How the U.S. Federal Reserve came to be and why it has to change
“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” ~ Henry Ford, founder of the Ford Motor Company.
It all started with a man called William Paterson (April 1658–22 January 1719), who was a Scottish trader and banker.
Paterson made his fortune with foreign trade (primarily with the West Indies) at the Merchant Taylors’ Company. In 1694, he founded the Bank of England, described in his pamphlet “A Brief Account of the Intended Bank of England” to act as the English government’s banker.
England had just suffered through 50 years of war. Financially exhausted, the English government needed loans to fund their political activities. Paterson proposed a loan of £1.2m, which equates to around £27,880,000,000 in today’s money, to the English government. In return, his bank would receive privileges, which included the issuing of money notes. The English government soon endorsed this idea, and the very first private central bank was born.
Through his privately owned bank, the central bank of England, William Paterson was able to issue and loan money to the English government out of thin air with interest, and his bank has been doing so ever since.
Fast forward to the 20th century. After two failed attempts, another group of bankers wanted to establish a private central bank in the United States of America.
Nelson Wilmarth Aldrich, born in Rhode Island into a middle-class family descending from English immigrants, was a prominent American politician and a leader of the Republican Party in the United States Senate, where he served from 1881 to 1911. A politician and businessman, most people today have likely never heard of him. However, what this forgettable fellow did in the closing years of his life (which still affects almost the entire world today) must have had the founding fathers spinning in their graves.
It was December of 1910, and Senator Nelson Aldrich boarded a private rail car with six other men, parked at a New Jersey train station.
These six gentlemen were Paul Warburg, Frank Vanderlip, Benjamin Strong, Henry Pomeroy Davison, Charles Norton, and Abe Andrews. They conducted their meeting in complete secrecy to avoid questions from news reporters.
The meeting was so secretive and so concealed from government and public knowledge, that the group used code names in their communications.
Their destination? Jekyll Island off the coast of Georgia. The Island was a popular retreat for billionaires like William Rockefeller and JP Morgan.
The six men that Senator Nelson Aldrich brought together included the heads of banks, branches of government such as the treasury and some of the richest men on earth at that time. To give you an idea of how ridiculously wealthy these men were, in 1910 these six men represented a quarter of the world’s wealth.
So, the men who owned 25% of all the wealth of the world gathered under one roof in a secret meeting.
What came out of that meeting you might ask? The meeting went for nine days, and from that, they laid the foundation for the creation of the third private Central Bank in the United States of America.
Some of them went on to write about their meeting in their own biographies. Here’s a quote from Frank Vanderlip, president of the National City Bank of New York (now known as Citibank) from 1909 to 1919, and Assistant Secretary of the Treasury from 1897 to 1901:
“I was secretive, indeed, as furtive as any conspirator. I do not feel it is an exaggeration to speak of our secret expedition to Jekyll Island as the occasion of the actual conception of what eventually became the Federal Reserve System.
Discovery, we knew, simply must not happen, or else all our time and effort would be wasted. If it were to be exposed that our particular group had got together and written a banking bill, that bill would have no chance whatever of passage by Congress.”
These bankers misinformed the American public by claiming that the purpose of the system was to stabilize the economy and release the grip Wall Street banks had over America. The problem was that those who wrote the bill, were the same people they claimed they would stop. If they succeeded, it would give a small group of men the ability to create money out of nothing, and then loan it to the American government with interest.
So why was it done in secret? The bankers shrouded their plot with secrecy because they knew perfectly well that the American people would never agree to a central bank in their country. Back then, unlike today, people knew perfectly well what central banks were and understood them thoroughly.
Back in those days, people knew that everywhere a central bank went, there would be wealth inequality, wild swings between economic booms and busts. After each financial bust, those at the top of society mysteriously came out wealthier while everyone else came out poorer. Europe was the running example of this at the time.
The bankers initially drafted the Federal Reserve as the “Aldrich Bill,” but when it came to Congress, they recognized Senator Alfred Aldrich’s name, became suspicious, and decided against passing the bill.
The bankers realized they needed a better cover. To make it sound more official, they decided to re-brand the bill as “The Federal Reserve Bill.” They also had two millionaire friends carry the bill to Congress to crush further suspicions. Next, in the art of deception, the bankers went on a mission to foul the American people — they intentionally provided misinformation to newspapers and posted articles about bankers screaming and protesting against the proposed Federal Reserve bill. “It would ruin the banks!” they explained in these articles.
