest rates.

Andrew F. Brimmer served as a Member of the Board from March 9, 1966 resigning on August 31, 1974

At Dr. Brimmer’s swearing-in ceremony, the president said he did not expect Dr. Brimmer to be “an easy money man or a tight money man.” Rather, Mr. Johnson said, “I expect him to be a right money man.”

Early in his tenure, Dr. Brimmer followed the lead of Mr. Martin and other “tight money” board members by supporting a gradual increase in interest rates to fight inflation.

Nancy H. Teeters served as a Member of the Boardfrom September 18, 1978 through June 27, 1984

In 1978, Nancy Teeters became the first woman to serve on the Fed's influential board of governors, having been nominated by President Jimmy Carter. At the time, Sen. William Proxmire, the Wisconsin Democrat who headed the Senate Banking Committee, said it was a "disgrace" that the appointment took so long.

William Greider recounted this interview with Teeters in his 1987 book, "Secrets of the Temple: How the Federal Reserve Runs the Country":

 

"I gave the [Federal Open Market Committee] a lecture," Teeters told me. "I told them, 'You are pulling the financial fabric of this country so tight that it's going to rip. You should understand that once you tear a piece of fabric, it's very difficult, almost impossible, to put it back together again.'" The metaphor, she pointed out to me, was one only a woman might use. "None of these guys has ever sewn anything in his life," Teeters said.

The chair of the Federal Reserve makes monetary policy decisions.

FALSE.

There are 12 voting members of the FOMC: the seven members of Board of Governors and the presidents of five of the 12 Federal Reserve Banks.

The president of the Federal Reserve Bank of New York is a permanent voting member of the Committee.

The presidents of the other Reserve Banks serve one-year terms as voting members in a rotation that is set by law (The Banking Act of 1933).

2015 Committee Members*

• Janet L. Yellen, Board of Governors, Chair• William C. Dudley, New York, Vice Chairman• Lael Brainard, Board of Governors• Charles L. Evans, Chicago• Stanley Fischer, Board of Governors• Jeffrey M. Lacker, Richmond• Dennis P. Lockhart, Atlanta• Jerome H. Powell, Board of Governors• Daniel K. Tarullo, Board of Governors• John C. Williams, San Francisco

*The Federal Reserve Board has not had a full complement of members since the Bush (#43) administration. Currently, there are only 5/ 7 members of the Board of Governors.

“Arcadia”was code for…

The First Washington Conference. Held in Washington, from December 22, 1941 to January 14, 1942.

The Conference established the Combined Chiefs of Staff, headquartered in Washington, which approved and finalized all military decisions.

Session References

The Federal Reserve Today,FRB-Richmond

https://www.federalreserveeducation.org/centennial

Marshall Foundation Library

Chairman of the FedBy Robert P. Bremner

A History of the Federal Reserve, Volume 1: 1913 – 1951By Allan H. Meltzer