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What is the Federal Reserve?

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The Federal Reserve is part public entity and part private entity that has operated as the central banking system of the United States since the Federal Reserve Act of 1913.

The Federal Reserve System, often referred to simply as the Fed has a unique public-private structure that controls the nation’s monetary policy by managing interest rates and regulating the money supply to achieve goals like maximum employment, stable prices, and moderate long-term interest rates.

The first, the Board of Governors, based in Washington, DC, is a government agency with various accountabilities to the President and Congress.

The six member Board of Governors plays a crucial role in setting national monetary policy by controlling interest rates.

The second component of the Fed is the 12 regional banks located in major cities across the United States. These banks are responsible for supervising and regulating regional member banks, implementing the monetary policy set by the FOMC, and provide financial services to depository institutions and the federal government.

The third component is the Federal Open Market Committee (FOMC) which plays a critical role on monetary policy, primarily interest rates. The committee includes the Board of Governors and the presidents of the regional Federal Reserve Banks.

Who owns the Federal Reserve?

The Board of Governors of the Federal Reserve System is a federal agency. The members, including the Chair, are appointed by the President of the United States and confirmed by the Senate. This aspect of the Fed is fully public and operates under the purview of the federal government.

However, the regional banks are organized much like private corporations. Member banks in each region own stock in their regional Fed Bank. For example, the St Louis Fed is owned by each of the member banks that it is responsible for overseeing. Each bank holds stock in the St. Louis Reserve Bank.

The member banks that hold stock in the St. Louis Fed do receive a fixed 6% dividend annually, but they do not have the same control and financial benefits that shareholders in private corporations possess. They cannot sell or trade their stock, and they do not have voting rights to control the bank’s policies or operations. Owning this stock is more like being a member of an organization rather than owning a company in the traditional sense.

Any profits that may be generated by each of the Fed Reserve Banks, after operational costs and dividends to member banks, are returned to the U.S. Treasury, aligning with the public aspect of the Federal Reserve System.

Origins of the Federal Reserve

Prior to the creation of the Fed, the U.S. had gone through long periods without a central bank. During the late 19th and early 20th centuries the banking system was fragmented and prone to crises, including the notable of Panic of 1907.

In November 1910, a group of wealthy bankers, along with several notable politicians, met in secret on Jekyll Island, off the coast of Georgia. While shrouded in mystery, this secret meeting has been considered pivotal to the creation of the Federal Reserve.

Some of the prominent figures in attendance at this secret conference included:

  1. Senator Nelson W. Aldrich: As the Senate Finance Committee Chairman, he was a key figure in U.S. financial circles.
  2. Henry P. Davison: A senior partner at J.P. Morgan & Company.
  3. Charles D. Norton: President of the First National Bank of New York.
  4. Benjamin Strong: Head of J.P. Morgan’s Bankers Trust Company and later the first Governor of the New York Fed.
  5. Frank A. Vanderlip: President of the National City Bank of New York.
  6. Paul M. Warburg: A partner in Kuhn, Loeb & Company and a member of a prominent banking family.

The purpose of the meeting was to discuss and formulate a plan and a strategy for a central banking system that would be acceptable to both Wall Street and Washington. The attendees were aware of the public’s distrust of centralized financial power and Wall Street, hence the need for secrecy.

The framework for the foundation of the Aldrich Plan was laid at Jekyll Island. This plan called for the establishment of a National Reserve Association with multiple branches, which would serve as a central bank and have significant control over the nation’s banking system.

While the Aldrich Plan was initially met with resistance, especially from those wary of Wall Street’s influence, it laid the groundwork for what would eventually become the Federal Reserve Act. The final form of the Act, passed in 1913, differed in several ways from the Aldrich Plan, particularly in its structure of multiple regional Federal Reserve Banks to decentralize power.

The Federal Reserve Act established the Federal Reserve System as the central bank of the United States, with the dual mandate of maximizing employment and stabilizing prices. The Act sought to balance public and private interests, establish financial stability, and prevent future banking crises.

