Common Misconceptions About The Fed & Gold

July 1, 2008

A common view of the Federal Reserve is that it is some sort of a nearly omnipotent being standing on guard of healthy economic expansion maintaining a delicate balance between growth and inflation in the way of regulating money supply and the cost of borrowing. This view may be correct, but only theoretically so.

In reality, the Federal Reserve is a private, not a public, institution representing the interests of the US banks through its 12 regional branches. Therefore, the nature of the Fed is that it is a banking system insider; the Fed first and foremost defends the banking system and only secondarily represents broad economic interests as mandated by the US Congress. These two objectives are not necessarily always in harmony with each other. For example, the most profitable cycle for the banks started during the 2001 recession as a result of the Fed's super loose monetary policy eventually leading to today's disaster in the housing market