Destroying The Unspoken Fourth Branch of Government
Destroying The Unspoken Fourth Branch of Government

By Daniel Goldman | Politicoid | 5 Dec 2019


People often call the media “the fourth estate” but there is a fourth branch of government hiding right under our noses.


Everyone knows that there are three branches of government: the executive branch, the legislative branch, and the judicial branch. But what if I told you that there was a fourth branch of government? It’s not in the constitution, and it’s probably not even constitutional, but there is a fourth branch of government, and it’s a very powerful branch.

This branch was created on December 23, 1913 and has a constant presence in our lives. What is this fourth branch of government? It’s the Federal Reserve. People have likely heard about the Federal Reserve, as it’s often in the news. The FOMC meetings, the rate hike or cut decisions, all impact various aspects of the economy. But rather than being some private enterprise or an organization under the authority of the executive or legislative branches of government, this system is an almost co-equal branch of the United States government. It leverages a great deal of power. And it needs to be eliminated and replaced with a system that the people truly do control.

Background

The Federal Reserve was established by the The Federal Reserve Act, which was passed by the 63rd congress, and signed into law by Woodrow Wilson on December 23, 1913. The original function of the Federal Reserve was to provide financial stability to the banking industry. The 1907 bank panic is largely responsible for the desire for the system. Many believed that, without a central bank, the banking system as a whole would be too unstable and that we would see more banking crises. But what exactly is the Federal Reserve system?

A Private Banking System?

Some might wish to argue that the Federal Reserve is a private banking institution. But it’s not. While it’s true that its members are private banks, the Federal Reserve’s Board of Governors is selected by the President of the United States. Congress also has the power to veto a nomination. Moreover, the Federal Reserve is accountable to congress, prepares an annual statement for congress, and its board members often testify in front of congress for added transparency. It also pays any profits to the US Treasury. It is only allowed to cover its own costs.

To call such a system a private one, rather than a governmental one, would be absurd. Two systems that function in almost identical ways are the Supreme Court of the United States and the United States Postal Service. If one wishes to call the Federal Reserve a private entity, then they would have to consider both the SCOTUS and the USPS private entities as well.

Executive, Congressional, Judicial, or Other?

The Federal Reserve System is considered to be an independent central bank. It is so, however, only in the sense that its decisions do not have to be ratified by the President or anyone else in the executive branch of the government. — Federal Reserve System: Background, Analyses and Bibliography

As already mentioned, the members of the Board of Governors are appointed by the President of the United States. At the same time, the board members are expected to report to congress. However, the Federal Reserve policy is independent of any of the other three branches. Neither Congress, nor the President, can set the Federal Reserve policy.

The Federal Reserve is not part of the treasury. But it does help fund the treasury. Again, any revenue that is received by the Fed, after expenses are taken out, must go to the US treasury. In pretty much every regard, it is an independent entity, and in pretty much every regard, it is a government entity, and one that exists at the federal level, and leverages a great deal of authority over our economy.

How Powerful is the Federal Reserve?

The Federal Reserve is a very powerful branch of government. It cannot pass any laws. It cannot force any other branch of government to act, or oversee the actions of any other branch of government. But what it can do is so powerful that it should be considered co-equal. The Federal Reserve System is the central bank. It is the bank that other banks use. It sets a good portion of monetary policy, buys and sells large volumes of stock, and sets the federal funds rate, which is the rate that banks charge other banks. It essentially drives the interest rates on all loans, which drives the rate that new “bank money” enters the economy.

While the Federal Reserve does not have absolute control over our monetary system, it leverages significant control over the supply and liquidity of money, the rate of lending, the cost of debt, and other related factors, and so in many ways has control of the very lifeblood of our economy. After all, one who controls the medium of exchange in an economic system controls the economic system as a whole.

Taking Control

Who should be in control of the monetary system? I somewhat like what Thomas Jefferson has to say about the issue of monetary policy and the banking industry.

I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a monied aristocracy that has set the government at defiance. The issuing power (of money) should be taken away from the banks and restored to the people to whom it properly belongs. — Thomas Jefferson, U.S. President.

Does the Federal Reserve accomplish this task? Unfortunately no. First, the system is a system of banks that has a significant amount of authority over the creation and velocity of money in our economy. Second, while it’s true that the President is elected, the amount of control that the people leverage over the Federal Reserve is incredibly limited. First, we have to vote for the President, then the President has to select the members of the Board of Governors, if there is even a position up for selection. Then we have to hope that his selection does what we want them to do.

Ifthe power to create money should belong to the people, then there really is only two options: allow people to create money and treat precious metals as legal tender. The former seems like it would create a chaotic situation, but that’s exactly what certain blockchain and cryptoasset projects are doing. And they’re succeeding. It’s true that the system isn’t perfect, and there’s a degree of risk involved in relying on a system of digital fiat, but it’s not much riskier than relying on government issued fiat, which is only backed by the faith in the government.

Moreover, there are cryptoassets that have more intrinsic value. Even Tron and Ethereum have a degree of intrinsic value, because the smart contracts that operate numerous dapps, manage the various non-fungible tokens in blockchain based games, and so on, require these cryptoassets to run. Finally, so long as a few people still use the blockchain, the chain won’t die. Really it can never really die because someone can just start again or fork the chain. The same doesn’t quite work with government issued fiat.

Precious Metals

Some people don’t like digital money. They consider it a problem for people who don’t have access to the technology. I think digital money can fuel its own infrastructure growth, but I do also like physical currency. I just don’t think government issued fiat is the way to go. If blockchain and cryptoassets are the future of digital money, precious metals are the past and future of physical money. Gold and silver have a number of real world applications that make them valuable. Moreover, both precious metals, and gold even more so, seem to trigger an almost instinctive desire for things that are shiny and yellow.

The core issue with precious metals, including gold, is there simply isn’t enough of it to go around. It’s been a while since the US dollar was backed by any gold, and the monetary supply is simply so large that even if we were mining every ounce of gold we could, we would still fall short. This shortfall is one of the primary counter-arguments to advocates of the gold standard.

The “Precious Metals Pegged Token” is a potential solution to this problem. Numerous pegged cryptoassets have already emerged. Some of these assets rely on physical holding of the asset, but currencies like DAI use virtual means to ensure that the token’s value more or less matches the underlying asset value. A gold pegged, or more general precious metal pegged, token would create a true stable coin and a physical-virtual pair of currencies that work together. It is this system that I see as the true alternative to the central banking systems of the world, and as the future of the global monetary system.


Daniel Goldman
Daniel Goldman

I’m a polymath and a rōnin scholar. That is to say that I enjoy studying many different topics. Find more at http://danielgoldman.us


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