The New American reports that our monetary mayhem began with the fed.
(emphasis mine) [my comment]
Our Monetary Mayhem Began With the Fed
Written by James Perloff
Thursday, 02 April 2009 18:00
The Bankers' Beast
The change came from a single factor: creation of the Federal Reserve in 1913 [See how the Fed's creation is blamed on bankers?]. Though most Americans have heard of it, few know much about it.
The Fed was established when Congress passed the Federal Reserve Act in 1913. But the original legislation, containing the essential points of that act, was introduced by Senator Nelson Aldrich, front man for the banking community. Few today have heard of Aldrich, but many are familiar with billionaire Nelson Rockefeller, who was Gerald Ford's vice president, long New York's governor, and one of America's richest men. His full name: Nelson Aldrich Rockefeller — named for his grandfather, Nelson Aldrich. Aldrich's daughter married John D. Rockefeller, Jr., and his son Winthrop served as chairman of the Rockefellers' Chase National Bank. Long associated with America's richest family, when Nelson Aldrich spoke on Capitol Hill, insiders knew he was acting for the Rockefellers and their allies in high finance.
The legislation he introduced in the Senate, which became the basis of the Federal Reserve System, was not written by him. It was crafted by several of the world's richest bankers, at a secret nine-day meeting in 1910, at a private club on Jekyll Island off the Georgia coast [Read about the conclave on Jekyl island]. This is well documented. The first reporter to break the Jekyll Island story was B.C. Forbes, founder of Forbes magazine.
Many years ago, Citibank was called National City Bank, and was largely controlled by the Rockefellers. Its president, Frank Vanderlip, attended the Jekyll Island meeting and discussed it in The Saturday Evening Post 25 years later:
There was an occasion near the close of 1910 when I was as secretive, indeed as furtive, as any conspirator.... I do not feel it is any exaggeration to speak of our secret expedition to Jekyll Island as the occasion of the actual conception of the Federal Reserve System.... We were told to leave our last names behind us. We were told further that we should avoid dining together on the night of our departure. We were instructed to come one at a time and as unobtrusively as possible to the terminal of the New Jersey littoral of the Hudson, where Senator Aldrich's private car would be in readiness, attached to the rear end of the train for the South. Once aboard the private car, we began to observe the taboo that had been fixed on last names.... Discovery, we knew, simply must not happen. If it were to be discovered that our particular group had got together and written a banking bill, that bill would have no chance whatever of passage by Congress. [See how Frank Vanderlip is made out to be a villain?]
It happens through a little-known mechanism. We'll borrow from an illustration given by Griffin. Let's say that, this week, the federal government is short one billion dollars needed to pay its employees. It sends a Treasury official to the Federal Reserve building, where a Fed officer literally writes out a check for $1 billion to the U.S. Treasury. This check, however, is not based on any assets the Fed actually holds. It is "fiat money," created from nothing. If an American citizen wrote a check without assets to back it up, he'd be jailed. But for the Federal Reserve, it's perfectly legal. The technical term the Fed uses for this is "monetizing the debt."
Warburg and his accomplices knew that fiat money would give the government the potential to spend without limit. The banking cartel was, and still is, intimately linked to corporations that did business with the U.S. government. This meant these corporations (in modern culture, Halliburton, Bechtel, AT&T;, etc.) could earn virtually unlimited revenues from government contracts.
But the mechanism also benefited the bankers directly... [Read the whole article if you want. It makes these bankers out to be very evil people out to create fiat money.]
On October 31, 1913, The New York Times reported about Vanderlip's fiat money warning.
VANDERLIP SOUNDS FIAT MONEY WARNING
That Is the Chief Danger of the Class-Owen Bill, He Tells Bankers in Chicago.
CHICAGO, Oct. 30.- Frank A. Vanderlip, President of the National City Bank of New York, and James J. Hill, pioneer railroad builder, each sounded a note of warning to the business interests of the country in addressing the Investment Bankers' Association tonight, Mr. Vanderlip pointing out the deficiencies of the Glass-Owen Currency bill and Mr. hill asserting that less than a year's subsistence stood between man and starvation in this country.