The average person who read the protesting articles of the bankers presumed that if the bankers hated it, then it surely must be beneficial to the public. And so, they unknowingly supported a Trojan horse.
The bankers also fooled Congress by putting clauses in the bill that limited their power, only to remove these limits once the bill was passed. A double-headed trickery of the public and Congress was all it took. And while most of the 535 members of Congress were at home for Christmas or preparing to leave for the holidays, Congress passed the Federal Reserve bill by the vote of 43 to 25. The bill was then represented to the newly elected U.S. President, Woodrow Wilson (March 4, 1913 — March 4, 1921), and signed into law on December 23rd, 1913. And with that, a small group had the monopoly over the issuing and creation of American money.
Among the privileges that Woodrow Wilson received for the role he played in initiating the Federal Reserve, they printed his face on the largest U.S. dollar note ever issued– the 100,000 dollar bill. They fashioned these money notes from December 1934 to January 1935 and used them for transactions between Federal Reserve Banks, not for circulation among the general public.
The Federal Reserve Act transferred the United States monetary policy and the issuing of paper money into the hands of a private bank with a misleading name. In other words, the Federal Reserve Act was quite literally a license to print money.
In addition to Nelson Aldrich’s prominent role in the creation of a central bank in the United States, it should be noted that he authored and led the conception of the 16th Amendment to the U.S. Constitution that authorized the imposition of the federal income tax on American citizens. This overachiever accomplished this in the very same year he co-directed the conception of the 3rd U.S central bank — which we now know as the Federal Reserve.
The Sixteenth Amendment (Amendment XVI) exempted income taxes from the constitutional requirements regarding direct taxes, after income taxes on rents, dividends, and interests were considered direct taxes and ruled to be illegal.
“The Congress shall have the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” ~ Amendment XVI to the United States Constitution.
Federal income tax on labor has been unlawfully imposed on the American people and kept in place for over a century, contrary to various rulings by the U.S. Supreme Court. It exists so that successive federal governments can continue to pay the interest on money which, since 1913, they have been obligated to keep borrowing from bankers, and which the government previously could print independently.
A mere few decades before Nelson Aldrich was born, American colonists had rebelled against the increasingly corrupt ways of Europe, where central banks, national debts and paper money had appeared at the end of the 17th century.
The free-thinking men who drew up the US Constitution, were not economists, but they were blessed with a large amount of common sense. They realized that, when facing a financial storm, if unelected bankers and financiers are allowed to take the helm of a sovereign nation’s monetary policy, then the instinctual desire of a democratically unaccountable minority to remove as much as possible from the majority, will result in the ship of state being steered towards even greater dangers.
Andrew Jackson, the seventh President of the United States of America, the first American president to have been a Democrat, and the man whose face you see on every twenty dollar bill in circulation in today’s paper money, replied when asked what his greatest accomplishment had been during his two terms as President: “I killed the Bank.” He was referring to the “Second Central Bank of the United States”, which was the second attempt to institutionalize a private central bank in the United States of America.
Today, the federal reserve is the most powerful entity in the United States, and they are not ashamed to admit it either. During a televised interview in 2007 with former Federal Reserve Chairman, Alan Greenspan, he was asked: “What should be the proper relationship between the chairman of the Federal Reserve and the President of the United States?” Alan Greenspan replied: “Well, first of all, the Federal Reserve is an independent agency and that means basically that there is no other agency of government which can overrule actions that we take. What the relationships are, don’t frankly matter.”
In addition to this, the Feds can’t even be touched by investigating parties. “We do not have jurisdiction to directly go out and audit Reserve Bank activities specifically.” ~ Elizabeth A. Coleman, Inspector General for the Federal Reserve, said in a congressional hearing eight months after the Feds extended $9 trillion in credit, which works out to around $30,000 of debt for every man, woman, and child in this country.
The central bank model which started in England and manifested in the United States has spread and infected all other countries since then and even consolidated power in Europe as the European Central Bank uniting the independent nations of Europe under one economic policy.
