Before the War for Independence, England’s King George attempted to force the colonies to set up their currency by borrowing from the Central Bank of England. The Americans refused to submit. Benjamin Franklin listed this demand as one of five major reasons for the Revolution.542 He said the king’s “prohibition of making paper money among themselves [the colonies]” helped turn the colonists against Parliament and king alike.543
The problem then, and now, is that central banks gain political and economic control over others by lending money. After decades of borrowing, by 2011, the central banks had loaned the U.S. government a total of more than $16 trillion. That year the U.S. paid $454 billion in interest. That’s $454 billion taken from the taxpayers.
Create Currency: The banks’ job is to print money, control how much is in circulation, and control interest rates.
Create Debt: A central bank doesn’t simply give money to the government. The government must borrow it—and pay interest.
Create More Debt: The interest must be paid somehow, and the government doesn’t go out and print up its own dollars for that. It typically must borrow from the same central banks to pay off the interest, with more interest due on the new interest loan. As a result, the country is forever borrowing, forever in debt, and forever at the whims and behest of bankers.
Create Boom and Bust Cycles: When the central bank allows a lot of money to circulate, loans are cheap. With cheap, low-interest loans aplenty, people feel more free to buy that car or house or start a business. But, when the central bank pulls money out of the system, money is scarce and lenders charge higher rates of interest to borrow it. And, just like turning off a switch, many people stop borrowing until rates drop again.
Create False Authority: It is always critical that the central bank appear to be a branch of the government, it gives the people confidence that somehow, it’s being watched. When confidence collapses, there are runs on the banks, people start hoarding money, black market bartering systems emerge, and the bankers lose their power, influence, and profits. Instead of blaming the banks for inflation, deflation, recessions, etc., people must be led to believe that the banks are rescuing them from regular and painful business cycles that operate beyond anyone’s control.
Appearing official is why private central banks around the world adopt such names as The Central Bank of England, The U.S. Federal Reserve System, The Central Bank of Argentina, Reserve Bank of Australia, National Bank of Poland, Central Bank of Cuba, National Bank of Rwanda, etc.
For almost every country in the world there exists at least one such bank with National, Central, or Reserve in its name serving as its central bank. Only two countries remain independent—Andorra and Monaco have no central bank as of this writing.
How Much Do Nations Owe the Central Banks?
According to estimates accumulated by the Joint External Debt Hub,544 the CIA Factbook, the U.S. Census Bureau, the International Monetary Fund,545 the World Development Indicators,546 and others, the total on-the-books external indebtedness (not liabilities) of all nations combined, and payable to the central banks, is a staggering $74.1 trillion in 2011 dollars. In early 2014, the Bank of International Settlements raised the number to more than $100 trillion as governments splurged to pull their economies out of recession, and companies borrowed to take advantage of low interest rates.547
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537 Quoted by Lord Mahon, History of England, Vol. V., p. 258.
538 Thomas Jefferson Randolph, editor, Memoirs, Correspondence, and Private Papers of Thomas Jefferson, Vol. 4, 1829, pp. 285-288.
539 Benjamin Disraeli, Coningsby, Book 4, Chapter 15, 1844.
540 Elliott Roosevelt, F.D.R.: His Personal Letters, 1928-1945, 1950, p. 373.
541 Theodore Roosevelt, The Progressive Covenant With the People, a speech given in 1912.
542 Franklin’s five reasons include restraining trade, prohibiting paper money, the Stamp Act, removing trials by juries, and refusing to hear the colonists’ petitions.
543 William Jennings Bryan, editor, The World’s Famous Orations, America: 1. (1761-1837), [Benjamin Franklin] His Examination Before the House of Commons, 1766, New York: Funk and Wagnalls, 1906.
544 World Bank Group, The Joint External Debt Hub, www.jedh.org.
545 International Monetary Fund, www.imf.org.
546 World Bank Group, World Databank, http://databank.worldbank.org.
547 Bank for International Settlements, quarterly review highlights, March 9, 2014.
Chapter 77: Progressives Finally Get Their Central Bank
They called it “The Federal Reserve”—it was, however, neither federal nor reserved.
