Do We Still Need The Federal Reserve?

David Reavill
13 min readNov 27, 2023
President Woodrow Wilson signed the legislation. This is how it was done in the early 20th Century. Note there is no telephone or other communication device on his desk.

December 23rd, 2023, will mark the 110th anniversary of the Federal Reserve Board. Created before credit cards, before electronic funds transfer (EFT), before instant communications and the internet, and indeed before computers, the question arises: do we still need this anachronistic Central Bank?

Other financial institutions have exhibited remarkable change as they’ve adapted to new technologies and methods of operation. But today, the Fed continues to operate as it has for over a century, attempting to predict future economic trends by setting interest rates, promoting full employment (the dual mandate), and supervising the nation’s significant banks.

Most remarkable is how incredibly costly the Fed is, raking in the interest income from a 7 Trillion Dollar portfolio of US Government Securities. Today, we examine the history of the Fed and ask whether its benefits outweigh its tremendous costs.


Perhaps you’re like me. I have two cards in my wallet: debit and credit cards. I use the debit card when I’m being conservative. After all, when I use a debit card, I’m limited to the amount I have in my checking account. Debit cards are stodgy and old-fashioned; they force me to stay on my budget and not overspend.

Visa and MasterCard

The credit card, however, is just the opposite; when I see something I like, I can buy it. It doesn’t matter how much cash on hand I have. There is usually a credit card limit, but it’s far and away beyond how much I have at the bank.

It’s a heady feeling to have a credit card, especially when it’s a gold, platinum, or, heaven forbid, diamond card, as any business traveler will tell you there is more than a bit of satisfaction when you pull out one of those elite cards. People commented when an exceptionally high echelon card came out of the wallet. More often than not, those are corporate cards designed to aid in travel and entertainment.

But as we quickly learn, the bill for credit cards comes due at the end of every month. And unlike debit cards, there’s an interest charge for all that money you’re borrowing. We’re seeing credit card charges return to levels last seen in the 1980s. Current credit card interest is somewhere between 18% and 28%. That interest charge adds up very quickly.

However, the decision to use a credit or debit card was mine. I decided whether I wanted to put a purchase on credit or buy with cash. Of course, any financial advisor or planner worth their salt will tell you to “buy on cash.” Use credit sparingly; it’s way too expensive. I read once that the average item purchased on credit costs twice as much, after interest, as a cash purchase. Buying on a cash basis is always, without exception, the prudent move financially.

Unfortunately, 110 years ago, six men, meeting in total isolation, decided that we would run on credit from that point forward. A cash-based economy was not even considered.

Jekyll Island, Georgia

They met on Jekyll Island, one of the barrier islands off the coast of Georgia. For visitors and guests, Jekyll Island is one of the few connected to the mainline via a causeway. Thus, the six could drive to their destination.

Nelson A. Aldrich

These were no ordinary citizens; included in the group was Nelson A. Aldrich, considered at the time one of the four most powerful US Senators, who were the real power behind the throne in American politics of the era. Coincidentally, his connections did not stop in Washington; his daughter was also the wife of John D. Rockefeller.

Frank A. Vanderlip

It was a group dominated by commercial bankers; the first on our list was Frank A. Vanderlip, President of National City Bank of New York, now known as Citibank.

Abram Piatt Andrew Jr.

From the academic community came Abram Piatt Andrew Jr., a former Harvard Economics Professor; Andrew had spent three years earlier on the National Monetary Commission, whose task was to reform the banking industry.

Paul Warburg

Next came Paul Warburg, the only group member from Wall Street. Warburg was an investment banker, someone who dealt with stocks and bonds. Remember, the separation of Investment Banking and Commercial Banking did not occur until the passage of the Glass-Steagall Act in 1933–20 years after the Federal Reserve was created. Warburg’s family was originally from Germany and had several prominent banking members. So, Warburg brought a particular European perspective on the creation of the Federal Reserve.

Henry Pomeroy Davidson.

Next on our list was Henry Pomeroy Davidson. Sr. Davidson had a distinguished career in the banking industry, having been President of Liberty National Bank, a founding member of Bankers Trust, and a senior partner of J.P. Morgan & Company.

Benjamin Strong Jr.

The other Bankers Trust alums to join the group was Benjamin Strong Jr. Strong was a Vice President at BT during the 1907 Financial Panic. He held a critical position in coordinating with J.P Morgan the protection of member bank’s reserves (the primary business of BT), and providing liquidity to member banks. Strong was the “nuts and bolts” operations man in the group.

Never let a good crisis go to waste.

It’s easy now to see how the idea for the Federal Reserve grew out of the Panic of 1907, also known as the 1907 Bankers’ Panic. Beginning in September of 1906, America’s financial system began to go off the rails. The country fell into an economic recession; New York City tried to sell bonds but couldn’t find enough investors. The Stock Market crashed, eventually losing half its value. And several banks failed, with depositors left empty-handed. To the American public, this was a failure of the banks themselves. Americans blamed bankers for the troubles they were in. The public has never really understood the risks of a fractional reserve banking system.