The only countries in the world today that do not have central banks are North Korea, Iran, and Cuba. In 2000, this list suspiciously included Afghanistan, Iraq, and Libya. Another thing these three counties have in common is that they were attacked by the U.S. and are now ravished with conflict and bloodshed. NO FURTHER COMMENT.
Since World War II, the US dollar has been the reserve currency of the world. This means that all other central banks of all counties MUST hold US dollars in their reserves. In other words, all the other currencies of the world are backed by the US dollar, which directly links anyone’s country to the Federal Reserve’s monetary system in the U.S.
When the post World War II monetary system, called the “Bretton Woods” system, was created, all US dollars were backed and exchangeable for gold. A byproduct of this was that currencies used to be very stable in relation to each other.
“For that, all the countries, the exchange rates were fixed, and year after year you could predict what prices were going to be. You could start a business elsewhere; you could calculate profits, business was much much easier before floating exchange rates.”
~ Mike Maloney, Investor and money historian.
Unfortunately in 1971, due to a falling US dollar, international capital flows into gold and the funding of the Vietnam war, President Nixon took the US dollar off the gold standard. “I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold and other reserve assets.” — President Nixon stated in 1971 on national television.
Ever since that decision, the dollar was floating and backed by nothing. This means that all other currencies of the world automatically became backed by nothing more than the “trust” in the American dollar.
Money backed by nothing is known as “fiat currency” where “fiat” in Latin means “let it be done.” In other words, the government says it is money, so it becomes money, and the rest of the population should take its word for it.
The consequence of having money backed by nothing is that whenever the Federal Reserve creates money, it dilutes the currency supply of all other nations because the US dollar backs their reserves. The value of all countries’ reserves of their national currency drops whenever the Feds pumps more US dollars artificially into the economy.
In the past few years, the federal reserve has printed trillions of dollars, and countries like Russia and China have noticed. As a reaction to the money printing, these two countries have been selling US dollar reserves and buying gold over the same period.
The whole economic system today is backed by faith. Faith that you can exchange your unit of currency for goods and services. In a way, part of that faith comes from the ignorance that most people have about the monetary system and who controls it.
Central banks in all countries operate the same way. The central bank in each country is the legal entity that manages the nation’s money supply and can lend money, with interest of course, to the government and other private banks in the country. This is how it all works:
- When the government needs more money than it receives through taxes, they ask the treasury department for money by issuing an IOU or government bond, which is a bond issued by the national government with a promise to pay periodic interest payments and to repay the face value on the maturity date.
- The Treasury (an executive department of government) receives the bond from the government and forwards it to the nation’s Central Bank.
- The Central Bank (a privately owned bank and the entity that owns the monetary system of the nation, and owned by one or more extraordinarily fortunate and unimaginably wealthy families) then writes a check to the local banks in the country for the value of the bond and authorize them to create this new money. This central bank, of course, just invents money out of thin air. It is similar to when you write any number you desire on a check regardless if you have that balance in your account — only in your case, however, it’s illegal because just the central bank is allowed to do that.
- The local commercial banks (obviously all are private banks and owned by wealthy individuals) then type numbers on a screen and create money out of nothing. At this exchange at the private banks, money is created and can be used to pay government bills.
“When you or I write a check, there must be sufficient funds in our accounts to cover the check. But when the Federal Reserve writes a check, there is no bank deposit on which that check is drawn. When the Federal Reserve writes a check, it is creating money”
~ “Putting it Simply” by the Public Services Department, Federal Reserve Bank of Boston, 1984.
So in essence, central banks write checks and create money from an account that has no money in it.
The money that the U.S. Federal reserve creates can be used as legal tender to buy things and eventually makes its way to the real economy. If you and I did that, we would be locked up in jail for fraud, but they can do it because they invented the system and they own it.
It is the same system used throughout the world today.
Another part of this money creation system happens on the commercial banks’ side. Every time you take out a loan to pay for a house, TV, or car, banks simply type in some numbers digitally in your account and charge you interest on it.
“Each and every time a bank makes a loan, new bank credit is created — new deposits — brand new money.” ~ Graham F. Towers, governor of the Central Bank of Canada (1934 to 1955)
“Banks extend credit by simply increasing the borrowing customer’s current account.” ~ Paul Tucker, Deputy Governor of the Bank of England (2009–2013)
So basically, each time the bank makes a loan, the bank doesn’t use other people’s deposited money to loan to you. It creates new money by typing digits into a computer. 97% of all money is generated that way. Only 3% is the physical paper cash and coins that we carry.
