The Legality Of The Federal Reserve System

The Legality of the Federal Reserve System A Critical Review

Copyright © Alexandra Hamilton 2009

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Table of Contents On the Legality of the Federal Reserve System..........................................................2 Introduction......................................................................................................2 The Legal Status of the Federal Reserve................................................................4 Validity of Delegation of Rule-Making Power to the Fed............................................6 Conclusion......................................................................................................14 Abbreviations & Terms......................................................................................15 Copyright Notice..............................................................................................16

Copyright © Alexandra Hamilton 2009

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On the Legality of the Federal Reserve System Introduction The U.S. Constitution states in Article I, Section 1: All legislative powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and House of Representatives. So how come the Federal Reserve (Fed), FDIC SEC, etc can make rules by way of regulations as well as adjudicate disputes? The answer lies in the non-delegation doctrine, which is explained on Answer.com1 as follows (emphasis mine): Before the New Deal, it was widely believed that Congress could not delegate the power to make national policy to non-elected bodies such as administrative agencies. This so-called non-delegation doctrine kept administrative agencies small and weak. They could enforce laws established by Congress but were unable to develop policy themselves. In the New Deal, Congress created a number of administrative agencies to regulate and set policy in their areas of jurisdiction. In order to maximize the benefits of expertise and regulatory flexibility, Congress generally created administrative agencies with the authority to regulate a given economic activity. In 1935, however, the Supreme Court in two cases struck down congressional delegations of power. In Panama Refining Co. v. Ryan (1935), the Court struck down portions of the National Industrial Recovery Act of 1933 as too broadly delegating authority to the National Recovery Administration to establish a code of fair competition for various industries. In Schechter Poultry Corp. v. United States (1935), the Court considered the Act again and struck it down in its entirety. One key defect in the Act was Congress's delegation of policy-making power to private groups that themselves were subject to the competition codes. These cases established the legal rule that in order for a delegation to be constitutional, Congress must define an intelligible principle to guide administrative regulation and to limit administrative discretion . The principles of accountability and deliberation that provided the foundation of the non-delegation doctrine continue to be important for administrative agencies, though they are bolstered through other mechanisms. The norm of accountability is protected with the use of internal procedures, for example with the use of notice and comment periods in the drafting of regulations, which gives interested parties the right to participate in the regulatory process. Accountability is also protected because the president appoints the heads of most agencies and can thus hold them accountable for the 1 http://www.answers.com/topic/nondelegation-doctrine (as of 07/17/2009) Copyright © Alexandra Hamilton 2009

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policy decisions they make. Congress can also oversee agencies through congressional hearings, budgetary oversight, and statute. The principle of agency deliberation is bolstered by the requirement of considered decision-making in both rulemaking and adjudication. Courts enforce this requirement by reviewing agency actions to ensure they are not arbitrary, capricious, an abuse of discretion, or contrary to law.

You'll immediately note from that definition that legislative and adjudicative powers can only be delegated to federal administrative agencies, not to private bodies. In addition, you'll note that the delegation to a administrative agency must be valid, i.e. it must conform to certain standards, and the exercise of such delegated powers must also be done according to some standards which are also laid out above. To determine the status of the Fed, we thus must answer the three following questions: a) Whether the Fed is an administrative agency, i.e. part of the federal government, or a private entity; b) if the Fed is an administrative agency, whether the power has been properly delegated to it; and c) if the power has been properly delegated to the Fed, whether it is acting within the authority delegate to it. Such a discussion is useful to understand what reforms might be needed to avoid the calamity of another financial and economic disaster. Please note that, even though I have some legal education, I am not a lawyer. What I write about legal issues usually lacks academic rigor required by academia. However, reading other legal filings, claims complaints and judgments, I am remarkably often right on the issues and probably would prevail on the merits.

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The Legal Status of the Federal Reserve According to its own words on the Federal Reserve Website2 (emphasis mine): Who owns the Federal Reserve? The Federal Reserve System is not "owned" by anyone and is not a private, profit-making institution. Instead, it is an independent entity within the government, having both public purposes and private aspects. As the nation's central bank, the Federal Reserve derives its authority from the U.S. Congress. It is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms. However, the Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute. Also, the Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government. Therefore, the Federal Reserve can be more accurately described as "independent within the government." [...]. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.