Nevertheless, in conversation with the delegates, Nr. Hill declared himself as fairly satisfied with the outlook for business, which he said depended more upon
the courage of American business men than upon crops and banks. He said the men who were responsible for the big financial deals of the future would
rise and fall with the people. according to their individual courage and confidence in the people.
The currency measure, however, was the chief topic of discussion among the delegates, and when Mr. Vanderlip arrived Prom New York he was besieged by bankers, more especially those from the Far West, the Southwest, and the Pacific Coast for an interchange of views on the pending legislation. Mr. Vanderlip had in his pocket a carefully prepared and typewritten speech which, in due course of time, he delivered at a banquet which closed the convention to-night, but in the interim he freely explained to bankers and corr espondents his views, much of what he said not being contained in his prepared speech.
He said he was fully prepared to defend his suggestions m the way of amendments to the Currency bill and ready to answer the criticisms of such an authority as Jacob H. Schiff.
In an animated interview Mr. Vanderlip declared against any legislation that would provide for the issuance US fiat money to be loaned to the bank.
Situation Here and Abroad.
" There are many uncertain factors in the financial situation," said he, "and perhaps the pending legislation at Washington is one of the chief influences. Speaking of general business conditions I think that on the whole they are good and in some maybe better here than in Europe.
" The European situation Is not altogether satisfactory. Our importation of gold this week has resulted in higher rates in London, and it is evldent that further importations will be resisted. However. we have no particular need for gold just now, as our reserves are ample.
" The pending legislation will, if passed, have a very important influence on banking and business conditions. If we can get sound legislation I believe it will give a great impetus to business and strengthen our position in international commerce."
Asked what he meant by sound legislation, Mr. Vanderlip said:
In the first place, above all else it must be legislation that will not result in the United States Government issuing any fiat money to loan to banks. Bad as we want a currency that will expand and contract with the needs of commerce, we do not want it bad enough to start the Government on its way to the Issuance of fiat money. Every one who has studied this subject knows that we must have one central reserve reservoir. The regional bank scheme only disguises this under a name, but gives to a political board the power to make twelve banks one through forced loans.
Defends Central Bank Idea.
"I believe we should have one bank, the stock of this bank should be owned by the people and not by the banks. The control should be in the hands of public officers; the bank should issue the circulation [bank should issue the circulation = gold standard], but in doing so it will violate the principle held by the Bryan wing of the party that the Government should control the issue and supply the currency.
" A bank owned by the people fully controlled by long-termed government issues, can be formed which will meet every economic principle and violate no part of the Democratic creed. The intellectual judgment of the Senate Committee is in favor of such a plan. Nothing but their belief in political barriers will defeat it''
Turning to the criticism of his suggestion to the Senate Currency Committee, Mr. Vanderlip expressed regret that Chairman Glass of the House committee felt that he (Vanderlip) has drawn a red herring across the path of currency legislation. He said that if a plan for a Government-controlled central bank was a confusing factor in the political situation, the men who mere responsible for it were the members of the Senate Committee on Banking and currency.
I merely acted on their request to draft the plan which mould embody principles which they firmly held, the principle of a Government-controlled bank giving to all borrowers the same rate," said Vanderlip. " Hence this originated with the members of the Senate committee, not with me. Nothing was further from my purpose than to confuse the legislative situation.
" I believe no one regards sound currency and Banking legislation as more desirable than I do and nothing can be further from my wish than to prevent such legislation. I also believe that the bill as passed by the House can be amended so as to become a workable plan. It is not workable now, and I think not a single member of the Senate Committee believes it is.
" If the Government issues fiat money to loan to regional banks it will be but a step to issue similar money to be disposed of generally. I feel that the plan I have suggested meets not only sound economic judgment in making the notes the obligation of the bank, but as the bank is a wholly Government-managed institution, it also meets the views of those who feel that the Government should control the supply of currency,"
In his speech he emphasized his criticism of the Glass-Owen bill, saying:
" The notes proposed are fiat notes. They have no reserve whatever provided by the Government, and they are to be lent without limit to a number of banks. There is no case in all history where a nation has started on an issue of fiat money that the result has not been a complete breakdown of the financial system of that country." [Has anyone heard this before? Not something you would expect to hear from an architect of the Federal Reserve, is it?]