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The Countries with the Largest Gold Reserves

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Gold is considered a crucial element in diversifying a central bank’s foreign reserves because it bears little correlation with other assets, such as currencies and bonds. In times of market volatility, gold prices often move inversely to paper investments, providing balance to the portfolio.

As we’ve seen with the dollar, paper currency is subject to depreciation and inflation, while gold has maintained its value over the long term.

Top 5 Countries by Central Bank Gold Reserves

While many are monitoring the developments in BRICS, the United States continues to hold the largest stockpile of gold reserves in the world by a considerable margin.

In fact, the U.S. Treasury has almost as many reserves as the next three largest gold-holding countries combined, which are Germany, Italy and France. Russia rounds out the top five.

  1. United States – The US Treasury reports data about its gold holdings on a monthly basis which also includes how much gold is stored across various vault locations. According to the most recent Treasury data, roughly 147,341,858.382 fine troy ounces is in deep storage at the Fort Knox Bullion Depository, 54,067,331.379 troy ounces are held in vaults at West Point, 43,853,707.279 troy ounces in Denver, another 13,376,987.724 held in custody of the Federal Reserve in New York, plus an addition 2,783,218.656 in gold coins that is considered “working stock” that is spread across various locations. This amounts to 261423103.42 troy ounces, roughly 7411220.3158 kilograms. In terms of tonnage, the US holds roughly 7,411.22 tonnes of gold.
  2. Germany – Germany’s central bank, the Bundesbank, is integral to both the European System of Central Banks (ESCB) and the Eurosystem, which sets monetary policy for the Eurozone. Germany holds 3352.65 Tonnes of gold as of the third quarter of 2023.
  3. Italy – Headquartered in Rome, the Banca d’Italia is also part of the European System of Central Banks. The Bank of Italy’s main tasks today include maintaining financial stability, overseeing the banking system, managing the country’s gold and foreign reserves and contribute to the Eurosystem’s monetary policy. Italy holds 2452 tonnes of gold.
  4. France – Banque de France was established in 1800 by Napoleon Bonaparte. Today, it is also part of the ECB, but still maintains supervisory control over the French banking sector, maintaining financial stability, and providing various financial services, including managing the country’s gold and currency reserves. France holds 2437 tonnes of gold.
  5. Russia –  Central Bank of the Russian Federation has a wide variety of responsibilities with regard to managing monetary policy, and managing Russia’s foreign exchange reserves along with the national gold reserves. Russia holds 2333 tonnes of gold.
  6. China – The People’s Bank of China has been around since 1948 and is responsible for formulating and implementing monetary policy, maintaining financial stability, issuing the Renminbi (RMB) and managing the countries foreign currency and gold reserves. China holds 2192 tonnes of gold.

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Central Banks Continue Buying Gold

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China has continued its pursuit of gold buying strategy throughout the year. As more agreements enter into local currency trading, other central banks are adding Yuen to their holdings in exchange for gold, helping the Chinese Central Bank add to their vaults.

Central banks buy and hold gold for several reasons, which continue to evolve between BRICS countries. In general, Central banks hold gold to preserve the value of their fiat currency reserves, which historically loses value due to inflation and other government policies.

China extended its streak of expanding gold reserves to a 10th consecutive month in August while the country’s total foreign exchange reserves declined amid falling prices of global financial assets.

The central bank added about 930,000 troy ounces of gold into its reserves last month, increasing its holdings to 69.62 million ounces (2,165 tons), according to data from the State Administration of Foreign Exchange (SAFE). Since November, China has added a total of 5.95 million ounces of the precious metal to its hoard.

Gold is often seen as a safe-haven asset during times of economic or financial crisis. Central banks may buy gold to add to their holdings during such periods to provide stability to their financial systems and fiat currencies.

Gold is a universally recognized and accepted form of payment.

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What is Fiat Money?

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dedollarization and the introduction of a BRICS basket currency

Fiat currency, also known as fiat money, is a type of currency that is declared by a government to be legal tender and is accepted as a medium of exchange within a specific country or region.

Unlike commodity money, which has intrinsic value because it is backed by gold or silver coin, fiat currency has no inherent value and is not backed by a physical commodity.

Instead, its value is established and maintained by government decree and the trust and confidence of the people who use it.