So the Fed sees itself as an 'independent entity within the government' and is, by it's own admission and contrary to what it claims elsewhere, working for profit. It must pay out a 6 percent dividend to its members every year. If that's not working for profit, I don't know what is. Others, most notably the Court of Appeals for the Ninth Circuit, don't share the Fed's view. In Lewis v. United States, 680 F.2d 1239 (1982)3: Plaintiff, who was injured by vehicle owned and operated by a federal reserve bank, brought action alleging jurisdiction under the Federal Tort Claims Act. The United States District Court for the Central District of California, David W. Williams, J., dismissed holding that federal reserve bank was not a federal agency within meaning of Act and that the court therefore lacked subject-matter jurisdiction. Appeal was taken. The Court of Appeals, Poole, Circuit Judge, held that federal reserve banks are not federal instrumentalities for purposes of the Act, but are independent, privately owned and locally controlled corporations. Affirmed. 2 http://www.federalreserve.gov/generalinfo/faq/faqfrs.htm#5 (as of 07/17/2009) 3 http://www.globalresearch.ca/index.php?context=va&aid=8518 (as of 07/17/2009) Copyright © Alexandra Hamilton 2009

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The court goes on to say: H.R. Report No. 69 Cong. 1st Sess. 18-19 (1913). The fact that the Federal Reserve Board regulates the Reserve Banks does not make them federal agencies under the Act. In United States v. Orleans, 425 U.S. 807, 96 S.Ct. 1971, 48 L.Ed.2d 390 (1976), the Supreme Court held that a community action agency was not a federal agency or instrumentality for purposes of the Act, even though the agency was organized under federal regulations and heavily funded by the federal government. Because the agency's day to day operation was not supervised by the federal government, but by local officials, the Court refused to extend federal tort liability for the negligence of the agency's employees. Similarly, the Federal Reserve Banks, though heavily regulated, are locally controlled by their member banks. Unlike typical federal agencies, each bank is empowered to hire and fire employees at will. Bank employees do not participate in the Civil Service Retirement System. They are covered by worker's compensation insurance, purchased by the Bank, rather than the Federal Employees Compensation Act. Employees travelling on Bank business are not subject to federal travel regulations and do not receive government employee discounts on lodging and services.

In both the Lewis and Orleans cases a test was performed to determine whether an entity is a government agency. According to Lewis, the Fed then, is not a federal government agency. Since lawmaking power cannot be delegated to private, non-government controlled entities (Schechter Poultry Company), it then follows, that no valid delegation of powers exists. There is then no legal basis for the Feds actions and the Federal Reserve Act (FRA) should be struck down by courts. However, instead of relying on that and just stopping here, lets assume that the delegation is still considered valid for some reason and see where this would get us.

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Validity of Delegation of Rule-Making Power to the Fed To make this determination, we must look at the Federal Reserve Act of 19134 (FRA) which established the Federal Reserve System. The FRA has no preamble or purpose clause. Though not required, it is common to state at the beginning of an act the purpose so as to lay out the spirit and purpose of a law as well as to determine the rules of construction of the act. Lacking such a provision, we must look throughout the act to find those guiding principles. We find a rather general statement as to the purpose of the Board and the FOMC: § 225a. Maintenance of long run growth of monetary and credit aggregates5 The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate longterm interest rates.

These are very broad terms that describe what the Board and the FOMC is supposed to be responsible for, it doesn't describe the power and limits thereof of the Federal Reserve System as a whole. Congress in essence says, “Manage the economy for us. Do so by maintaining long run growth to promote maximum employment, stable prices and moderate long term interest rates.” However, Congress fails to define what the terms long term growth, monetary and credit aggregates, maximum employment, stable prices and moderate long-term interest rates mean. Nor does it provide any guidance as to what is included in those terms an what not. This is a carte blanche delegation, that in essence tasks the Fed with running the economy as they see fit by way of managing money and credit in the system. In addition, it assumes that the goal is permanent growth of the economy, but fails again to define growth (of what?). It is completely up to the discretion of the Board and FOMC to define the meaning of these terms.