On the other hand, the American political elite saw this as an opportunity to bring much-needed “reform” to the American system. Within two years of the crisis, Senator Aldrich was busy preparing his answer: create an American Central Bank. A bank that could save any member bank from failing. In 1911, Aldrich “floated” his idea before his fellow Senators, who promptly ran as fast as they could in the other directions. They knew that the last thing their constituents wanted was more bankers. As we said to the American public bankers, they were the problem, not the solution.

And while many may have lost confidence in their local bankers, that was double true for the idea of a Central Bank. As a country, we had twice tried a Central Bank, but each time it failed. The last time was in 1837, when Andrew Jackson declared the Second Bank of the United States
“unconstitutional, “ a sentiment most of his fellow countrymen shared 76 years later.

That’s why the Federal Reserve “Project” had to be held at a remote George Island, with complete secrecy. Imagine the headlines if it were revealed that three Bankers, an economics professor, a US Senator, and a German Stock Broker (remember, this was only a year before the beginning of World War I) were creating an American Central Bank! The outcry would have been tremendous.

NOTE: To those, like the Fed’s Historian, who assert that the idea of a Central Bank was very popular with the average American, we ask two questions: 1. Why was the Fed’s formation held in complete secrecy on Jekyll Island? And 2. Why was Central Bank NOT part of its name? The official title for America’s Central Bank is “Federal Reserve Board.”

At that point, Senator Aldrich played one of the most adept political “slight of hands” ever. Knowing the public’s aversion to the concept of a “Central Bank,” the term is never mentioned. Instead, this new entity was called the “Federal Reserve Board.” Reserve, because it was portrayed as just like the Banker’s Trust, hat tip to Benjamin Strong. Banker’s Trust’s primary business was to hold bank reserves, which are assets used to bail out any troubled bank. Today, America may be the only country with a “Central Bank” NOT called a “Central Bank.”

No matter what they named this institution, the US Federal Reserve Board remains the most influential central bank. The Fed sets short-term interest rates by Congressional mandate and promotes full employment and stable prices.

Note: While powerful, the Federal Reserve remains highly secretive. The influential Federal Open Markets Committee (FOMC), which sets interest rate policy, holds its meetings in complete confidence, only releasing its highly edited “Minutes” after a month’s delay. The Fed releases precious little in financial disclosure, and the only report they publish is ludicrously called a “Balance Sheet.” Perhaps the strangest Balance Sheet of all time lists the Fed’s current holdings (assets) but no liabilities (is this because they don’t have liabilities?). As for income, no income statement is provided by the Fed. It is not possible to project the Fed’s income or loss. However, the Fed recently reported a “loss” for the year but provided no backup documentation. Unlike every other financial institution, the Fed is not subject to an audit, an open invitation for chicanery.

Fundamental to all this is that it is a debt-based banking system. One in which it is the Fed, not the US Treasury, that issues our currency. It is accomplished by legal deception, in which the Fed “Loans” the United States the debt instruments (US Treasury Bonds, Notes, and Agencies) the Fed uses as a ledger item to offset all currencies and credits issued.

COVID-19 Stimulus

Remember those “stimulus checks” used to support the country after the COVID-19 Pandemic? With authorization from the US Treasury, the Fed issued Five Trillion Dollars. However, it’s incorrect to say they were: “created out of thin air.” Yes, those dollars began as a mere ledger entry on the world’s most giant balance sheet (Release H.4.1 published each Thursday afternoon by the Federal Reserve). But behind every dollar issue was an “IOU” created by our Government. They were putting the US taxpayers in debt that would eventually need to be paid off. The form of the IOUs were those bonds, notes, and agencies we just spoke about. All are legal and binding and an obligation of all citizens of this country.

Recent trends in the Fed’s “Balance Sheet.” The Fed currently “owns” $7.8 Trillion in US Government Securities, which they earn interest income. That income is based on current interest rates, which the Fed sets. Note: Fed assets are 2X higher than in 2020, while interest rates are 5X higher than in 2020. Add those together and you can see that the Fed’s current income is massively greater than three years ago.


Individual investors, like you and me, or corporations or governments, purchased many of those bonds, notes, and agencies. And each one of those is paid interest. But lately, we’ve been asking for so much cash that the Fed has stepped in to purchase those instruments. In May of last year, the Fed completed its purchase of a whopping $9 trillion (they currently own $7.8 Trillion). And guess what? The Fed also receives interest on these holdings. What is the interest on $9 trillion? A rough estimate is that at 5 1/4% (current Fed Funds Rate), it would be nearly half a trillion in interest!

Note: The Fed isn’t the only bad player in our country’s financial structure; our “Leaders,” those politicians who administer our affairs, like the current President and his Administration, are happy to use the Fed as their “fall guy” if the Economy gets in trouble. Something we observed when inflation spiked a couple of years ago. The first thing that President Biden did was to march Fed Chairman Powell into his office for an apparent meeting to demand that Powell stop inflation — putting the Fed on the spot while sidestepping Biden’s policies that spurred those higher prices. Policies like over-the-top stimulus payments went mainly to large corporations, boycotting low-price Russian oil and gas and instituting new and invasive regulations. It also gives US Politicians a new spin on monetizing the country’s debt.