Modern currencies, including the US Dollar, European Euro and the British Pound, are all examples of fiat currencies.

The United States began transitioning away from the gold-standard during the first half of the 20th century. During the Great Depression, the government took the extreme step of confiscating all of the gold coins that were circulating throughout the economy and made it illegal for private citizens to own gold.

Many of the gold coins were melted into large format gold bars and were moved to the Gold Depository at Fort Knox, where they remain sealed away to this day.

In the case of the dollar, its value is established and maintained through the authority and credibility of the Federal Reserve. It’s essentially a social agreement that people will accept the currency in exchange for goods and services.

Commodity Backed Money

Fiat currency has no inherent value as it is not backed by a physical commodity. Commodity backed money, which is backed by gold, silver or other commodities, has value due to its intrinsic properties.

The Treasury and Federal Reserve have the authority to control the supply of dollars. They can print more money or remove it from circulation, which can influence factors like inflation and deflation.

The regulators at the Fed and Treasury Department have a few monetary policy tools at their disposal to manage the economy. This includes adjusting interest rates, implementing quantitative easing, and regulating the money supply to influence economic conditions.

One of the major concerns with fiat money is the potential for inflation. Since fiat money is not backed by gold or silver, governments and central banks have the authority to print money at will. If the money supply increases faster than the growth of goods and services in the economy, it will lead to inflation, eroding the purchasing power of money and causing prices to rise.

Unlike commodity money like gold or silver, which have intrinsic value, fiat money has no inherent value. Its value is solely based on the trust and confidence that people have in the issuing government. If that trust wanes, the value of fiat currency can be at risk and individuals and everyday workers will continue to see the purchasing power of the dollar diminish over the years. It can impact the ability to save for the future and plan for retirement.

While physical coins and banknotes are common forms of fiat currency, many of today’s transactions are conducted digitally using electronic forms of money, such as online banking, credit cards, and digital wallets.

Fiat Money CBDC

The Federal Reserve and other central banks are pushing for the adoption of a Central Bank Digital Currency (CBDC), which will allow the government to control how you spend your money, and what you will be allowed to purchase.

While this can be used to manage the economy, it also means that economic decisions are concentrated in the hands of a few, which will lead to potential abuse or mismanagement.

CBDC transactions can be easily tracked and monitored by the central bank and government authorities, raising significant concerns about individuals’ financial privacy and the potential for government surveillance.

The digital nature of CBDCs also makes them vulnerable to cyberattacks and hacking attempts. A successful breach could lead to the theft of funds or disruption of the financial system.

The introduction of CBDCs will continue to disrupt traditional banking and payment systems, affecting financial institutions and fintech companies.

CBDC allows central banks to have more direct control over monetary policy and money supply. Fiat currency is influenced by central bank policy but also impacted by commercial banks and economic factors.

The introduction of CBDC requires additional technological infrastructure and regulatory frameworks for digital payments and security. Earlier this year, the Federal Reserve introduced the FedNow payment gateway system, requiring commercial banks to adopt this new payment system is part of the long-term launch plan.

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Florida and Indiana Ban Use of CBDC

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Both Florida and Indiana have recently passed laws banning the use of a central bank digital currency (CBDC) as money in those states.

These laws explicitly exclude a CBDC from the definition of money in Florida and Indiana, effectively banning its use as such in these states.

The Florida law defines central bank digital currency as a “digital medium of exchange, or digital monetary unit of account issued by the United States Federal Reserve System, a federal agency, a foreign government, a foreign central bank, or a foreign reserve system that is made directly available to a consumer by such entities” and that is “processed or validated directly by such entities.”

In the law, central bank digital currency is specifically excluded from the definition of money under the Florida Uniform Commercial Code (UCC) which regulates commerce in the state.

The provisions in the new Indiana law are similar, but the bill took a very different path to enactment.

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Texas Committee Passes Bill To Create 100% Gold And Silver-Backed Transactional Currencies

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Legislators in Texas are leading the charge against the Federal Reserve’s monopoly on fiat money by offering an option for people to conduct business in sound money. The principal idea reverses Gresham’s Law, where good money drives bad money out of circulation and the people can choose to decline to accept less valuable fiat money from the Fed.