4 http://www.law.cornell.edu/uscode/html/uscode12/usc_sup_01_12_10_3.html (as of 07/17/2009) 5 http://www.law.cornell.edu/uscode/html/uscode12/usc_sec_12_00000225---a000-.html (as of 07/17/2009) Copyright © Alexandra Hamilton 2009

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There is some more detail in the FRA, however. Let's look at the relationship of the Fed to Congress and the Executive branch. I look at the Fed's relationship to Congress first (emphasis mine): § 225b. Appearances before and reports to the Congress6 (a) Appearances before the Congress (1) In general The Chairman of the Board shall appear before the Congress at semiannual hearings, as specified in paragraph (2), regarding— (A) the efforts, activities, objectives and plans of the Board and the Federal Open Market Committee with respect to the conduct of monetary policy; and (B) economic developments and prospects for the future described in the report required in subsection (b) of this section. (2) Schedule The Chairman of the Board shall appear— (A) before the Committee on Banking and Financial Services of the House of Representatives on or about February 20 of even numbered calendar years and on or about July 20 of odd numbered calendar years; (B) before the Committee on Banking, Housing, and Urban Affairs of the Senate on or about July 20 of even numbered calendar years and on or about February 20 of odd numbered calendar years; and (C) before either Committee referred to in subparagraph (A) or (B), upon request, following the scheduled appearance of the Chairman before the other Committee under subparagraph (A) or (B). (b) Congressional report The Board shall, concurrent with each semi-annual hearing required by this section, submit a written report to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Banking and Financial Services of the House of Representatives, containing a discussion of the conduct of monetary policy and economic developments and prospects for the future, taking into account past and prospective developments in employment, unemployment, production, investment, real income, productivity, exchange rates, international trade and payments, and prices.

Please note that the Fed chairman only reports to and is required to appear in hearings before Congress. However, his obligations stop there. There is no possibility for Congress to give directions to, overrule or censor the Chairman or the board or to remove a Chairman (or other members of the Board). There is no possibility of impeachment or other way to oust a board member of the Fed, once they are elected they are untouchable for a period of 14 years. This is a highly questionable practice, if we remember that even the federal judges hold their office only during good behavior (U.S. Constitution Article III, section 17) and can be impeached by Congress. 6 http://www.law.cornell.edu/uscode/html/uscode12/usc_sec_12_00000225---b000-.html (as of 07/17/2009) 7 http://www.law.cornell.edu/constitution/constitution.articleiii.html#section1 (as of 07/17/2009) Copyright © Alexandra Hamilton 2009

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The next section does make the relationship between the Fed and Congress even clearer. § 247. Reports to Congress8 The Board of Governors of the Federal Reserve System shall annually make a full report of its operations to the Speaker of the House of Representatives, who shall cause the same to be printed for the information of the Congress. [...]

The speaker's role here is reduced to having the Fed's report copied and distributed among members of Congress. How telling is that of what the Fed thinks of the role of Congress? Now we look at the relationship between the Fed and the executive branch. After all, the Fed – if it were a federal agency - would be part of the executive branch and work for and be accountable to someone there, e.g. most likely the Secretary of the Treasury or ultimately the President of the United States. Here is what the Act says to that relationship (emphasis mine): § 246. Powers of Secretary of the Treasury as affected by chapter9 Nothing in this chapter contained shall be construed as taking away any powers heretofore vested by law in the Secretary of the Treasury which relate to the supervision, management, and control of the Treasury Department and bureaus under such department, and wherever any power vested by this chapter in the Board of Governors of the Federal Reserve System or the Federal reserve agent appears to conflict with the powers of the Secretary of the Treasury, such powers shall be exercised subject to the supervision and control of the Secretary.

The Secretary of the Treasury does not have any supervision powers of the Fed either. In fact, the section declares everything that has not been heretofore prescribed by law to be under the jurisdiction of the Treasury to be in the Fed's realm of power. That is a massive power grab. And finally, this one should make it very clear: § 250. Independence of financial regulatory agencies How Current is This? No officer or agency of the United States shall have any authority to require the Securities and Exchange Commission, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Comptroller of the Currency, the Director of the Office of Thrift Supervision, the Federal Housing Finance Board, or the National Credit Union Administration to submit legislative recommendations, or testimony, or comments on legislation, to any officer or agency of the 8 http://www.law.cornell.edu/uscode/html/uscode12/usc_sec_12_00000247----000-.html (as of 07/17/2009) 9 http://www.law.cornell.edu/uscode/html/uscode12/usc_sec_12_00000246----000-.html (as of 07/17/2009) Copyright © Alexandra Hamilton 2009

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United States for approval, comments, or review, prior to the submission of such recommendations, testimony, or comments to the Congress if such recommendations, testimony, or comments to the Congress include a statement indicating that the views expressed therein are those of the agency submitting them and do not necessarily represent the views of the President.

