The Federal Reserve: Most Powerful Institution on Earth

What The Federal Reserve Actually Is

The Official Story

• “Federal Reserve System” sounds like government agency
• “Promotes maximum employment, stable prices, moderate long-term interest rates”
• “Serving the public interest since 1913”

The Reality

The Federal Reserve is:

1. Private corporation owned by member banks
2. Not subject to audit by Congress or GAO
3. Not funded by Congress (creates own money)
4. No oversight except by itself
5. Immune from lawsuits (sovereign immunity)

Member banks include: JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs

These banks:

• Own the Fed
• Elect Fed board members (regional banks)
• Receive guaranteed 6% dividend on Fed stock
• Get bailed out by Fed when they fail

The Fed’s Structure

Three Parts

Component	What It Is	Who Controls It
Federal Reserve Board	7 governors, appointed by President	Government-ish (but 14-year terms)
12 Regional Fed Banks	Private corporations in major cities	Member banks (they own stock)
FOMC (Fed Open Market Committee)	Sets interest rates, QE policy	Mix of Board + Regional bank presidents

Key point: Regional Fed banks are private corporations. They have shareholders (member banks) and pay dividends.

Who Really Controls the Fed?

Not the President:

• Can appoint Board governors
• But can’t fire them (14-year terms)
• Can’t override Fed decisions

Not Congress:

• Can’t audit Fed operations
• Can’t control money creation
• Can’t stop QE or interest rate changes

The Banks:

• Own the regional Fed banks
• Elect regional bank presidents
• 5 of 12 regional presidents vote on FOMC (policy decisions)
• Get first access to newly created money

The Fed’s Tools (How They Control Everything)

1. Interest Rates (Fed Funds Rate)

What it is: Interest rate banks charge each other for overnight loans

How it works:

• Fed announces target rate (e.g., 5.25%)
• Fed buys/sells bonds to push rate toward target
• All other rates follow (mortgages, credit cards, auto loans)

Effect on you:

Fed Funds Rate	What Happens	Investment Strategy
0-0.25% (Low)	Free money, asset boom	Buy stocks, real estate, crypto
2-3% (Neutral)	Normal economy	Balanced portfolio
5%+ (High)	Tight money, recession risk	Cash, bonds, defensive stocks

2. Quantitative Easing (QE)

What it is: Fed creates money to buy bonds

How it works:

• Fed types numbers into computer (creates reserves)
• Buys Treasury bonds, mortgage-backed securities from banks
• Banks get cash, can lend more, buy assets
• Money supply increases, asset prices rise

Historical QE:

• 2008-2014: $3.9 trillion
• 2020-2022: $4.8 trillion
• Total: $8.7 trillion created out of thin air

See QE deep dive →

3. Discount Window

What it is: Emergency loans to banks

How it works:

• Bank running out of money? Borrow from Fed
• No questions asked, instant liquidity
• Prevents bank runs and failures

2008 Crisis: Fed lent $4.5 trillion in secret to banks **COVID**: Fed lent$1+ trillion in weeks

Who benefits: Banks (get bailouts), not you (your savings fund the bailouts via inflation)

4. Reserve Requirements

What it is: How much cash banks must hold vs. lend

History:

• Used to be 10% (if you deposit $100, bank could lend$90)
• March 2020: Reduced to 0%

Current reality:

• Banks can lend infinite money
• No reserves required
• Pure fractional reserve banking

Effect: Banks create money through lending, no limits

The Fed’s Track Record

What They Said vs What Happened

Year	Fed Chairman	What They Said	What Happened
2007	Bernanke	”Subprime is contained”	Worst financial crisis since 1929
2008	Bernanke	”We won’t bail out banks”	$4.5T in secret bank bailouts
2010	Bernanke	”QE won’t cause inflation”	Asset prices doubled, then tripled
2020	Powell	”Inflation is transitory”	9% inflation, worst in 40 years
2021	Powell	”We’ll taper soon”	Kept printing for another year

Pattern: Fed always protects banks, not your purchasing power.

Major Fed Failures

1. Great Depression (1929-1933)

• Fed raised rates during crisis
• Money supply contracted 30%
• Banks failed, unemployment 25%

2. 1970s Stagflation

• Fed printed money for Vietnam War
• Inflation hit 15%, unemployment 10%
• Took 10 years to fix

3. Dot-Com Bubble (2000)

• Fed kept rates too low (1998-2000)
• Tech stocks crashed -80%
• Recession, millions lost jobs

4. Housing Bubble (2008)

• Fed kept rates at 1% (2003-2005)
• Housing bubble inflated
• Crash destroyed $8 trillion wealth

5. COVID Inflation (2022)

• Printed $5T in 2 years
• Called inflation “transitory”
• 9% inflation, real wages fell

Who The Fed Actually Serves

The Banks (Primary Beneficiaries)

2008 Financial Crisis:

• Big banks made risky bets, lost trillions
• Fed bailed them out: $4.5T in loans
• Banks paid back loans, kept profits
• Taxpayers got inflation

Result:

• Bank executives kept bonuses
• Shareholders protected
• Homeowners lost houses
• Middle class destroyed

Asset Owners (Secondary Beneficiaries)

QE Era (2008-2022):

• Fed printed $9 trillion
• Stock market tripled
• Real estate up 100%+
• Bitcoin up 100,000%+

Who owns assets?