Putting a central bank in America had been a goal since Alexander Hamilton first encouraged it. After decades of start-stop and succeed-fail cycles, the opportunity to wrest control of America’s money supply and interest rates came in 1907 on the heels of recent frustrations with the banking system and the economy in general.
Powerful financial forces were at work in the U.S. by 1900, fiercely competing against each other for influence and control. People watching this maneuvering developed a deep sense of suspicion about these Wall Street titans—it was a tripwire of panic tautly stretched.
Panic of 1907
In October 1907, the family owning United Copper Company tried to corner the market on copper. The attempt failed miserably. The market punished the conspirators by selling off United Copper stock at $10 a share when it was trading at $60, ruining the schemers’ financial lives. As brokers dashed about making repairs, the rest of the stock market reacted badly. The New York Stock Exchange fell almost 50 percent.
J.P. Morgan watched this mess unfolding, and feared his own Knickerbocker bank would be affected, or even be forced to close. Panicked patrons rushed his bank and cleaned out the vaults, but the panic wasn’t just in New York. Like tumbling dominoes, a crisis of confidence multiplied nationwide.
Thousands of banks braced themselves as hordes of customers flooded their institutions demanding their deposits back. Notifications by their head offices ordered the widely disbursed branches to pull in as much money as they could—foreclose on loans, limit withdrawals, limit payouts, etc.
Sen. Robert Owen later gave a congressional committee an idea of what these orders looked like. A demand from the National Banker’s Association that became known as “Panic Circular of 1893” instructed him, “You will at once retire one-third of your circulation and call in one half of your loans...”548
And that’s what they did, demanding loans be repaid—many of which, ultimately, were not. People lost homes, businesses, and those with cash hoarded it as their last ounce of security.
J.P. Morgan rescued the system by injecting $200 million of his own money into one of the last major banks still open. He issued certificates to mingle with the millions of IOUs that people were exchanging for lack of greenbacks.
Eventually, the certificates restored confidence, and people began spending cash again. As for the banks, the small ones died, the bigger ones absorbed those as new customers, and life went on—some wallets fatter, other wallets reamed out to the seams.
A writer for Life Magazine summarized the whole sordid affair in 1949. Frederick Lewis Allen described how J.P. Morgan caused the panic to further his own financial controls.
“Oakleigh Thorne, the president of [The Trust Company of America] testified later before a congressional committee that his bank had been subjected to only moderate withdrawals ... that he had not applied for help and that it was the (Morgan) ‘sore point’ statement alone that had caused the run on his bank. From this evidence, plus other fragments of other supposedly pertinent evidence, certain chroniclers have come to the ingenious conclusion that the Morgan interests took advantage of the unsettled conditions during the autumn of 1907 to precipitate the panic, guiding it s
low as it progressed so that it would kill off rival banks and consolidate the pre-eminence of the banks within the Morgan orbit.”549
Congress Got the Message
Leaders in Congress wanted to know what caused the panic of 1907, and sent Senator Nelson W. Aldrich (R-RI) to investigate. His committee reviewed banking policies in America and decided the country needed central banking to prevent these kinds of damaging panics from ever happening again.
So, off he went to Europe with his committee, spending $300,000 for two years so they could study the national banking schemes in operation in all the major countries.
Upon his return in 1910, Aldrich convened a secret meeting that November to develop a plan. He invited several powerful investment bankers and financial leaders to join him. The gathering was kept super-secret—all travel was done at night, names were withheld and faces hidden until all were safely convened at a meeting place off the coast of Georgia at Jekyll Island.
The Plan: The Jekyll Island group crafted a central banking plan that would be fire proof, bullet proof, and fool proof. They called it the “National Reserve Bank.” Congress was presented with the idea, and they took two years of debate and refinement to work it over. As enthusiasm for a central bank grew, word was spread that this is a great idea!