Under President Trump and Biden, the Federal Government’s Budget, for the first time, has reported a Trillion Dollars in Deficit. That is, the Government is spending more than a Trillion Dollars over what it collects in taxes and other revenue. It’s not sustainable. Excessive spending requires the issuance of massive amounts of debt (those Bills, Notes, and Bonds we discussed). The problem arises when the Government can only sell some of those newly created Notes and Bonds. Someone must purchase the balance to keep the Government operating. Generally, the national Government buys back its Securities. It’s called “monetizing” the debt. It is an action that only poorly managed banana republics do. But not the United States. We cleverly have the Federal Reserve purchase all the unsold bonds and notes. We obscure that we, too, are “monetizing” our debt. It’s another way American politicians use the Fed to hide their poor financial management.

At this point, you can see that our entire monetary system is beginning to unravel. When your potential interest liability to your Central Banker is nearly $500 Billion, something has gone wrong. If you or I were this far in debt, with elevated credit card payments, we would immediately see a Credit Counselor.

US Treasury Secretary Janet Yellen

Imagine if US Treasury Secretary met with a Credit Counselor.

Let’s see if we can clearly understand our country’s Finances. Imagine that the United States Treasurer UST (currently Janet Yellen) was to meet with a Credit Counselor(CC). What are the sorts of questions the counselor would ask? What issues would the Counselor (CC) raise in everyday language?

Let’s see what questions a Credit Counselor would ask the client, US Treasurer (UST).

CC. What made you finance your country with “credit cards” (debt-based financing)?

UST. Six guys, five bankers, and a politician advised us to in 1913.

CC. Let me get this straight: you last reviewed your financial plan 110 years ago? Never updated it, never brought it into the twentieth, much less the twenty-first century? In 1913, did they have computers, the internet, spreadsheets, or Crypto Currencies?


CC. I didn’t think so.

CC. So, did you take advice from the Fed Bankers, the same people who profit from your credit cards (debt-based financing)? Isn’t that a conflict of interest? Who benefits from your interest in those notes, bonds, and agencies? Isn’t it the same Fed Bankers?

UST. Yes, that’s right, the same Fed Bankers

CC. And who sets the interest rate on your credit cards (debt-based financing)?

UST. The same Fed Bankers. This year, we project the Fed will double its income just because the Fed Bankers said we need higher interest rates.

CC. And who owns all that currency?

UST. The Fed Bankers, it say “Federal Reserve Note” on all our dollars.

CC. Not the US Dollar? How’s that?

CC. And what did the Fed Banker do to collateralize those dollars?

UST. Oh, yes, they signed an agreement 110 years ago. So we’re still bound by it.

CC. So let me get this straight: you issue currency based on the “full faith and credit” of the US Government, the Fed Banker receives much of the interest on your debt, and the Fed Bankers have little or no liability.

UST. I know

CC. Finally, Ms. US Treasurer, you realize you are being charged interest on the interest you fail to pay each year. Interest charges are compounding against you; this is usury, and unless you get out of this abusive bank relationship, you may fail.

UST. I know

Epilogue: The Bank Free Era

As a country, we have passed the critical debt level that all Credit Counselors recognize. We need more income to meet our obligations. For years, we’ve over-spent with little regard for the consequences.

Today, those “consequences” have become so massive that they must be addressed…by us.

It’s time we asked whether we want to continue to operate under this Debt-based Central Bank System?

After all, the United States operated from 1837 until 1913 without a central bank; historians call this the “Bank Free” Era. By all accounts, it was a time of tremendous industrial progress and wealth creation. Those 76 years were the most prosperous in the nation’s history. Great cities arose, the transcontinental rail road was built, factories sprung up around the country, people found employment, the middle class emerged. Operating without a Central Bank allowed America to allocate its financial assets in an almost perfect free-market environment.

Unfortunately, power-hunger politicians and bankers leveraged a 3-month bank panic into their overwrought “reform” and created the Federal Reserve. They promised that there would never again be a panic like 1907. A promise that was shown to be hollow when, just 22 years later (1929), a far worse panic, the Great Depression, would, under the leadership of the Federal Reserve, last for more than a decade and cost infinitely more than the 1907 Bankers Panic. As a country, we had given away our economic freedom for the promise of safety and security. A promise that proved worthless.

Our challenge today is to create a vibrant, expanding economy. To do what generations past have done, create a land of opportunity where hard work and innovation are rewarded. Note the years of the “Free Bank Era.” It was also the time of the Great American Industrial Revolution when America went from being a backwoods country to becoming the world’s premier industrial and commercial nation. If you want to know how America became the world’s superpower? Look no further than the “Free Bank Era” before the Federal Reserve existed.

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David Reavill

David Reavill writer + finance +iconoclast + hiker + Pennsylvania #valueside daily podcast + medium + meditate