The bill has the bipartisan support of 42 sponsors to create a viable gold-backed alternative to a central bank digital currency (CBDC) already in development by the Federal Reserve. 

If the bill becomes law, it would require the state comptroller to establish and provide for :

  • The issuance of gold and silver specie – A specie is a physical coin or token, typically made from a precious metal that is suitable for or customarily used as currency.
  • Require the comptroller to authorize the Texas Bullion Depository as issuer of the specie as legal tender in payment of debt and readily transfer the specie to another person
  • A mechanism to use 100% backed gold and silver digital currencies in everyday transactions
    • Use the digital currency as legal tender in payment of debt.
    • By electronic means readily transfer or assign the digital currency to another person.

Physical gold and silver backing the digital currency would be stored in a pooled account at the Texas State Bullion Depository.

Federal lawmakers from Texas are also leading the charge against the Federal Reserve issuing a consumer CBDC. In March, Senator Ted Cruz introduced legislation specifically aimed at preventing the Fed from establishing a central bank digital currency.

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Federal Reserve and the Current Board of Governors

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The Federal Reserve system is comprised of 12 Reserve Banks that were established following the outbreak of World War I in 1914.

Each of the twelve national reserve bank regions were chosen following a Congress sponsored selection committee called the Reserve Bank Organizational Committee.

After the districts were defined, each of the Federal Reserve Bank’s self organized amongst the regional banks, with local banks all contributing to the initial reserves from customer deposits.

The Board of Governors, appointed by the President of the United States is responsible for supervision of reserve banks and regulating certain financial institutions and activities.

The first President of the New York Fed was Benjamin Strong Jr. who had been persuaded by JP Morgan to take the job.

The Federal Reserve Bank of New York is also the exclusive fiscal agent of the US Treasury and is responsible for managing government debt by raising money through auctions of marketable Treasury securities (bonds) and through authorized government buybacks. It is also the holder of the General Account for the Treasury, where the Federal Government receives all direct revenue and pays nearly all federal expenses.

It also handles exchange rate management, swapping dollars with foreign currencies under the Treasury’s direction.

The Bank of New York owns and operates a bullion depository vault that is built on bedrock some eighty feet below the streets of Manhattan. As of 2019, the bullion depository held roughly 5,100 metric tons of gold, the large majority being held as the custodian of the reserves of thirty-six central banks.

Current Board of Governors

  • Jerome H. Powell, Chair – Powell was nominated by Donald Trump to serve as the chair of the Federal Reserve, replacing current Treasury Secretary Janet Yellen at the helm of the central bank.
  • Michael S. Barr, Vice Chair for Supervision – Barr was nominated by Joe Biden and confirmed by the Senate in 2022.
  • Michelle W. Bowman – In 2018, Bowman was nominated by Trump and approved by the Senate to serve a 14-year term on the Board of Governors, occupying the seat that represents community banks.
  • Lisa D. Cook – Cook is a Biden nominee that began serving on the Board in May 2022.
  • Philip N. Jefferson – Jefferson is a Biden nominee that began serving on the Board in May 2022.
  • Christopher J. Waller – Waller was nominated by Trump and received the approval of Congress in 2019.
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Demand for Silver Eagles Spikes, Along with Premiums

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It’s become pretty indisputable that the economy is in the worst state that many Americans can remember since the 2008 financial crisis and the deep recession that followed.

As a result, investors are clamoring for gold and silver bullion like never before. Demand for government issued coins, like the American Silver Eagle and the Canadian Silver Maple Leaf have skyrocketed in recent weeks since the start of the banking crisis.

However, the US Mint continues to be slow and unable to meet demands, which has caused significant increases in recent weeks to a recent high of around 60% over spot price. Some dealers, such as APMEX and JM Bullion are currently showing premiums for silver eagles at over 88% above spot price.

The US Mint outsources the manufacturing of planchets, which are coin blanks that are pressed by the mint to produce the coins. Working only with a handful of select manufacturers that meet the requirements.

Disruptions to both global and domestic supply chains effecting precious metals continue to impact investors and industry.

