This isn't a simple subject ;-)  Lots to digest.

The government borrows money through Treasury Auctions.  The Department of Treasury controls those.  Don't know about short term cash needs though, i.e. operating funds.  Corporation issue commercial paper for those short term needs.  The government has short term treasuries, so that is probably what fills the gap.  

The federal reserve does not borrow money from private banks.  The federal reserve system just facilitates the banking system.  Banks can borrow money from the Fed and the Fed requires margin deposits.  The board of governors are appointed by the president and confirmed by the Senate (FedEx doesn't work like that).  The system as a whole controls monetary policy in the U.S.  They act like a central bank in other countries.  And the Federal Reserve has the ability to regulate banks and bank holding companies, an equivalent power FedEx does not.  

As to ownership of the public debt, it's diverse and not just in the hands of private banks.  It is in the hands of rich folks, middle class, banks, trust companies, mutual funds, pension funds, foreign investors, foreign central banks, etc...  Any one who own a U.S. Treasury security (T-Bill, T-Note, zero coupon bonds), owns a piece of the public debt.

As for all of U.S. tax receipts going to pay interest to private banks, that is verifiably false.  You can look at CBO or OMB or Treasury numbers, not even close to 100% goes to interest payments.  Currently it is about 8% of federal outlays.  If you look at Treasury, they show you both public debt payments plus intergovernmental interest payments which net out.  

is was established in 1913 - it is what is called an independent regulatory commission - other examples include things like FEC, FCC, SEC  -   the members are appointed by the President and confirmed by the Senate for Fixed Terms to remove them from the normal political processes.   The Constitutionality of their existence has been established in a number of SCOTUS cases over the years.  FR operates with authority granted it by the Congress, an authority which has also been upheld.

OF course, remember that Ron Paul thinks fighting the Civil war was a mistake, and that Lincoln provoked it.   He may have managed to get licenses as an ob-gyn, but that is no evidence that he understands anything about government, economics, or law.

If Ron Paul says it, then it MUST be wrong (with one or two possible exceptions, but even then for the wrong reasons).

is not true.  Federal Express is 100% private.  It was not created by an act of Congress.  It is no more subject to federal regulation than any other private business venture.

1. The Federal Reserve consists of private banks.  

True, BUT.  The regulatory structure above those private banks is made up of public officials appointed by the president with the Senate's consent.

2. These private banks print money, which they also loan to our government.

Technically the treasury prints the money.  The Fed has the ability to increase the availability of credit within the economy by cutting the prime rate on short-term loans.  It can decrease the flow of money by increasing short-term rates.  This ability to regulate the flow of credit over the short haul probably does more good than bad in terms of limiting the impact of inflation or deflation on economic growth, and inspiring a degree of trust in the U.S. economy by foreign and domestic investors.  (The Fed has failed in recent years to maintain the stability of the financial system by its inaction in reference to the sub-prime mortgages -- it does have tools at its disposal to impact this area -- although Congress and the President ALSO have tools that they could have applied here).

3. 100% of the federal income tax we pay is used to pay the interest on these loans to private banks.

Definitely not the case -- if this was true federal government employees would be volunteers not employees, no one would get Medicare, Social Security, there would be no regulatory departments, no U.S. military, the interest on the national debt would not be paid, and no other government function could operate.

It's worth pointing out that the national debt is due exclusively to the spending done by Congress and the President -- it has no direct relation to any action undertaken by the Federal Reserve.

I can now see what has all the Ron Paul people in a hissy fit.  If what the video says is true (which apparently it isn't) I would be pissed also.  Well, in truth I am pissed but for other reasons - and that's just my natural state ;-)

http://video.google.com/videop...

Perhaps I misunderstood their points (it is a long movie) but I think I got the jist of it.  The fed part is around the 60 minute mark if you want to skip past the other conspiracies.

1. I'm sure banks do have input on who the federal reserve chairman is -- same with the Fed's governors -- much in the same way the ABA or other legal organizations have input on Supreme Court justices and DoJ appointees.  But they don't have the final vote on the matter.  I don't see this as some big conspiracy.  Bernanke the current Fed chairman has mostly an academic background -- he's also spent some time working in public service.  If he was viewed as a complete hack he wouldn't have gotten the job after Greenspan.  He's a professional -- although it remains to be seen just how good his judgment is.

2. The Jefferson quote was in reference to the Bank of the United States.  The Bank of the United States is not synonymous with the Fed.  The Bank of the U.S. actually DID print money -- it was a government institution.  The Fed is like the tap controlling one short-term credit rate in the U.S.  It would have been interesting to see a discussion about the Bank of the United states versus the Fed -- a little history.  (The Bank of the U.S. actually did play a role in helping the U.S. square away it's debts after the Revolutionary War, but I think Andrew Jackson may have been right to jettison it by the early 1830s).

The currency argument is interesting.  (e.g. species backed versus a free-floating currency).  Rather than buying dollars because of the material backing that underlies it -- e.g. cattle/silver/gold -- people buy these days dollars because they have trust in our institutions -- they generally believe that we're a stable nation with stable institutions.

I'm not an expert in monetary or economic policy, but on the level that I do understand it, the argument -- especially about the Fed -- just doesn't seem to make much sense to me.

The NY Times, actually has a really good, long piece about the Fed in a profile that it did on Ben Bernanke.  If you have time it's worth a read . . .

http://www.nytimes.com/2008/01...