In the Belly of the Fed
Their silence and protestations of ignorance aside, logically, the Federal Reserve must know the value of US land.
June 10, 2016
Jeffery J. Smith

This article is part of a series by Jeffery J. Smith on the surplus—also known as “economic rent”—that exists in the economy. Currently, this surplus is hoarded; yet once shared, this surplus could generate undreamed of possibilities for the entire human population. To see the entire series, visit

The Fed Has to Know

If you want to know the worth of Earth, you must consider the price of land, not the rent for land. In most places, land is for sale. An exception is Hong Kong, where the public owns all the land and individuals lease it from their community. That city-state routinely ranks at the top of lists for prosperity and economic freedom. Such success, however, has not made Hong Kong a model for other places where land is mortgaged and repeatedly sold.

Most people buying land—underneath a house, in a popular neighborhood—can not afford to buy it outright. So they borrow. Their lenders—the bankers—like to know how much the land can resell for. Not just because their borrower might default but also because their borrower is likely to re-sell or re-finance and bankers want to know how much more—or less—custom, income, and profit they can expect in the future. So to run their business, banks likely do know the profitability of land, and the uber bank—the US Federal Reserve—knows the total for all land in the nation.

But they’re not telling. The information is secret, classified, proprietary, despite the uber bank, the Fed, supposedly being a public agency. Yet actually, it’s neither federal nor a reserve. It’s a corporation, with a corporate charter from the US, and it has stockholders (whose identity is debated). And it does not keep a reserve of cash for a rainy day but rather it holds IOUs from lesser banks, corporations, and governments.

You can see why a programming whiz would be tempted to hack the Fed, though not me. Not because of the rumors that the central bankers play hardball (some theorize they had a hand in the assassinations of Lincoln and Kennedy; for me those are dead-ends). And not because the Fed has its own oversized and well-equipped police force. But because first we must exhaust all legal means. That should do the trick.

Land & Money

While few people wonder about land, almost the entire species is interested in money. Where our overlooked land and our conspicuous money meet is at the bank—the borrowing to buy real estate, whose value is largely that of the location. The old joke about mortgagors renting from lenders is pretty accurate. Their “interest” payments—what the banks get—is actually half rent for land.

Banks make most of their money off mortgages and off lending to businesses who’re expanding which often entails buying land. Bankers are always willing to extend credit to their best customers, buyers of real estate. Locations are valuable and often change hands; plus they make excellent collateral.

When sites rise, bankers become more accommodating. Last decade, they dove into subprime lending. They over-extend to the rich and powerful, too; real estate mogul The Donald has been bankrupt, what, three times? When bankers loosen their credit requirements, they make crashes inevitable. Not to avoid crashes but to be able to create infinite amounts of credit is the real reason that big bankers want to control the creation of money itself.

Banks Invest in Power

Banks make so much money that they enjoy much political power, which translates into even more net income. Their power is so great that they took over the power to print new money, a function that the Constitution charged to Congress. That means the Fed gets to control the money supply.

That arrangement did not sit well with everybody. Back in the Great Depression, one congressman, Louis T. McFadden, having served as Chairman of the Banking and Currency Committee for more than 10 years, brought formal charges against the Board of Governors of the Federal Reserve Bank system, the Comptroller of the Currency, and the Secretary of United States Treasury for numerous criminal acts, including but not limited to, conspiracy, fraud, unlawful conversion, and treason. The petition for Articles of Impeachment was thereafter referred to the Judiciary Committee and has yet to be acted on. (Sort of like Congress illegally refusing to call a Constitutional Convention.)

The way the Fed creates new money is by buying US bonds, a role it relishes. It’s not just because when politicians want to sell bonds, they must hire a bonds salesman—somebody like Goldman Sachs—which is a tidy bit of income for bankers. But also because, the more in debt government is, the more money the Fed creates, which is inflationary, and thus lucrative for the banking establishment.


