How the Fed protects banks and the rich, while Congress pretends it’s broke.

The Fed Is A Monetarily Sovereign Agency Of The Government Federal Government
Despite oft-heard claims to the contrary, the Federal Reserve (“Fed”) is not an independent organization.

It is an agency of the U.S. federal government.

It was created by Congress and the President via the Federal Reserve Act of 1913. Subsequently. Congress and the President can, and several times have, amended this act, at will.Uncle Sam puppet master and bank.jpg

The President hires the Chairman of the Federal Reserve Board, and has the power to fire, any member of the Board, “for cause.”

That little, two-word phrase means whatever Congress and the President want it to mean.

The Fed, like the rest of the U.S. government, is Monetarily Sovereign.

It never can run short of dollars, even though it goes through the laughable and meaningless ritual of paying its profits to the U.S. Treasury (which destroys them upon receipt).

Keep this in mind as we examine excerpts from the following article:

Fed suspends share buybacks for banks, caps dividends
By Anneken Tappe, CNN Business, June 25, 2020

New York (CNN Business)The Federal Reserve called the banking system strong but slapped on new restrictions to keep it that way in Thursday’s results of the annual Dodd-Frank stress test.

The central bank will require all large banks to suspend share buybacks in the third quarter and will cap shareholder dividends to make sure the financial institutions remain strong enough to lend to the nation’s struggling businesses.

And on top of all that, every bank will be required to re-evaluate their capital plans, the Fed said.

“Today’s actions by the Board to preserve the high levels of capital in the US banking system are an acknowledgment of both the strength of our largest banks as well as the high degree of uncertainty we face,” said Fed Vice Chairman Randal Quarles in a statement.

He added that banks had been “a source of strength during this crisis.”

The Covid-19 recession has made many businesses reliant on credit lines after the economy shut down in the spring to stop the spread of the virus.

On Wednesday, a group of senators, including Massachusetts Senator Elizabeth Warren, wrote a letter to Fed Chairman Jerome Powell, urging the central bank to require banks to stop paying dividends altogether during the pandemic recession.

Instead of paying shareholders, banks should build up buffers to make sure they can absorb any losses they might face, the senators said.

The Fed also tested how banks would fare in three different recession scenarios: a V-shaped, U-shaped and W-shaped recession and recovery.

Most banks remained well capitalized under the U and W-shaped scenarios, even though several were near the limit, the Fed said.

You wouldn’t know it from the article, but the Fed, Congress, and the President have 100% control over all banks in America.

The U.S. banking system is as strong as the Fed, Congress, and the President want it to be.

  1. They (the Fed, Congress, and the President) write the laws under which all banks operate.
  2. Being Monetarily Sovereign, they have the unlimited ability to supply banks with unlimited money, so that no bank would ever need to become insolvent unless that is what the government wants.
  3. The government can set interest rates
  4. The government can set lending criteria
  5. They can determine what banks are allowed to do and not allowed to do.
  6. They could nationalize all or any banks, by instituting Step #9 of the Ten Steps to Prosperity (Federal ownership of all banks).

In short, the Fed, Congress, and the President have all the tools they need in order to “make sure the financial institutions remain strong enough to lend to the nation’s struggling businesses.” 

So why do we see the circuitous approach of suspending share buybacks in the third quarter and capping shareholder dividends in order to nudge the banks into doing what the government wants them to do?

Why must we hope these nudges work? Why the seeming concern about whether banks are strong enough to lend to businesses?

If you have total control over something, why act concerned about whether that “something” will do what you want?

It all has to do with Monetary Sovereignty denial. The federal government pretends it is not Monetarily Sovereign.

The reason is simultaneously simple and Byzantine, and it follows this path:

1. The U.S. federal government, and indeed almost every other government in human history, is run by the rich. They are the power in most governments.

2. To be rich and powerful requires that distance be created between “the rich” and “the not-rich.” We call this the “income/wealth/power Gap.”

3.If there were no Gap, no one would be rich; we all would be the same. So the wider the Gap, the richer are the rich. That is what the rich want.

4. To widen the Gap requires either that the rich grow richer or the not-rich grow poorer, or both.

5. Thus, the rich can grow richer by denying to the not-rich such government benefits as tax breaks, Medicare for All, Social Security for all — all the benefits that would be provided by the Ten Steps to Prosperity (below).

6. In a democracy, where the massive majority of voters are not-rich, a plausible excuse is needed to deny this voting majority the benefits the rich already have.