Another crazy thing that commercial banks can do is lend out up to 10 times more money than they actually have in reserves. This practice is called fractional reserve lending.
Why should you care? Perhaps you’re okay with having a handful of families owning the monetary system of the planet, as if it were as simple as owning private property. Maybe you’re okay with them controlling the printing of money too. However, there are still substantial consequences.
When more loans are given out, more money is created, and the rest of the money in circulation is worth less and less as the years go on. It is known as inflation. In a way, inflation is a tax that we all pay for the fraud of money printing. Easy money now in exchange for a burden on our future generations.
It is a snowball system that lets the rich become even richer. Savers, on the other hand, are losing billions every year thanks to low-interest rates and the devaluation of the currency. If you just open a savings account, it’s almost like burning money because the value of the currency has dropped over the years, which means that the purchasing power that a “Benjamin,” or $100 bill gave you twenty years ago, will get you much less today.
To illustrate how much the value of $100 has changed over the years, GOBankingRates used the Bureau of Labor Statistics CPI Inflation Calculator to determine what a $100 bill could buy in today’s world as its purchasing power changed over the decades. A $100 bill wouldn’t cover the cost of many mini-fridges today, but it was worth the equivalent of $1,329.23 in 1945, enough to buy a 25.4-cubic foot Whirlpool side-by-side refrigerator and leave you even with a little extra grocery money to fill it.
When you take out a loan, it’s written down as an asset in the bank in negative form, or otherwise known as “debt.” Under this system, debt is actually money.
“If there were no debts in our money system, there wouldn’t be any money.”
~ Marriner Stoddard Eccles, U.S. banker, economist, member and chairman of the Federal Reserve Board.
So in essence, instead of gold being the backbone of our economy, it is now debt. This system we’re under now is known as “the debt-based monetary system.” It requires that debt must always grow for the economy to function.
Countries and people must become more and more rooted in debt so that there is more money in the system, because debt is money. If governments and people stopped borrowing money, the debt doesn’t grow, the money supply shrinks, and the system falters.
The federal reserve and other central banks control money by adjusting its supply and how much it costs to borrow money, otherwise known as interest rates. With these tools as consequence of human group psychology, central banks create booms and busts in the economy at will and stall and derail the economy by messing with it.
In the year 2000, Federal Reserve chairman Alan Greenspan cut interest rates to 1%. He did this to try to fight off the recession from the dotcom bubble and encourage people to borrow money. When the interest rates are low, if you’re borrowing money you save a lot on repaying mortgages. Since the 1% interest rates hadn’t been seen at the time since 1950, it was a pretty good idea.
Greenspan thought he could create a wealth effect and people would start buying houses, the prices would go up, and people would start feeling wealthier and spend more money in the economy and stimulate it.
Greenspan sure succeeded in getting people to borrow money to buy houses, but they borrowed too much, and the result was the 2008 housing bubble. This is a prime example of what could go wrong when central banks mess with the economy. Yes, corrupt bankers have a lot to answer for on their role in the 2008 crises, but the Fed has a far more outstanding long-term impact.
It’s the central banks that control our economy and together with the commercial banking system, they control all our money. The difference between central banks and commercial banks is that central banks can create money at will, while commercial banks need loans to generate money.
To give you an idea of people’s views of central banking when people truly knew what central banks were, here are a couple of examples:
“Whoever controls the volume of money in our country is the absolute master of all industry and commerce…when you realize that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate.”
~ James Garfield, 20th President of the United States, serving from March 4, 1881, until his assassination later that year.
Benjamin Franklin, one of the Founding Fathers of the United States, proclaimed as “The First American” for his early and unrelenting campaigning for colonial unity, and the man whose face you see on every 100 dollar bill in circulation, stated in his autobiography that the prime reason for the American war of independence was a battle over who controlled and issued the money of the new colonies.
“To preserve our independence we must not let our rulers load us with perpetual debt. We must make our choice between economy and liberty, or profusion and servitude. I place economy among the first and most important of Republican virtues and public debt is the greatest of the dangers to be feared. It is incumbent on every generation to pay its own debts as it goes. If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of their property, until their children will wake up homeless on the very continent their fathers conquered.”