I thus conclude, that the FRA assigns to Congress and the executive branch a purely ceremonial and subservient role. The Fed wields the real power in this arrangement. This subservient role of Congress and ultimately the people to the Fed is further demonstrated in the issuance of money. This is a power assigned to Congress, according to the U.S. Constitution, Article I, section 810: To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures;

What does the FRA make of this? Looking at the issuance of currency provision (Federal Reserve Notes11, aka Dollar): § 418. Printing of notes; denomination and form12 In order to furnish suitable notes for circulation as Federal reserve notes, the Secretary of the Treasury shall cause plates and dies to be engraved in the best manner to guard against counterfeits and fraudulent alterations, and shall have printed therefrom and numbered such quantities of such notes of the denominations of $1, $2, $5, $10, $20, $50, $100, $500, $1,000, $5,000, $10,000 as may be required to supply the Federal Reserve banks. Such notes shall be in form and tenor as directed by the Secretary of the Treasury under the provisions of this chapter and shall bear the distinctive numbers of the several Federal reserve banks through which they are issued.

The only power retained by the Treasury is that it can determine the design of the notes, make the printing plates and print the notes. However, the Fed does determine all of the other aspects of monetary – and with it economic – policy. One does not get the impression, that the Fed is working for Congress, it is rather the other way around. Even though the physical dollar bills are printed by the Bureau of Engraving and Printing, which is part of the Treasury and the Fed pays for that printing13, the control over the amount of money to be printed is with the Fed. Congress or the Treasury has no way of intervening. This is in direct violation of Article I, Section 8 of the U.S. Constitution. 10 http://www.law.cornell.edu/constitution/constitution.articlei.html#section8 (as of 07/17/2009) 11 http://en.wikipedia.org/wiki/Federal_Reserve_Note (as of 07/17/2009) 12 http://www.law.cornell.edu/uscode/html/uscode12/usc_sec_12_00000418----000-.html (as of 07/17/2009) 13 http://www.bep.treas.gov/section.cfm/2 (as of 07/17/2009) Copyright © Alexandra Hamilton 2009

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Funnily enough, the Fed makes much of the money – for which it pays a 6% dividend to its member banks – by charging interest on the issuance of FRNs.14 Does this section of the FRA really satisfy the Constitution's Article 8? Hardly. Unless you agree with the principle that the federal government is just an empty hull retaining some formal 'power' while in fact the real power has been off-loaded to private entities. I am certain, that this is not what the framers had in mind. In addition, the Fed today 'prints' money by simply electronically crediting a member bank's account at the Fed and doesn't even have to go to the Treasury for having printed anything. In fact, in a world without any dollar bills, i.e. with everything electronic, the Treasury would retain no power at all. To understand whether the Fed's powers are limited in some significant way, we need to look at the enumerated powers of the Board of Governors. Remember, the rule is if a power is not listed, the Fed doesn't have the power. Thus if it acts without proper delegation, it acts ultra vires and the acts can be challenged in court. As a sidenote, we now may have learned why there was no preamble or purpose clause in the FRA, which was written in 1913. According to Answer.com15: An ultra vires act is one beyond the purposes or powers of a corporation. The earliest legal view was that such acts were void.

The easy way out, then, is to just not state at all or state in a very general way a purpose in the 'articles of incorporation' (the FRA is just articles of incorporation of the Federal Reserve System), so you can never be held to act ultra vires. This also means that you have unlimited powers, i.e. you can do everything you want. In addition, Congress cannot delegate more rights than it has been granted itself by the Constitution's section 8. So let's look at the list of powers in the FRA (Excerpt only, emphasis mine). § 248. Enumerated powers The Board of Governors of the Federal Reserve System shall be authorized and empowered: (a) Examination of accounts and affairs of banks; publication of weekly statements; reports of liabilities and assets of depository institutions; covered institutions (1) To examine at its discretion the accounts, books, and affairs of each Federal reserve bank and of each member bank and to require such statements and reports as it may deem necessary. The said board shall publish once each week a statement showing the condition of each Federal reserve bank and a consolidated statement 14 http://www.law.cornell.edu/uscode/html/uscode12/usc_sec_12_00000414----000-.html (as of 07/17/2009) 15 http://www.answers.com/topic/ultra-vires (as of 07/17/2009) Copyright © Alexandra Hamilton 2009