If there’s only one currency (as usual), and if those in charge of it issue more new notes than businesses produce more new goods and services, recipients of the new money use it to bid up prices—inflation. Theoretically, bankers (those typically in charge of the lone currency) could issue less, not enough new money, which would have the opposite effect and deflate prices, ceteris paribus. But things are not all equal. Humans constantly build the better mousetrap and find ways to get more from less, driving down costs. Prices should follow. It’s the excessive supply of money that won’t let the lower cost of living appear before consumers. In reality, a shrinking supply of money in circulation would suffice.

Since the Fed started replacing US Notes with their own in 1913, the dollar has lost 96% of its value. With inflated prices, banks must pay depositors more to keep them and charge borrowers more to profit. When rates for saving and lending are high, banks get away with increasing the spread. They also raise their rates on credit cards. For bankers, inflation is a big money maker. Knowing this, whenever inflation rises, investors bid up the price of bank stock. When the government announced the CPI went up 1% a month, the same day the stock of the Bank of New York Mellon rose nearly 5% and by over 10% in one month following the announcement.

Obviously, some things inflate faster, some slower or not at all. You go to the supermarket and find food costs more, but has your salary risen by a like amount? Not likely. Who benefits? Not the wage-earner. Who benefits are those who can buy low (early) and sell high (late). So if you’re first in line to get the fresh cash, you can make hay while the sun shines. Typically, that’s people who trade in stocks, bonds, and real estate. Of course, the trades must be well-timed, but that’s what you have a broker for.

A lot of the surplus cash goes to bidding up the price of land, which homeowners like when selling, dislike when buying, and realtors always like since their commissioners are fatter even though their daily expenses are too (but who does the math?). And lenders always like. Rising land prices not only means heftier mortgages but also faster turnover, since people are always defaulting or moving in search of a better job.

Someone else who benefits from inflation is the borrower. You borrow dollars that are worth more and pay back with plentiful dollars that are worth less. Logically, you’d expect banks to be against that scenario. So why aren’t they? Because they’re debtors, too. The average debt-to-equity ratio for retail and commercial US banks, as of 2015 January, is approximately 2.2. For investment banks, the average debt/equity is higher, about 3.1. Repaying with cheap dollars works for lenders, too.

The queen bee of the banking hive—the Fed—is only too happy to oblige and keep cranking out excess cash. And to encourage borrowing to buy land. While he was head of the Fed and one of the most powerful people on the planet, Alan Greenspan told Americans that the housing bubble would not burst, that it made homeowners rich.

Publicly a cheerleader, privately Greenspan stifled any dissent within the Fed. When the bubble burst and made homeowners poor and mere tenants, and worried investors shifted from stock to bonds, Greenspan’s personal wealth (already in millions) rose with the demand for owning US debt. Deficit spending is what the Fed makes easy by buying it—with money that never existed before.

Audit Uncover Mega Trillion$

We say “printing money” only out of habit. It is less and less common. Now days to “print money”, the Fed taps some keys on a computer, poof—somebody’s rich. (An exception was the millions of bills that the Fed of New York printed, wrapped, and sent to the US military in Iraq that the soldiers used as footballs). Whether electronically or the old-fashioned way, the Fed literally creates money out of nothing. Also electronic, ephemeral, and intangible is what the Fed buys with its electrons—US treasury bonds that indebt the American taxpayer don't exist except as computer entries on memory chips.

When Americans were so agitated during the recent recession, Congress felt it had to go along with Bernie Sanders and Rand Paul and audit the Fed to see what they were doing about the big banks teetering on bankruptcy. Until then, the Fed had always refused to be audited. To avoid being audited then, the Fed lobbied Congress. Imagine if any other department of government were to lobby the public’s elected officials. Does the EPA lobby to allow more pollution? Does the Department of Labor lobby to rein in OSHA? May be.

The audit of Fed books revealed what they wanted kept from the public—how many trillions they’d printed up to bailout not just banks but also corporations and not just ones headquartered in the US but foreign ones, too. The Fed lent their cronies over $16 trillion. Once the facts came out, they boldly kept doing it under the name of “quantitative easing”. They didn’t stop inflating the value of big business until they’d created and lent nearly $30 trillion dollars. How many dollars is that? If you were to receive them as silver dollars and stack them up then climb them, you’d be on Mars. That’s a lot of silver.