Webcas.cas.suffolk.edu explains the The Federal Reserve Act.
G. The Federal Reserve Act (1913):
(1) Though eastern elites had long championed a central banking system, the Federal Reserve Act was not the institution they wanted, but rather one strongly influenced by agrarian Democrats.
(2) The Aldrich-Vreeland Act of 1908, passed in the wake of the Panic of 1907, set up a National Monetary Commission (NMC), to recommend banking reform.
a) Aldrich, who headed the NMC, drew up a bill in 1910 after a secret meeting with NY bankers Paul Warburg, Frank Vanderlip, and Henry Davison, along with Harvard economist A. Piatt Andrew.
b) It proposed a National Reserve Association consisting of 15 regional branches, capitalized by subscribing banks, and controlled by a national directorate ["national directorate" equals aA directorate is an agency usually headed by a director, often a subdivision of a major government department.].
c) Its directors would be given the power to set the discount rate, issue currency, and control open-market operations.
d) A governor, appointed by the President, was to oversee the entire operation.
(3) However, agrarians -- congenitally suspicious of monopoly - objected to the centralized, private character of the proposal.
a) Above all, they wanted public control [Sounds good, until you realize "public control" equal fiat money].
b) House Democrats worked out an alternate proposal under the leadership of Congressman Carter Glass of Virginia, who worked closely with Wilson.
_____i. William McAdoo, Secretary of the Treasury, proposed a rather radical bill, a Federal Bank issuing US currency, backed by the taxing authority of the government.
_____ii. The agrarian Bryan wing of the party exercised considerable influence as well.
c) Frank Vanderlip worked with the Banking Committee in an effort to revise what he held to be the most objectio nable parts of the Glass bill.
_____i. He proposed to centralize banking decisions to greater degree, but accepted that the reserve bank would not be privately held [privately held = gold standard. A central bank, not backed by the government, must be backed by gold.] (as the bankers wanted).
_____ii. He increased the gold reserve requirement from 33.3 to 50%, and made the currency redeemable only in gold, in an effort to limit money creation (and thus inflation). [Rather than blamed with the Fed's creation, Frank Vanderlip should be credited with trying to limit the damage]
_____iii. He raised the dividends of the bank's stockholders from 5 to 6%.
(4) After extended negotiations, first within the Senate, then between the Senate and House, the Federal Reserve Act passed in the House 298-60 and the Senate 42-25.
a) Key to formulation and passage of the legislation was agrarian support - with core Democratic support - for a public institution that issued paper money and facilitated the expansion of the money supply.
b) The northeastern core got a centralized bank, one with some restraints on the creation of money.
c) The system set up
_____i. a Board of Governors
_____ii. up to12 regional Federal Reserve banks
_____iii. a Federal Open Market Committee (this evolved later),
_____iv. a bankers' Advisory Council
_____v. and a membership consisting of several thousand subscribing banks.
d) The Fed had three instruments for adjusting the money supply:
_____i. altering the discount rate, which in turn influences the interest rates charged by the banks (in turn, influencing loans);
_____ii. changing the reserve requirements;
_____iii. engaging in open-market operations - meaning the purchase and sale of government securities to member banks.
e) The Federal Reserve Board consisted of:
_____i. a comptroller,
_____ii. a treasury secretary,
_____iii. five additional geographically diverse members with ten-year terms appointed by the President.
(5) In the end, agrarians, bankers, and state officials all got something from the legislation
a) Ultimately agrarians trusted government more than Eastern bankers to govern credit and money, in part, because of their capacity to alter the government's policies through the ballot box.
b) Farmers got expanded money and credit [ie: inflation], bankers got a centralized clearinghouse and a pooling of reserves [useful, but not worth the price], and government officials enjoyed greatly expanded powers [ie: the potential to spend without limit].