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for all Federal reserve banks. Such statements shall show in detail the assets and liabilities of the Federal reserve banks, single and combined, and shall furnish full information regarding the character of the money held as reserve and the amount, nature, and maturities of the paper and other investments owned or held by Federal reserve banks. (2) To require any depository institution specified in this paragraph to make, at such intervals as the Board may prescribe, such reports of its liabilities and assets as the Board may determine to be necessary or desirable to enable the Board to discharge its responsibility to monitor and control monetary and credit aggregates. (b) [Intentionally left out] (c) Suspending reserve requirements To suspend for a period not exceeding thirty days, and from time to time to renew such suspension for periods not exceeding fifteen days, any reserve requirements specified in this chapter. (d) Supervising and regulating issue and retirement of notes To supervise and regulate through the Secretary of the Treasury the issue and retirement of Federal Reserve notes, except for the cancellation and destruction, and accounting with respect to such cancellation and destruction, of notes unfit for circulation, and to prescribe rules and regulations under which such notes may be delivered by the Secretary of the Treasury to the Federal Reserve agents applying therefor. (e) Adding to or reclassifying reserve cities To add to the number of cities classified as reserve cities under existing law in which national banking associations are subject to the reserve requirements set forth in section 20 of this Act, or to reclassify existing reserve cities or to terminate their designation as such. (f) Suspending or removing officers or directors of reserve banks To suspend or remove any officer or director of any Federal reserve bank, the cause of such removal to be forthwith communicated in writing by the Board of Governors of the Federal Reserve System to the removed officer or director and to said bank. (g) Requiring writing off of doubtful or worthless assets of banks To require the writing off of doubtful or worthless assets upon the books and balance sheets of Federal reserve banks. (h) [Intentionally left out] (i) [Intentionally left out] (j) Exercising supervision over reserve banks To exercise general supervision over said Federal reserve banks. (k) Delegation of certain functions; power to delegate; review of delegated Copyright © Alexandra Hamilton 2009

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activities To delegate, by published order or rule and subject to subchapter II of chapter 5, and chapter 7, of title 5, any of its functions, other than those relating to rulemaking or pertaining principally to monetary and credit policies, to one or more administrative law judges, members or employees of the Board, or Federal Reserve banks. The assignment of responsibility for the performance of any function that the Board determines to delegate shall be a function of the Chairman. The Board shall, upon the vote of one member, review action taken at a delegated level within such time and in such manner as the Board shall by rule prescribe. (l) [Intentionally left out] (m) [Repealed] (n) Board’s authority to examine depository institutions and affiliates To examine, at the Board’s discretion, any depository institution, and any affiliate of such depository institution, in connection with any advance to, any discount of any instrument for, or any request for any such advance or discount by, such depository institution under this chapter. (o) Authority to appoint conservator or receiver The Board may appoint the Federal Deposit Insurance Corporation as conservator or receiver for a State member bank under section 1821(c)(9) of this title. (p) Authority The Board may act in its own name and through its own attorneys in enforcing any provision of this title, regulations promulgated hereunder, or any other law or regulation, or in any action, suit, or proceeding to which the Board is a party and which involves the Board’s regulation or supervision of any bank, bank holding company (as defined in section 1841 of this title), or other entity, or the administration of its operations. (q) Uniform protection authority for Federal reserve facilities (1) Notwithstanding any other provision of law, to authorize personnel to act as law enforcement officers to protect and safeguard the premises, grounds, property, personnel, including members of the Board, of the Board, or any Federal reserve bank, and operations conducted by or on behalf of the Board or a reserve bank. (2) The Board may, subject to the regulations prescribed under paragraph (5), delegate authority to a Federal reserve bank to authorize personnel to act as law enforcement officers to protect and safeguard the bank’s premises, grounds, property, personnel, and operations conducted by or on behalf of the bank. (3) Law enforcement officers designated or authorized by the Board or a reserve bank under paragraph (1) or (2) are authorized while on duty to carry firearms and make arrests without warrants for any offense against the United States committed in their presence, or for any felony cognizable under the laws of the United States committed or being committed within the buildings and grounds of the Board or a reserve bank if they have reasonable grounds to believe that the person to be arrested has committed or is committing such a felony. Such officers shall have access to law enforcement Copyright © Alexandra Hamilton 2009

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information that may be necessary for the protection of the property or personnel of the Board or a reserve bank. (4) For purposes of this subsection, the term “law enforcement officers” means personnel who have successfully completed law enforcement training and are authorized to carry firearms and make arrests pursuant to this subsection. (5) The law enforcement authorities provided for in this subsection may be exercised only pursuant to regulations prescribed by the Board and approved by the Attorney General. (r) Voting; documentation of determinations (1) Any action that this chapter provides may be taken only upon the affirmative vote of 5 members of the Board may be taken upon the unanimous vote of all members then in office if there are fewer than 5 members in office at the time of the action. (2) (A) [Intentionally left out] (B) The available members of the Board shall document in writing the determinations required by subparagraph (A)(ii), and such written findings shall be included in the record of the action and in the official minutes of the Board, and copies of such record shall be provided as soon as practicable to the members of the Board who were not available to participate in the action and to the Chairman of the Committee on Banking, Housing, and Urban Affairs of the Senate and to the Chairman of the Committee on Financial Services of the House of Representatives.