What the audit did not show was the worth of Earth. Such information does not belong on the Fed balance sheet but it’d be on another book. However, people prying into the Fed’s business weren’t looking for rent totals, not realizing the role that rent-seeking plays in policy, economy, and general prosperity. Alas, a missed opportunity. Yet the Fed did buy bundles of mortgages from Wall Street, turning the Fed into a de facto landlord. How much and how valuable is the land the Fed could foreclose on?

The recipients of the bailouts found it easy to pay back such huge sums. Getting bailed out confirmed their status as too big to fail, so their stocks and bonds seemed safer to investors. The recipients not only stayed afloat but also swallowed up competitors who were not bailed out, expanding their market share. Recipients used the money that they got at close to zero interest to buy US bonds which paid a few percentage points—a tidy profit, magnified by the huge sums, all guaranteed. Finally, economies are cyclical, so business had to start picking up. For them, the recession was over while for others inequality worsened. It was a missed opportunity for the public, to sweep out the old bankrupt (literally and figuratively) institutions and usher in the new.


Why was a special audit needed? The government has watchdogs. Sort of. As with most of government and big business, there is a revolving door. Regulators spend part of their career in government, part in business, back and forth. Us seeing lobbyists and the lobbied as different entities is only superficial; the elite and state are actually a partnership.

Being the creator of trillions guarantees one will always have enough money to lobby. Of the 200 biggest lobbyists, the most profligate is FIRE. Accounting for 48 of those 200, Finance, Insurance, & Real Estate is consistently the largest source of campaign funds for politicians cycle after cycle. Between 2007 and 2012, those 200 corporations spent a combined $5.8 billion on federal lobbying and campaign contributions. Their ROI: $4.4 trillion in federal contracts and subsidies.

What do economists have to say about all this? Not much. Where thousands of them find jobs is within the Federal Reserve. At seven top journals, 84 of the 190 editorial board members were affiliated with the Federal Reserve in one way or another. The journals determine which economists get tenure and what ideas are considered respectable. Criticism of the central bank has become a career liability for members of the profession, which silences economists (never a bold bunch to begin with).

James K. Galbraith, Olivier Giovannoni, and Ann Russo—howling in the wilderness—found that in the year before a presidential election, the Fed tightens monetary policy if a Democrat is in office and loosens it if a Republican is in office. When banks lend less, there’s less business, and voters blame the party in power. The editor at the Review of Economics and Statistics, a fellow at the Fed, rejected their submitted paper.

Cracking the Fed

The most convincing argument that the Fed rules is that it exists. It’s not necessary. The market can set lending rates. Competing currencies can reverse inflation. And productive use of land now withheld by speculators can cure unemployment. It’s OK for the Fed to be an umbrella for banks, but to be the lone entity with the power to control currency? And to stonewall inquiries into the worth of Earth?

Being so impregnable, the Fed makes me feel tiny, like David vs. Goliath; they are way in a league of their own. But if they truly are a public agency as they claim, then they must yield to public pressure. We who want them to open up about the value of land—a datum the central bank must know—we must retreat, regroup, and come up with a truth serum for monoliths.

This article is part of a series by Jeffery J. Smith on the surplus—also known as “economic rent”—that exists in the economy. Currently, this surplus is hoarded; yet once shared, this surplus could generate undreamed of possibilities for the entire human population. To see the entire series, visit

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Jeffery J. Smith

JEFFERY J. SMITH published The Geonomist, which won a California GreenLight Award, has appeared in both the popular press (e.g.,TruthOut) and academic journals (e.g., USC's “Planning and Markets”), been interviewed on radio and TV, lobbied officials, testified before the Russian Duma, conducted research (e.g., for Portland's mass transit agency), and recruited activists and academics to A member of the International Society for Ecological Economics and of Mensa, he lives in Mexico. Jeffery formerly was Chief Editor at