The raw materials used to mint Silver Eagles must be sourced from domestic silver mines, as prescribed by law.

The Mint has been unable to meet demand since 2021 when more than 28 million coins were sold. While investor demand remained strong in 2022, the Mint was only able to produce around 16 million coins.

So far in 2023, the Mint has reported sales over more than 6 million coins. However, numerous reports state the mint shifted production in late 2022 to start producing coins for the current year, which is the main reason the Mint was able to report 3,949,000 coins sold in January.

Sales reports show only 900,000 coins being sold in each month of February and March which is far below the Mint’s production capacity.

In 2015, the Mint sold 47,000,000 Silver Eagle bullion coins, the highest on record.

Year 1 oz ASE bullion coins
201914,863,500 coins
202030,089,500 coins
202128,275,000 coins
202215,963,500 coins
2023
(4 months)		6,199,000 coins
Recent Years Sales and Mintage Totals of 1 oz Silver American Eagle coins

It’s pretty indisputable that the economy is in the worst condition many Americans have seen since the 2008 financial crisis and the deep recession that followed.

This time around, the economy has been wrecked by a record combination of prevailing events.

It began before COVID was even a thing in September 17, 2019.

Repurchase agreements, often referred to as “repos” are short term loans between banks and financial institutions. That morning, interest rates on overnight repurchase agreements more than doubled. By the end of the trading day the rates had increased by 500%.

The Fed responded to the crisis by injecting $75 billion PER DAY in new liquidity into the repo market for a week to prevent a collapse.

Once the rates began to stabilize, the Fed continued their daily injections of fresh liquidity into the repo market until October 10.

During that three week time period, some estimates put the total amount of liquidity injected by the Fed at over $500 billion.

A few months later, the Biden administration put the entire country into lockdown, effectively shutting down every sector of the economy, aside from companies like Amazon, Walmart and other select corporations deemed “critical”.

Rising inflation began to take hold as the Fed continued to print more money to fund the pandemic with stimulus checks and other government handouts.

To combat the inflation crisis, the Fed responded with multiple steep increases in key interest rates that come faster than has happened decades.

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Saudi Arabia Taking Active Steps to End Petrodollar Dominance

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Saudi Arabia is showing the world that it is taking active steps to end the dollar’s hegemony across the global economy through a multitude of political and diplomatic moves and financial investments.

Saudi Aramco, officially the Saudi Arabian Oil Group or simply referred to as Aramco, has announced the investment of more than $10 billion dollars to finance the construction of a new refinery and petrochemical complex. The construction is expected to take three years and when finished it will have the capacity to produce 300,000 barrels of oil per day.

The world’s largest oil exporting country has also opened dialog about joining the Shanghai Cooperation Organization (SCO), a regional trade and security organization dominated by Russia and China.

In recent months, many more countries have expressed interest in joining the BRICS trade organization, which largely represents the global south in an effort to provide open trade and financial empowerment to developing nations.

CNBC reports that much of the rush to dump the dollar is largely seen as repercussions of the weaponization of the dollar to suit the foreign policy whims of the Biden administration, citing the financial sanctions imposed by the G7 following the Russian invasion of Ukraine and the decades of financial hardship placed on the people of Venezuela.

Central Banks continue to diversifying assets and dumping Treasury bonds and other dollar based assets in favor of commodities and growing currencies like the yuan. Globally, goods and services sold in dollars are going to get more expensive as the yuan and BRICS agreement picks up steam.

As the impact of the ongoing banking crisis begins to be felt at home, many Americans are shifting their priorities to protect their financial assets. This means we will continue to see a rapid shift of excess dollars into hard assets like gold, silver, land, ammunition and firearms and food in the coming months as more people prepare for further economic hardship.

COMEX silver and gold inventories are dropping as insiders ramp up the draining of physical precious metals from the vaults.

Some market analysts are predicting inflationary conditions to get worse as devaluing of fiat dollars accelerates following the Saudi decision to begin selling oil in other currencies. This is likely to lead to a ripple effect that will cascade to many other countries that rely on the dollar for settlement of global trade.

