The Secret History of the Federal Reserve
The Federal Reserve System originally came into being through the Federal Reserve Act of 1913. But it was only after the abolition of the gold standard in 1971 that the American Dollar became subservient to the Federal Reserve. As one may easily notice, the date of its inception coincides with the beginning of America’s boom-bust cycles. The Federal Reserve System was the agency used by the Powers That Be to first inflate American Dollars, even when they had their gold backing, creating the fractional gold standard. The Federal Reserve Act is documented to have originated in a 1910 secret meeting among top American politicians and financiers at Jekyll island. To quote Forbes magazine founder Bertie Charles Forbes,
Picture a party of the nation’s greatest bankers stealing out of New York on a private railroad car under cover of darkness, stealthily hieing hundred of miles South, embarking in a mysterious launch, sneaking onto an island deserted by all but a few servants, living there a full week under such rigid secrecy that the names of not one of them was once mentioned, lest the servants learn the identity and disclose to the world this strangest, most secret episode in the history of American finance. [22]
Is the sinking of the Titanic related to the creation of the Federal Reserve?
Among the private bankers who attended, those aligned to the German Rothschild banking family figure prominently. In fact, Rothschild frontman J.P. Morgan is said to have arranged the trip.[23] And once the Federal Reserve Act was enacted, banks aligned to both the Rothschild and Rockefeller families became the most prominent member banks in the Federal Reserve System, on account of their large sizes. If the conspiracy theorists are to be believed, the sinking of the Titanic in 1912 is related to the creation of the Federal Reserve. According to Bill Hughes,[24] some of the older wealthy families of America wanted a bigger share in the Federal Reserve, and threatened to oppose the creation of the Federal Reserve until their wish was granted. So J.P. Morgan had his White Star Lines build the Titanic. All these competing families were invited for the maiden voyage. But J.P. Morgan cancelled his booking at the last minute.[25]
The Federal Reserve: Private, Semi-private, Quasi-private or what?
Figure III: Note the word “incorporated”
The Federal Reserve System can be considered a quasi-private arrangement. The Federal Reserve Board consists of public officials. Private banks that opt for membership in the Federal Reserve System grant the Federal Reserve Board limited supervisory powers in exchange for some benefits not available to other banks. These benefits may be considered trivial when we take into account that Member banks become Federal Reserve Banks, and can act as monetary representatives of the United States government. They have a say in the issuing of banknotes and in the measures to control money supply. The quasi-private nature of the Federal Reserve System can be best illustrated by the logo of the Federal Reserve Bank of New York (See Figure III). The logo bears the word “incorporated” which is designated for private entities. While the word “Federal” gives the connotation of government authority.
Most American banks are not members of the Federal Reserve System but the banks that are members constitute the largest banks in America, with more assets than non-member banks. The gold standard restrained the Federal Reserve System from increasing the money supply whimsically. But with the abolition of the gold standard in 1971, the American dollar became completely subservient to the Federal Reserve System.
It is clear that some of the giant banks have considerable say in the determination of American money supply, and all related policy, such as the determination of interest rates. In fact, the Federal Reserve System owes its creation to certain specific New York banks. To quote,
The influence of the New York bankers appears again and again. Earlier they had opposed a central bank in Philadelphia, while later on they had opposed one because they had in effect been able provide the central bank functions they felt beneficial to them. Did the Federal Reserve System give the New York bankers what they had wanted in light of the weaknesses revealed by 1907? New York City bankers were able to maintain a strong influence in the call loan market and hence in the stock market, and with a central bank the call loan market was now relieved of its previous, tenuous role as a source of emergency liquidity. The bankers also got lower reserve requirements and, perhaps most important, they no longer held the responsibility for controlling panics. The role of New York City banks was now to aid the commercial development of the country, that is, to serve as the source of financing business, and the reserve banks were to serve as the provider of emergency liquidity.[26]
Figure IV: Promotional gear sold on Congressman Ron Paul’s website, promoting his Audit the Fed campaign.
