The Fed and Treasury’s “Symbiotic Relationship”

It’s certainly not the most destructive myth in the USA (this is), but definitely one of the more pervasive ones – this idea that the Fed is entirely independent of the US government.  But a new paper from the NY Fed sheds light on what they call a “symbiotic relationship”.  A close look at the management of government funds during the financial crisis shows that this debate about independence is largely semantics.  Operationally, the Fed is very much an agent of the government or as I often like to say – the other pocket in the same pair of pants as the US Treasury.  But don’t take it from me.  Take it from the Fed officials themselves:

“The U.S. Treasury and the Federal Reserve System have long enjoyed a close relationship, each helping the other to carry out certain statutory responsibilities. This relationship proved benefi cial during the 2008-09 fi nancial crisis, when the Treasury altered its cash management practices to facilitate the Fed’s dramatic expansion of credit to banks, primary dealers, and foreign central banks.

…Understanding the relationship between Federal Reserve credit policy and Treasury cash management is important because the relationship illuminates an important but sometimes unappreciated interface between the Treasury and the Fed. It also underscores the symbiotic relationship between the two institutions, in which each assists the other in fulfilling its statutory responsibilities.”

MMR views the world in a similar light.  As an agent of the US government the Fed is essentially a partner in helping the US government achieves its objectives.  In this regard it is very much a part of the US government.  There’s no point denying it.  Even the Fed knows this relationship is symbiotic and they’re explicit about it….


Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering asset management, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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135 Comments on "The Fed and Treasury’s “Symbiotic Relationship”"

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Robert Rice
5 years 27 days ago
Good words Cullen. One might point out that the Fed has a *.gov* website. Amazing how that is if it isn’t part of the government. And let me add to your quote another from the Fed: “The Federal Reserve System is considered to be an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive branch of government. The System is, however, subject to oversight by the U.S. Congress. The Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government; therefore, the description of the System as ‘independent within the government’ is more accurate.” See pages 2 and 3. Add to this myth the other myths of the Fed being a for profit entity pillaging the masses (it isn’t; while it makes profits on interest income, etc., after using a small amount to pay their expenses they hand all profits over to the Treasury; the Fed has turned over about 95% of their income since their inception) as well as the myth that the Fed isn’t audited (it is, every year), and we might dispel of the paranoid hysteria in some circles surrounding the Fed. Myth 2 refuted: “The income of the Federal Reserve System is derived primarily from the interest on U.S. government securities that it has acquired through open market operations. Other major sources of income are the interest on foreign currency investments held by the System; interest on loans to depository institutions; and fees received for services provided to depository institutions, such as check clearing, funds transfers, and automated clearinghouse operations. After it pays its expenses, the Federal Reserve turns the rest of its earnings over to the U.S. Treasury. About 95 percent of the… Read more »
5 years 25 days ago

Sure Robert. That’s what they WANT you to think!

(I’m joking of course. Except conspiracy theorists, like mainstream economists, will always find a “way out” when proven wrong. )

Robert Rice
5 years 24 days ago

You are right, sadly worldviews are far too often held as unfalsifiable. It is a form of intellectual dishonesty. A spirit of cooperation in sifting for true propositions through argument evaluation would behoove us all. The goal is simply to know the truth so we can support policy in the public interest.

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