Hard P.R. Push: The public relations campaign that followed was intense and enormous. Pressure by politicians to win support erupted on the House and Senate floors hundreds of times. For example, a promise that the new system would miraculously stop inflation was proclaimed from the Senate and Congress more than 50 times. How many of their promises failed? All of them. Nevertheless, as shown by the following quotes, the relentless, tedious and repetitive promises illustrate what happens when the socialists’ public relations machine is unleashed. How often have similar promises been deployed for other massive government programs, such as national health care?
“Interest rates will always be low.”—Rep. Oscar W. Underwood (D-Ala),550 Dec. 22, 1913
“It will be easy to obtain loans for as much money as the borrower thinks is reasonable, and at all times.”—Rep. Samuel J. Tribble (D-GA),551 September 16, 1913
“Farmers will get easy loans at any time, especially during harvest season or planting time.”—Rep. Michael E. Burke (D-Wis.),552 Sept. 17, 1913
“Financial panics will be impossible.”—Sen. Claude A. Swanson (D-VA),553 Dec. 8, 1913
“America will have permanent prosperity.”—Rep. William A. Cullop (D-Ind.),554 Sept. 17, 1913
“Federal Reserve notes will be more secure than any currency in the history of the world.”—Sen. Robert L. Owen (D-Okla.),555 Dec. 15, 1913
“A Federal Reserve note is not real money.”—Rep. Louis Fitzhenry (D-Ill.),556 Sept. 17, 1913
“All Federal Reserve notes can ultimately be redeemed in gold.”—Rep. Finly Gray (D-Ind.),557 Sept. 17, 1913
“The Federal Reserve will redeem notes with its own gold, not with gold owned by the government.”—Sen. John Shafroth (D-Colo.),558 Nov. 25, 1913
“America will never have to worry about a strain on her gold reserves.”—Sen. John Shafroth (D-Colo.),559 Nov. 25, 1913
“Federal Reserve notes will be as valuable as gold itself.”—Rep. Michael E. Burke (D-Wis),560 Sept. 17, 1913
“However, some Federal Reserve notes may be backed merely with other Federal Reserve Notes.”—Sen. James A. Reed (D-Mo.),561 Dec. 4, 1913
“The Federal Reserve automatically prevents inflation, but only if a gold reserve is maintained.”—Rep. Adolph J. Sabath (D-Ill.),562 Dec. 22, 1913
“The Federal Reserve Board will see to it that Americans have stable prices.”—Rep. Finly Gray (D-Ind.),563 Sept. 12, 1913
“The Federal Reserve system will destroy the powerful ‘Money Trust’ on Wall Street so that it will no longer control American Finances.”—Rep. Claude Weaver (D-Okla.),564 Sept. 17, 1913
“Government control over all banking transactions will be strengthened.”—Rep. Michael E. Burke (D-Wis.),565 Sept. 17, 1913
“The Federal Reserve Board will represent the American people.”—Rep. Lawrence B. Stringer (D-Ill.),566 Sept. 18, 1913
“Federal Reserve Board members are just as trustworthy as the justices on the Supreme Court.”—Rep. Michael E. Burke (D-Wis.),567 Sept. 17, 1913
“The Federal Reserve Board will be completely beyond political control and manipulation.”—Rep. William A. Cullop (D-Ind.),568 Sept. 17, 1913
“The powers of the Federal Reserve Board will be safely limited by the act.”—Sen. Thomas Sterling (R-S.D.)569
“However, another proponent of the act admits that the power of the Federal Reserve Board is arbitrary, drastic, and extraordinary.”—Sen. Knute Nelson (R-Minn.),570 Dec. 9, 1913
“The absolute control of the system by the Federal Reserve Board is not a danger, but a safeguard.”—Sen. John F. Shafroth (D-Colo.),571 Dec. 18, 1913
“The work of the Federal Reserve Board will be given full publicity.”—Sen. Henry F. Hollis (D-N.H.),572 Dec. 12, 1913
“The Federal Reserve Board will prevent depressions.”—Sen. Claude A. Swanson,(D-Va.),573 Dec. 8, 1913
“The Fed will increase overseas trade so greatly that a Democratic victory in the next election is guaranteed.”—Rep. Oscar W. Underwood (D-Ala.),574 Dec. 22, 1913
“If all the bank vaults are emptied, the Fed will still have power to pay depositors by printing more ‘notes.’”—Sen. John F. Shafroth (D-Colo.),575 Nov. 25, 1913
“The Fed has the right to take privately owned deposits in order to bail out any bank in financial trouble.”—Sen. John F. Shafroth (D-Colo.),576 Dec. 12, 1913Who Has the Power?