The Federal Reserve System functions in a relative absence of transparency. For example, the Federal Open Market Committee, consisting of seven members of the Federal Reserve Board and five representatives of Federal Reserve banks meet several times a year to determine United States monetary policy. These meetings are not open to public. The Federal Reserve System’s quasi-private status allows it be insulated from Freedom of Information requests. It was only in 2009 that Congressman Ron Paul proposed a thorough audit of the Federal Reserve System. To quote Ron Paul’s speech to Congress when introducing his bill (H. R. 1207) to audit the Federal Reserve System,
Throughout its nearly 100-year history, the Federal Reserve has presided over the near-complete destruction of the United States dollar. Since 1913 the dollar has lost over 95% of its purchasing power, aided and abetted by the Federal Reserve’s loose monetary policy. [….] The Federal Reserve can enter into agreements with foreign central banks and foreign governments, and the GAO is prohibited from auditing or even seeing these agreements. Why should a government-established agency, whose police force has federal law enforcement powers, and whose notes have legal tender status in this country, be allowed to enter into agreements with foreign powers and foreign banking institutions with no oversight? […] If the State Department were able to do this, it would be characterized as a rogue agency and brought to heel, and if a private individual did this he might face prosecution under the Logan Act, yet the Fed avoids both fates.[27]
Despite the bill acquiring a cult following among many Americans, many politicians came forward to hijack the bill, proposing modified versions instead, which allowed the Federal Reserve System to maintain its veil of secrecy. As of this date, the bill faces an uncertain future.
How the Federal Reserve “Pretends” to Work
The basic explanation on how the Federal Reserve System allows its member banks to profiteer runs like this. Suppose the government desperately needs $1 billion. In the absence of the Federal Reserve System, it would raise taxes, or use up accumulated taxes. But with the Federal Reserve System, it asks the member banks for a loan. The member banks grant the loan, and the Federal Reserve prints the $1 billion and issues it to the government at interest. How the banks “grant” the loan is hazy. They certainly do not transfer cash from their own private holdings to the Federal Reserve. To add another layer of abstraction, these processes are “computerized.” To pay back the loan plus interest to the banks, the government taxes the American people (income taxes constituted 43% of Federal receipts in 2009). It is important to note that when the government pays back the loan plus interest to the banks, the banks receive actual cash transfers from the government. If the loan is too big to pay (as is always the case), the government merely pays the interest on it (which accounted to 5% of Federal expenditure in 2009), and the banks become holders of American debt. Holding American debt has asset value, as it guarantees a steady trickle of interest by none other than the United States government. And therefore, it can be inferred that the banks in question are not that keen about repayment of the principle.
The government could accomplish the same results by having the Treasury print the money whenever needed, resulting in similar levels of inflation. But by inviting the banks to the table, the Powers That Be have managed to divert Federal expenditure towards paying “interest” for the banks’ “loans.” And in this process, these private banks have become the holders of American debt. More than half of American debt is held by foreign interests. When we try to understand how the banks “grant” the loan to the government in the first place, we are reminded of Class Action Suit filed by John Dempsey against major Canadian financial institutions at the Supreme Court of British Columbia on 15th April 2005. The lawsuit was dismissed as frivolous. But Dempsey’s objections to how banks “granted” loans to the Bank of Canada are still pertinent. To quote,
42. At all material times, these defendant banks and all of them have no legal standing to lend any money to borrowers, because:
1) these banks and credit unions did not have the money to lend, and therefore they did not have any capacity to enter into a binding contract;
2) the defendants did not have any cash reserve, they are not legally permitted to lend their depositor’s or member’s money without expressed written authorization from the depositors, and:
3) the defendants have no tangible assets of their own to lend and all their “assets” are “paper assets” which are mainly in the form of “receivables” created by them out of “thin air,” derived out of loans whereas the monies loaned out were also created out of thin air.
43. Other than bookkeeping and computer entries, no money or substance of any value was loaned by the defendants to the Plaintiff. In all of the loan transactions entered into between the Plaintiff and the Defendants, the financial institutions did not bring any equity to any of the transaction.[28]
A Comparison with the Canadian “Federal Reserve”
A system identical to the Federal Reserve System was created in Canada in 1935 with the establishment of a central bank known as the Bank of Canada. As in the case of the Federal Reserve System, which came into being to finance American intervention in World War I, the Bank of Canada was created as an instrument financing large-scale Canadian involvement in World War II, and later, the Korean war, by inflating Canadian dollars (See Figure V).
Figure V
When Canada became a signatory to the Bretton Woods agreement, the Canadian dollar was pegged to the American dollar. And when the American dollar was taken off the gold standard, the Canadian dollar still continued to be pegged to the value of the American dollar. The supply of Canadian dollars is governed by the main clients of the Bank of Canada, such as Royal bank, the Bank of Montreal, CIBC and the government of Canada.[29] But unlike the United States, these entities have not facilitated the creation of a gargantuan Federal debt, as in the case of the United States. They have even managed to shrink the Canadian Federal debt, creating a surplus instead of the expected deficit!