[Clear winner = government officials]
The Agrarian Statist Agenda explains how bankers waged an intense campaign against the bill to create the Federal Reserve.
... The nation's leading bankers sat anxiously at the table, wondering what (probably indigestible) meal they would be served next.
Even as Glass and Wilson presented the revised plan to Congress and the country, bankers were waging an intense campaign against the bill. The level of panic they felt now seems quite remarkable, but in 1913 the proposal, as Link reminds us, constitued an unprecedented level of "government intervention in the most sensitive area of the capitalistic economy." Meeting in Chicago, the country's leading bankers demanded, essentially, a return to the Aldrich plan, while in Boston the House bill was denounced as socialistic by a convention of the American Bankers' Association. Prominent conservatives such as Frank Vanderlip of National City Bank, the railway magnate James J. Hill, and Senators Aldrich and Root condemned the democratic bill as the embodiment of populist schemes, a generator of "fiat" money, and a step towards socialism. Academic opinion in the core was also hostile. Yale President Arthur D. Hadley, a respected economist, wrote President Wilson that the Glass-Owen program would "involve the country in grave financial danger." Prominent professors concurred with Aldrich at a meeting of the Academy of Political Science, condemning the bill's dangerous absence of limitation on note issue. The result of such a legislation, editorialized the New York Times, would be the opening of "a fathomless abyss of inflation." The banking Law Journal editorialized that the bill constituted "a proposal for the creation of a vast engine of political domination over the forces of profitable American industry.... The fight is now for the protection of private rights and to be successful it must be waged to enlist public opinion against unwise legislation with tendencies to financial disaster to all the people." The Wall Street-oriented New York Sun was less restrained. In June 1913 it blasted the bill as "this preposterous offspring of ignorance and unreason" whose "provisions for a Government currency and an official board to exercise absolute control over the most important of banking functions is covered all over with the slime of Bryanism. [Sort blows a big hole in the "evil banker" theory of the Fed's creation, doesn't it?]
[I encourage you to read the rest]
My reaction: Credit for the Fed's creation goes to Washington, not Wall Street.
1) Bankers are falsely blamed for the Fed's creation.
2) The concept of a Federal Bank issuing US currency, backed by the taxing authority of the government, came from the Treasury, not Jekyl Island.
3) Wall Street was completely against the creation of the Fed and fiat money.
Conclusion: There are three points to note from all this:
1) Corruption hasn't been flowing from Wall Street to Washington; it has been flowing from Washington to Wall Street.
A) It was politicians that created the monstrosity called the fed.
B) It was Nixon who officially broke the gold standard.
C) It is Washington which "reformed" the Consumer Price Index to lower social security payments (leaving more for pork).
D) It is Politicians who didn't fight to protected American jobs (ie: using tariffs, applying political pressure, etc...), and accepted the easy credit being offe red by Japan, China, and the rest of Asia. This easy credit finances the US deficit and all types of pet projects. Meanwhile, the US manufacturing sector was outsourced due to the overvalued dollar.
E) It was Greenspan, a political appointee, who kept rates artificially low to keep the white house happy.
2) There are two ways currencies can be set up:
A) Governments issue the circulation. Under this system, money is FIAT.
B) Banks issue the circulation. Under this system, money is GOLD.
In other words (unless you are a fan of fiat money), the control over the issue of currency needs to be taken away from Washington, not Wall Street.
3) Logically speaking, It makes sense that politicians and not bankers created the Fed:
A) More then deflation, more than any other force, hyperinflation completely wrecks a banking system. Hyperinflation wipes out all debt and savings, which means the financial sector simply ceases to exist. Responsible bankers therefore should fear fiat currencies above all else, and, back in 1913, most bankers were still responsible.
B) On the other hand, for politicians, especially irresponsible politicians, the power to print money is an incredibly tempting proposition. Unsurprisingly, the number one cause for hyperinflation is massive deficit spending as the Weimar republic demonstrates.
Fiat money is a threat to the very existence of banks, while it offers governments the potential to spend without limit. Knowing this, who do you think set up the Fed in its current form? Washington or Wall Street?