The Founding Fathers made every aspect of a central, private bank unconstitutional. That’s why it required a combination of crisis, an unwary public, and a progressive-minded Congress and president to push it through—and that’s what they did. On December 23, 1913, the Federal Reserve Act became law.
Aside from all of the laudatory assurances by Congress, there lurked beneath the establishment of the Federal Reserve something more sinister than any promise and assurance—
James A. Garfield, one of the writers of the original Federal Reserve Act, said, “Whoever controls the volume of money in any country is absolute master of all industry and commerce.”577
Mayer Amschel Rothschild made the same observation a century earlier: “Permit me to issue and control the money of a nation and I care not who makes its laws.”578
Charles A. Lindbergh, Sr. wasn’t fooled by the smoke and mirrors promotion of a central bank. He labored long and hard to stop the unstoppable. Of the Federal Reserve Act he said—“When the President signs this bill, the invisible government of the monetary power will be legalized .... the worst legislative crime of the ages is perpetrated by this banking and currency bill.”579
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548 Gary Allen, quoted in None Dare Call It Conspiracy.
549 Frederik Lewis Allen, Life Magazine, April 25, 1949.
550 Congressional Record, 63rd Congress, 2nd session, Vol. 51, Pt. 2, p. 1459.
551 Ibid., 1st session, Vol. 50, Pt. 7, p. A309.
552 Ibid., p. A293.
553 Ibid., 2nd session, Vol. 51, Pt. 1, p. 430.
554 Ibid., 1st session, Vol. 50, Pt. 7, p. A332.
555 Ibid., 2nd session, Vol. 51, Pt. 1, pp. 901-902.
556 Ibid. 1st session, Vol. 50, Pt. 7, p. A331.
557 Ibid., p. 301.
558 Ibid., pt. 6, p. 6028.
559 Ibid.
560 Ibid., pt. 7, p. A294.
561 Ibid., 2 session, Vol. 51, Pt. 1, p. 174.
562 Ibid., pt. 17, p. A32.
563 Ibid., 1st session, Vol. 50, Pt. 7, p. A297.
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564 Ibid., p. A310
565 Ibid., p. A291.
566 Ibid., p. A314.
567 Ibid., pp. A295-296.
568 Ibid., p. A332.
569 Ibid., 2nd session, Vol. 51, Pt. 1, p. 773.
570 Ibid., p. 521.
571 Ibid., pt. 2, p. 1121.
572 Ibid., pt. 1, p. 782.
573 Ibid., p. 432.
574 Ibid., p. 1460.
575 Ibid., 1st session, Vol. 50, Pt. 6, p. 6026.
576 Ibid., 2nd session, Vol. 51, Pt. 1, p. 789.
577 Attributed to James A. Garfield in The American Plutocracy, by Milford Wriarson Howard, Chapter 16, p. 156.
578 Attributed to Mayer Amschel Rothschild (1744-1812) in Money Creators (1935) by Gertrude M. Coogan.
579 Attributed to Charles A. Lindbergh, Sr., December 23, 1913.
Chapter 78: Broken Promises of the Federal Reserve
Like a silent partner in a massive Ponzi scheme, the Federal Reserve has been mute about its damage to the U.S. economy.
The Federal Reserve is the financial arm of the socialist government of the United States. It has emerged as the modern rendition of Alexander Hamilton’s original concept of a strong central bank, and it brought in all the tyranny, regulation and economic misery that was long ago predicted.
The Naked Socialist Page 45