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If I have a $20 bill in my wallet, I have effectively loaned the US Treasury $20. This is very nice for the Treasury, since it's an interest-free loan. If more cash floats around the economy, then the Treasury doesn't have to sell so many T-bills to keep the government afloat. This reduces the interest rate on loans to the government, making interest rates in general go down, which makes it easier to get a mortgage to buy a house, and also encourages profit-hungry investors to switch to riskier investments, like stocks.

You may ask, so what?

Think of all the drug dealers, international terrorists, and other ne'er-do-wells that deal in large quantities of cash, plus the people all over the world who stuff their mattresses with greenbacks because they don't trust their local currencies or banks. Every million dollars resting in someone's suitcase is a million-dollar interest-free loan to the United States government.

According to this US Treasury report (see Table 4), there are about $550 billion worth of US cash (not counting what's sitting inside bank vaults) floating around the economy. If everyone holding those dollars decided to exchange them for euros, it might put a bit of a dent in our economy.

The Federal Reserve Board is an independent agency of the United States government (i.e., not directly beholden to any of the 14 cabinet-level departments). It was created by Congress in 1913 in order to increase stability of the economy. Ultimately, it has little direct control of currency, which is handled by the Department of the Treasury and its subagencies.

The Federal Reserve has several duties, which basically consist of acting as an advisory body to the rest of the government, and helping to define fiscal policy. But, more importantly, they are an oversight body for the banking system of the United States, and most of their power comes from their ability to supervise the nation's banks (which is exercised by things such as raising/lowering interest rates).

Furthermore, the Federal Reserve Board does not handle the issuing of Federal Reserve Notes, which is generally left to Congress. The Chairman of the seven person FRB could not, for instance, decide to stop issuing notes, particularly now that they are the only currency in circulation. What the Board does do is to determine how to distribute them through the banking systems of the country: the central Board distributes the notes to its seven regional banks, who then put the notes into circulation, depending on the needs of the public.

And they do not collect your money. The Reserve Board simply helps facilitate the banking system; the nitty gritty details are handled by the Treasury. They have a lot of power over our currency, but its hardly complete power. The seven-member board is appointed by Congress.

BTW, the homepage for the Board of the Governors of the Federal Reserve System (the technical name for the FRB) is http://www.federalreserve.gov/ which is, last time I checked, a government site. I don't know what you're talking about when you say that it isn't.

First off, yes, you are of course correct on the printing issue. The Fed issues Reserve Notes, it does not actually print them. I don't know what I was thinking. The point, however, is that the Notes are financial obligations of the Federal Reserve. Coins, on the other hand, are financial obligations of the Treasury. These days, the only obligation is that when you give them a $50 bill, they give you $50 back in bill form. However, throughout most of the century, they were required to give gold. Anyway, point being, whether or not the machinery that prints the bills is actually owned by them, the bills are still 100% their jurisdiction.

Now then, from http://www.federalreserve.gov:

The Federal Reserve, the central bank of the United States, was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system.

There you have it. It was created by Congress. If you read the .pdf document on their General information page, there are such illuminating quotes as the following:

The Board of Governors of the Federal Reserve System was established as a federal government agency. It is made up of seven members appointed by the President of the United States and confirmed by the U.S. Senate.

and

The Board of Governors exercises broad authority over the operations and activities of the Federal Reserve Banks and their Branches. This authority includes oversight of the Reserve Banks? services to banks and other depository institutions and of their examination and supervision of various banking institutions. Each Federal Reserve Bank must submit its annual budget to the Board of Governors for approval.

Got it? The Board is appointed by the President, and the Board controls the Banks. Finally, even if you were right, which you're not, I would still sleep comfortably. Quite frankly, I'd trust private banks just as much as governmental ones to run our monetary policy.
The only "intuitive" interface is the nipple. After that, it's all learned.

Alan Greenspan prefers to let the surplus build as his first preference, but the second preference is to return it to the public

Yet I recognize that growing budget surpluses may be politically infeasible to defend. If this proves to be the case, as I have also testified previously, the likelihood of maintaining a still satisfactory overall budget position over the longer run is greater, I believe, if surpluses are used to lower tax rates rather than to embark on new spending programs. History illustrates the difficulties of keeping spending in check, especially in programs that are open-ended commitments, which too often have led to larger outlays than initially envisioned. Decisions to reduce taxes, however, are more likely to be contained by the need to maintain an adequate revenue base to finance necessary government services. Moreover, especially if designed to lower marginal rates, tax reductions can offer favorable incentives for economic performance.

from Testimony of Chairman Alan Greenspan, The Federal Reserve's semiannual report on the economy and monetary policy, Before the Committee on Banking and Financial Services, U.S. House of Representatives, February 17, 2000 2nd paragraph from the bottom.

Hal Duston
hald@sound.net