7. The plausible excuse (known as “the Big Lie“) is the supposed “unsustainability” of federal spending.

8. To convey this plausible excuse, the rich pay the politicians, the media, and the economists to teach the voters falsely that federal, Monetarily Sovereign finances are like personal finances, in that the federal government must live “within its means.”

This requires that so-called “deficits” and “debt” (which actually benefit the economy) are to be avoided, and that balanced budgets (which destroy the economy) are to be considered prudent.

Further, any form of federal spending is erroneously and pejoratively labeled “socialism, ” and private-sector control is claimed always to be superior to government control (despite numerous examples to the contrary).

9. In an emergency, like a war or an economic recession, the federal government drops its pretense and spends lavishly, only to revert to the Big Lie as soon as it feels it plausibly can resume its pretense.

10. During the “Great Recession” of 2008, the federal government increased its spending, but only enough to prevent a depression, while enriching the rich.

Simultaneously, it decried the actions of the banks that caused the recession, passed some toothless laws to prevent a repeat, punished none of the bankers who grew even richer, and more recently has rescinded the toothless laws.

The government could have and should have taken over the banks, but that would have angered the rich and been termed “socialism,” so that action scarcely was considered.

Now that the COVID-19 virus is causing another recession, and almost surely a depression, the rich are reluctant to have the government pump desperately-needed dollars into the economy, for two reasons:

–They don’t want to reveal the federal government’s unlimited ability to create dollars without creating an inflation.

–The people being punished most are the not-rich, so the Gap will be widened, meaning the rich will grow richer.

Instead, the government muddles and diddles,  and “hopes” the banks will lend money to big businesses, while small businesses fail and the unemployed grow ever-more desperate for low-paying jobs.

It’s all a Byzantine plan with a simple motive: The Gap will grow, and the voters will believe the government is doing everything it can to help them.

Rodger Malcolm Mitchell

Monetary Sovereignty Twitter: @rodgermitchell Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell …………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..


The most important problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics. Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:

Ten Steps To Prosperity:

1. Eliminate FICA

2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone

3. Social Security for all or a reverse income tax

4. Free education (including post-grad) for everyone

5. Salary for attending school

6. Eliminate federal taxes on business

7. Increase the standard income tax deduction, annually. 

8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.

9. Federal ownership of all banks

10.Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.


10 thoughts on “How the Fed protects banks and the rich, while Congress pretends it’s broke.

  1. There you have it: “In a democracy, where the massive majority of voters are not-rich, a plausible excuse is needed to deny this voting majority the benefits the rich already have”

    ……in service of this we have governance by histrionics and make-believe.


  2. You have stated often …If there were no Gap, no one would be rich; we all would be the same. Please define “same” in terms of purchasing power and the general consequences , stability.


    1. By definition, the Gap indicates differences. I often detail it as the “income/wealth/power Gap.” These spread to all sorts of differences, from housing to health to education, to crime victimization, etc. Money is the root of all . . . Gaps.


  3. Congress pretends. Correct. Congress pretends a lot of things. If so, the only way to regain our sovereignty is to propose an amendment that would make the pretending of Congress a thing of the past. That can only be accomplished at the Article V Convention.


    1. Article V: itself another implementation of one Acre one Vote. We need to eliminate tiny states with 2 senators, running on one acre one vote


  4. Bankers from Citi to Goldman to BofA will fight tooth and claws to prevent step #9 from ever happening. Did they not tried before to assassinate Pres. Andrew Jackson when he sought to restrict their power?

    Barack Obama should have let these parasites wither away in 2008 but instead deferred to Goldman alumni Hank Paulson in the mother of all bail out scam. Now in the 2020 corona depression, these bankers are even more emboldened and empowered.

    How then should we proceed with step #9?


    1. @zen: side point: everyone is now a bank (term of art “shadow bank”). Pimco is a shadow bank
      Blackrock is a shadow bank
      Vanguard, fidelity et al. The stock market “power” of conventional banks is presently “wounded” and has been for some time, Because, these shadow banks have EVEN MORE freedom from regulation than the “old” banks. Ford motor company is a “bank”, GE was a “bank”. Tesla sells insurance, Boeing is a bank of different sort (their income statement is completely “actuarial”, not one whit of reality in it: they use program accounting counting only “batches” of production in lots of 4,000 or so planes). That’s leverage.

      It’s called capitalism

      “Old” Banks are now looking to “get into your privacy”, ie. “Fintech”.

      So no use talking about pure “old” banks in the abstract.


      1. You might want to include payday loan sharks on your list as well. Heck, even Walmart and Kohl’s are now issuing credit cards.

        Who’s talking about “old” banks in the abstract?


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s