If we are to assume that systems such as the Federal Reserve and the Bank of Canada are created to assist private member banks in profiteering, how is it that both these almost analogous systems have produced completely different results in two neighbouring countries? To arrive at an understanding, we must assume that the Powers That Be created these systems for larger objectives than immediate monetary profit.
Beyond Profit: How the Federal Reserve is being used to facilitate Global Conflict
The Federal Reserve has helped underwrite continued American military expenditures, even after the World Wars. As of 2009, “Defence” accounts for 23% of all American Federal spending. And therefore, the gargantuan size of the American Federal debt is related to the continuation of American military interventions abroad. In contrast, Canada only piled up a huge Federal debt only when the Powers That Be decided to use its resources in World War II.
Figure VI: Advertisement of Ford trucks in Nazi Germany
If we assume that such systems are primarily instruments of war, can we also infer that the World Wars could have been prevented in their absence. Most of us naively assume that the Federal Reserve only underwrote the American war effort. This is not the case. In World War II, the Lend-Lease program was used to ship supplies worth $759 billion in 2008[30] to other countries involved in the war. Some of these countries, such as Soviet Union and China, cannot be considered friendlies. Even more bewildering is the fact that the inflated dollars churned out by the Federal Reserve managed to find their way into Nazi Germany, through American private “investments.” Once we discard the myth that Germany recovered after World War I like a punching doll, it appears that the rearmament of Germany was largely the effort of American “investors” investing the new American dollars produced by the Federal Reserve. One such interesting case is that of the German chemical conglomerate, I.G. Farben, which was central to the rearmament of Germany. It had on its board of directors Paul Warburg, who also sat on the board of the Federal Reserve Bank of New York.[31] Warburg is considered to be the mastermind behind the creation of the Federal Reserve System. Other board members of I.G. Farben also sat on the boards of Ford Motor Company and the Rockefeller owned Standard Oil. Suspiciously, the main I.G. Farben complex in Germany managed to avoid Allied bombing during the war.
War is a profitable enterprise. But the destruction of economies also hampers profits for banks and major commercial entities. An investigation into the motives of The Powers That Be with respect to the World Wars is beyond the scope of this paper. And this aspect cannot be fairly understood while fixating on monetary profit. But if we give credence to fringe historians, we can arrive at some basic conclusions. It could be that monopoly capitalists in the United States, such as J. P. Morgan (who is believed to represent the moustachioed Mr. Monopoly in the Monopoly board game) realised the limitations they faced in the Western world. And so, they decided to expand outside the Western world, creating societies free of the limitations they faced in the
The moustachioed Mr. Monopoly in the popular Monopoly board game may have been a fairly realistic depiction of J.P. Morgan
West. In both the World Wars, only the Soviet Union made notable territorial acquisitions. While offering a panacea to capitalism, the Soviet system created an unprecedented concentration of power, creating a form of monopoly state capitalism, which was highly favoured by The Powers That Be. The Soviet Union may have thus been a modern day colony of “capitalists” based in places like New York and Calgary. There is suggestive evidence pointing towards the same. Notable capitalists took trips to the Soviet Union as if it were a country club. Since the Soviet Union did not allow private investment, these visitors may have had a direct stake in the Soviet Empire. While the United States spared no effort in creating a military industrial complex to counter the Soviet Union, actual operations against the Soviet Union were half-hearted. For example, the Vietnam War forced many Vietnamese people to ally with the Soviets. There is the case of Australian journalist Roland Perry, who wrote a book[32] suggesting that the late Victor Rothschild (the head of the British arm of the Rothschild banking dynasty) might have been the “fifth man” in the infamous Cambridge Soviet spy ring. In 1983, Congressman Lawrence Patton Macdonald took a flight to South Korea to warn South Koreans that American policy towards that nation was designed to placate the Soviets. The plane literally disappeared, very likely diverted to the Soviet Union. Then there is the case of General Zia of Pakistan, who had supervised the “jihad” against the Soviets in Afghanistan. General Zia was killed in a suspicious plane crash. Despite the death of an American diplomat who was also on board the plane, the FBI showed little interest in investigating the case.
http://www.cabaltimes.com/2011/01/08/the-federal-reserve-as-an-instrument-of-war/
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