Last October, CEO of JP Morgan Chase Jamie Dimon, the nation’s largest bank, warned investors that the country is heading into a recession this year that will be far worse than any in recent memory.

In December, he reiterated his warning, adding that the main risks to the economy may come from abroad, citing threats to the fracturing supply chain, high inflation, rising prices of commodities and the ongoing proxy war with Russia.

Last year, numerous executives and precious metals traders were convicted from JP Morgan Chase, Deutsche Bank and other large institutions in a long-term, ongoing price manipulation scheme that was intended to trick the markets and investors into wrongly believing that price movements in the metals markets were organic.

JP Morgan Chase, often cited as to be too big to fail, is reportedly holding massive gold derivative short positions that are potentially greater than the bank’s total assets. If the price of gold continues to rise, JPM may be forced into a situation in which they will need additional leverage to cover the shorts.

Price manipulation, corruption and unfair representation in the LBMA and other G7 controlled commodities market were just some of the many grievances voiced by Russia last year during the announcement of the Moscow World Standard.

Casual investors are beginning to see that one of the best ways to protect their long-term financial assets from the Federal Reserve imposing a consumer CBDC is to diversify their cash holdings and other liquid assets into silver and gold bullion.

Mainstream media has been reporting on the rapid dollarization occurring with varying attempts to denounce genuine fears as a conspiracy theory.

The Chinese Renminbi or yuan is the currency that would benefit most from removing the dollar as the reserve currency.

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Texas Bill Proposes Gold-Backed Digital Currency

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Elected officials from both the Texas Senate and House have proposed complementary bills to create a state issued digital currency option that would be backed with gold.

The State of Texas would hold gold in a trust require the state comptroller establish a digital currency that is fully backed by gold bullion for everyday transactions. The state issued digital currency would be fully redeemable for either fiat cash or gold.

The proposed digital fiat would be a legal alternative to Federal Reserve notes or any CBDC and shows strong leadership amongst the states in developing sound money principals.

There is growing interest across a variety of states to return to a gold standard.

The Goldback currency is a good example of a grass-roots level gold-backed specie. that is accepted for goods and services in Wyoming, Utah, New Hampshire and Nevada. Each foil note contains a fractional amount of gold based on the face value shown.

Goldbacks notes are available in a variety of denominations that are smaller than those typically found in fractional gold coins.

The Texas Bullion Depository

After the end of the Great Recession in 2012, elected officials sought to reassure Texans of the financial soundness of the state. The result is a state-of-the-art secure bullion depository that has been in operation just outside of Austin in Leander, TX.

The Texas Bullion Depository opened on June 1, 2018.

End the Fed

There has been a growing movement afoot amongst states to return to the notion of sound money as it’s described in the constitution.

Last year, the Fed announced a twelve week long trial of an interbank CBDC program amongst a variety of private banks and government agencies.

Last week, under the guise of the current banking crisis, policymakers at the Fed launched the FedNow service and will be requiring banks begin using it later this year.

There are many controversies surrounding the adoption of CBDC by the Federal Reserve. The long term goal of central bank digital currencies is to eventually remove all cash, coinage and paper money from the economy.

Removing cash from the economy and replacing it with a digital software token allows a central authority to control how you spend your money.

The Federal Reserve is the Central Bank of the United States. Many believe that the bank is owned by the US government. However, the Federal Reserve is a private bank that pays itself the profit of the interest payments on government debt.

In 1910, a group of elite bankers and politicians met in secret at a resort on a private island off the coast of Georgia and came up with the Aldrich plan which evolved into the Federal Reserve Act of 1913.

Today, the Federal Reserve system is a series of twelve regional central banks that are overseen by a board of governors.

Each Reserve Bank is organized like a corporation. The member banks in each region own the capital stock of each regional reserve bank.

In simplest terms, the regional reserve banks are private companies that are given authority by the government to operate banking and economic activity on its behalf.

The reserve banks are instruments of the government and are neither wholly nor partially owned by the government. Employees are not civil service employees and the Fed continues to operate when the government shuts down.

There are currently several bills circulating in both the House and the Senate to block the Fed Reserve from issuing a central bank digital currency in the United States.