• Top 1%: 90% of stocks
• Top 10%: Own most real estate
• Bottom 50%: Own almost no assets

Result: Biggest wealth transfer in history from poor to rich

Workers and Savers (Losers)

What happened:

• Wages grew 2-3% per year
• Real inflation 7-10% per year
• Savings lost 5-8% purchasing power annually
• Middle class destroyed

Fed’s response: “Inflation is good for you”

The Fed Put: Why Stocks Always Go Up

“Fed Put” = Implicit promise to bail out markets

How it works:

1. Stock market starts falling
2. Fed panics (asset owners losing money)
3. Fed cuts rates to zero
4. Fed announces QE (prints money)
5. Stock market rallies

Historical examples:

Crisis	Stock Drop	Fed Response	Market Recovery
1998 LTCM	-20%	Rate cuts, bailout	+100% in 2 years
2000 Dot-com	-50%	Rates to 1%, QE hints	+100% in 5 years
2008 Crisis	-57%	Rates to 0%, QE1-3	+300% in 10 years
2020 COVID	-35%	Unlimited QE, 0% rates	+100% in 18 months

Lesson: Don’t bet against the Fed. They will print money to save asset prices.

How To Position Yourself

When Fed Is Dovish (Easy Money)

Characteristics:

• Low interest rates (0-2%)
• Quantitative easing (QE)
• “Inflation is transitory” talk
• Balance sheet growing

Investment strategy:

• ✅ Max long stocks (especially growth/tech)
• ✅ Buy real estate (low mortgage rates)
• ✅ Bitcoin/crypto (inflation hedge)
• ✅ Use leverage (borrowing is cheap)
• ❌ Don’t hold cash (losing value fast)

When Fed Is Hawkish (Tight Money)

Characteristics:

• High interest rates (4%+)
• Quantitative tightening (QT)
• “We’ll do whatever it takes” talk
• Balance sheet shrinking

Investment strategy:

• ❌ Reduce stocks (especially growth)
• ❌ Avoid real estate (high mortgage rates)
• ❌ Careful with crypto (high risk)
• ✅ Build cash position (for buying opportunity)
• ✅ Short-term Treasuries (safe yield)

The Transition (Most Dangerous)

When Fed shifts from easy to tight:

• Market crashes -20% to -50%
• Happens fast (weeks, not months)
• Retail investors panic sell at bottom
• Smart money buys the crash

Example: 2022

• Jan: Fed still dovish (“transitory”)
• Mar: Fed pivots hawkish (rate hikes)
• Jun: Stocks down -25%, crypto down -70%
• Nov: Bottom, smart money buying

What The Fed Won’t Tell You

1. “We created $9 trillion out of thin air”

They say: “Quantitative easing supports the economy”
Reality: We printed money, bought bonds, inflated assets, made rich richer

2. “We caused the biggest wealth inequality ever”

They say: “Our policies support employment”
Reality: Asset owners got $20T richer, workers’ real wages fell

3. “We always bail out banks, never you”

They say: “We maintain financial stability”
Reality: Banks get trillions in bailouts, you get inflation

4. “We’ve never been audited”

They say: “We’re transparent and accountable”
Reality: Congress can’t audit us, no one knows where $9T went

5. “We answer to banks, not citizens”

They say: “We serve the public interest”
Reality: Banks own us, elect us, we protect them

Next Steps

• Learn how QE works in detail →
• Understand interest rate policy →
• See who benefits (Cantillon Effect) →
• Track Fed balance sheet → 
• Protect yourself from Fed’s inflation →

Stay Informed:

• Fed Meeting Calendar 
• FOMC Statements 
• Fed Balance Sheet (Live) 
• Fed Chair Press Conferences 

Recommended Reading:

• “The Creature from Jekyll Island” by G. Edward Griffin
• “End the Fed” by Ron Paul
• “The Lords of Easy Money” by Christopher Leonard
• “Fed Up” by Danielle DiMartino Booth

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Bottom Line: The Fed is the most powerful institution on Earth. It controls your purchasing power more than you do. You can’t change it, but you can protect yourself by owning assets instead of dollars.