Uncertainty is creating and driving fear

Few Australians understand the workings of the US financial system nor the manipulation and undermining of the institutions and processes that have lead us down the path to economic ruin. Even fewer have a clear understanding of the extent of the impending doom.

Briefly, these are my perceptions of some of the recent events and a brief outline of an understanding of the key structure, the US Federal Reserve. Some details may be incorrect but overall I think the thrust might be fairly accurate.

Federal Reserve is a semi government body. It has a 12-person Board of Governors, which makes all the significant decisions affecting the economy. It forms monetary policy and is charged with overseeing the effective operation of the US banking system.

Appointments to its Board are made by the US President. He appoints the Chair and vice Chair. One member he appoints must come from one of the 12 Regional Federal Reserves, usually from the New York Regional Federal Reserve.

It is supposedly independent of the government and the banks. It is the government's banker. It is the depository for the private banks reserves. These reserves are a percentage of all deposits into private banks. Its level is set by the Board.

A key component of the Federal Reserve is the Federal Open Market Committee, (FOMAC). This is the real guts and power of the Federal Reserve. It’s where the levers are pulled on interest rates, money supply, discount rates, credit availability, deposit reserve levels and so on.

It is a 12-member committee. Seven members must come from the Board of Governors. One of those is always the Board of Governors member from the New York Regional Federal Reserve.

One other member must also always be appointed from the New York Regional Federal Reserve and the other four are appointed on a rotating basis from the other 11 Regional Federal Reserves.

Regional Federal Reserves are important in maintaining the power and influence of the Federal Reserve. There are 12 of them, the major one being the New York Regional Federal Reserve. As stated earlier The New York Regional Federal Reserve always has, in practice, two permanent seats on the FOMAC and that reflects the importance of its influence.

The Regional Federal Reserves operate under the supervision of the Federal Reserve Board of Governors. Their primary role is to collect and provide information to FOMAC in order assist in forming policy, and especially to influence the setting of interest rates, provision of credit and so on.

Members of Regional Federal Reserves are private banks, credit institutions etc. They appoint the members of the Regional Federal Reserves.

Many believe, including the perennial presidential candidate Ralph Nader, the Federal Reserve has become manipulated by the big banks and is now an abomination. It is often claimed it stole from Congress the power of printing money. This power is expressly given to Congress by the US Constitution. The Federal Reserve has used its power to create credit to distort growth in the economy, especially during and since former Chairman Alan Greenspan’s and President Bill Clinton's time. It is believed to have linked money supply to the value of shares and property ... and in the current crisis the real crunch is coming, when inflation must eventually soar through the roof, simply because of the oversupply of money, and interest rates will rise.