This is a good example of an enumeration that does not enumerate anything. The gist of the provisions is that it is in the discretion of the Board to do or not do anything. This becomes further clear in that the Fed can decide to audit itself, according to its own terms. § 248b. Annual independent audits of Federal reserve banks and Board The Board shall order an annual independent audit of the financial statements of each Federal reserve bank and the Board.

Another thing that is striking is that there is no authorization in there – or anywhere else in the FRA - for recent programs such as TALF, Maiden Lane, etc, unless you assume that the FRA grants unlimited power to the Fed to do anything it chooses.

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Conclusion It has been duly established above that the Federal Reserve is a private entity. It thus follows that there is no legal justification to delegate any powers held by Congress to the Fed and that the Fed is an illegal entity. Lawmaking powers are granted exclusively to Congress by the Constitution of the United States. A power that is delegated by Congress to any other government entity must be delegated properly or it is not a valid delegation. This power simply cannot be delegated in such a broad and inclusive way so as to incapacitate Congress – and with it the people of the United States – of any further role in the decisions and of any possibility to determine their own destiny. It has also been duly established, that even if one assumes the FRA to be a valid delegation of powers in principle, the provisions of the act simply do not limit the powers of the Board or the Federal Reserve System in any significant way. Congress's and Treasury's role are limited to spectators who can listen to reports and serve the Fed in certain ways. They have no further possibility to determine or influence policy. It follows that even if the delegation of powers to the Fed were considered valid in principle, the way the delegation was done is still invalid. It removes the delegated powers completely from the jurisdiction of Congress and the people. This simple can never be legal. If it were, the Constitution didn't mean anything. In addition, the FRA makes the people of the United States even pay for this delegation of powers by making them pay interest on the money that has been issued on its behalf. In short, this is a government of bankers, by bankers for bankers. The 'independent within government' seems more like an euphemism to describe a 'state within the state.' The Fed has intentionally been placed outside the constitutional order and made exempt from all interferences by the democratically elected bodies in government. It is an entity under no ones control or supervision which works outside the structure provided by the Constitution. This is not legal at all. In fact it is the same issue as the one raised in Hamdan v. Rumsfeld, 548 U.S. 557 (2006)16, in which Justice Kennedy (concurring) wrote: Trial by military commission raises separation-of-powers concerns of the highest order. Located within a single branch, these courts carry the risk that offenses will be defined, prosecuted, and adjudicated by executive officials without independent review. Cf. Loving v. United States, 517 U.S. 748, 756-758, 760 (1996). Concentration of power puts personal liberty in peril of arbitrary action by officials, an incursion the Constitution's three-part system is designed to avoid. It is imperative, then, that when military tribunals are established, full and proper authority exists for the presidential directive. 16 http://www.supremecourtus.gov/opinions/05pdf/05-184.pdf (as of 07/17/2009) Copyright © Alexandra Hamilton 2009

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The same issue is raised here. The Fed does not only set economic policy, regulates the economic activity without interference from Congress, it also is power to police and audit iself and adjudicates disputes that arise from this exercise of power. There is no possibility of legal review of the Fed's decisions. Congress is entirely out of this decision making process here, as is the executive branch. The courts have no power to review economic decisions of the Fed either. In a democracy and a nation under the rule of law, there can be no such thing as an “independent government” agency. Every government agency is accountable to the executive, to the legislative branch and ultimately to the people. It is just systemically impossible and not permissible to have an 'independent government agency' outside of the legally defined structure and thus remove it from public influence, accountability and review.

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Abbreviations & Terms FDIC FOMC FRA FRN Fed Board SEC USC

Federal Deposit Insurance Corporations Federal Open Market Committee Federal Reserve Act of 1913 Federal Reserve Note Federal Reserve Systemically Board of Governors of the Federal Reserve Securities and Exchange Commission United States Code

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Copyright Notice You are welcome to use this document for non-commercial purposes provided you give proper credit. Requests for use of this or part of this document may be directed to [email protected]

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