~ Thomas Jefferson, 3rd President of the United States from 1801 to 1809, one of the Founding Fathers and the principal author of the Declaration of Independence.
Moving on to more modern times, Nobel prize winner economist Milton Friedman stated: “The Federal Reserve definitely caused The Great Depression by contracting the amount of currency in circulation by one third from 1929 to 1933.”
The first Central Bank of the United States (1791–1811) was modeled after the Bank of England and created by Alexander Hamilton (1st United States Secretary of the Treasury) and George Washington (1st President of the United States). It only lasted 20 years because it was bitterly opposed by several founding fathers including Thomas Jefferson, who saw it as an engine for speculation, financial manipulation, and corruption. The second Central Bank of the United States (1816–1836) only lasted 20 years as well, and it was abolished by Andrew Jackon (7th U.S. President), who took it into battle as soon as he stepped into office in what was called “The Bank War.” The third Central Bank of the United States or what is known today as “The Federal Reserve” managed to cross the 20-years barrier and is as of today 104 years old.
The secrecy that shrouded the establishment of the Federal Reserve and the early decades of its existence along with the laws and legislation that perpetuated its presence helped prolong its life artificially. For how much longer will its unnatural existence linger, only time will tell.
Aside from being engines of financial manipulation and corruption, central banks are authors of war.
We all know that war is expensive and governments need money to fund their military campaigns. With central banks by their sides creating money out of thin air, war becomes one command away.
“Of all the enemies to public liberty war is, perhaps, the most to be dreaded because it comprises and develops the germ of every other. War is the parent of armies; from these proceed debts and taxes … known instruments for bringing the many under the domination of the few.”
~ James Madison, 4th President of the United States from 1809 to 1817, founding father and hailed as the “Father of the Constitution”.
There is so much information to uncover that is seldom talked about in the mainstream media about the direct correlation between central banking decisions and wars or conflicts around the world. Pretty much whenever you dig deep down into it, the root of all revolutions, wars, conflicts, and bloodshed almost always boils down to money and currency, especially in our modern times.
So, with all this said, one could still argue that creating money out of thin air from a money pot that has no money in it is not a completely bad idea. However, this monetary policy needs to be part of the government and not privately owned by several mindbogglingly wealthy families whose identities are always hidden from the public and clouded with secrecy.
The democratically elected government should be able to issue its national currency for the benefit of its citizens and shouldn’t have to borrow it and pay a massive interest to a private entity owned by the wealthiest families in society making them richer while the rest of us are getting poorer.
“The government should create, issue, and circulate all the currency and credit needed to satisfy the spending power of the government and the buying power of consumers. Money will cease to be master and will then become servant of humanity.”
~ Abraham Lincoln, 16th President of the United States from March 1861 until his assassination in April 1865.
An act of Congress created the Federal Reserve, and an act of Congress can abolish it. For this to happen however, a complete change in Washington D.C. needs to occur, because by in large the public officials that are in office today are very much beholden to this Federal banking system.
The pain the Feds will inflict onto the global economy will be enormous, and we should all be prepared when that inevitable day comes. In fact, there is a precedent from the “The Bank War” between Andrew Jackson and Nicholas Biddle, who served as the 3rd and last president of the Second Central Bank of the United States. Nicholas fought this war bitterly and declared: “I will pull the country down. The nation will fall, the people will fall, but the bank will not fall.”
To an extent, Nicholas practically succeeded in doing that, but ultimately Andrew Jackson killed the bank and the economy recovered.
I’ll close with some final thoughts and hope to hear yours in return. When I discovered the truth behind the Federal Reserve, I was consumed by anger because I realized I was lied to and deceived by a rigged monetary system.
From my perspective, the Federal Reserve system is fundamentally evil. It funnels wealth from the working class to the rich, causing vast disparity within our socio-economic classes.
Worst of all, I see it as a form of enslavement. Governments should be able to print national currencies instead of borrowing money from bankers with interest through government bonds, only to then force its citizens to repay borrowed money back to these bankers through suffocating income taxes — which as a reminder, were illegal just 104 years ago.
Can we call this country the “land of the free” when we are slaves to debts and income taxes?
Can we still call it the “home of the brave” when we do nothing to break these chains?