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Federal Reserve – History and Conspiracy

Of all the conspiracy theories that may come up in American political discourse, there is one that requires nothing that is supernatural, or even particularly out of the oridinary.  The players may only be vaguely familiar:  Rockefellers, Rothschilds, Morgans, Warburgs - and the Federal Reserve (whose part tonight will be played by Ben Bernanke, a PhD economist with education from Harvard and M.I.T.)

The scope is nothing short of a total underground or shadow government that directs hundreds of billions of dollars a year.  But the cost of  funding the operation would only be a few pennies on the dollar (quite literally).

Other conspiracies have come and gone, but the distrust of central banks has been with us for hundreds of years - and the actual verifiable history is murky at best.  The individuals involved are known to posses incalculable wealth, and they entertain themselves with controversial social causes & international political activity - but they value their privacy and make their conclusions away from scrutiny.  The totality of the plot is so pervasive, so totalitarian, that it encompasses a massive international network.  If you've been reading a while, you may have heard me brush on a few of these topics.

The Promises of a Central Bank

The fundamental promise of a central bank like the Federal Reserve is economic stability.  The theory is that manipulating the value of the currency allows financial booms to go higher, and crashes to be more mild.  If growth becomes speculative and unsustainable, the central bank can make the price of money go up and force some deleveraging of risky investments - again, promising to make the crashes more mild.

In reality?  The results are mixed.  No doubt, America has experienced rapid growth since the institution of the central bank.  Then again, we did pretty darn good before the Fed, too.  Does it bring stability?  Again, this is mixed.  It must be noted that the Fed was established prior to the Great Depression, but it must also be noted that we have experienced many periods of rapid economic growth.

A Revolutionary History

The period leading up to the American revolution was characterized by increasingly authoritarian legislation from England.  Acts passed in 1764 had a particularly harsh effect on the previously robust colonial economy.  The Sugar Act was in effect a tax cut on easily smuggled molasses, and a new tax on commodities that England more directly controlled trade over.  The navy would be used in increased capacity to enforce trade laws and collect duties.

Perhaps even more significant than the militarization and expansion of taxes was the Currency Act passed later in the year 1764.

"The colonies suffered a constant shortage of currency with which to conduct trade. There were no gold or silver mines and currency could only be obtained through trade as regulated by Great Britain. Many of the colonies felt no alternative to printing their own paper money in the form of Bills of Credit."  [1]

The result was a true free market of currency - each bank competed, exchange rates fluctuated wildly, and merchants were hesitant to accept these notes as payment.  Of course, they didn't have 24-hour digital Forex markets, but I'll hold off opinions on the viability of unregulated currency for another time.

England's response was to seize control of the colonial money supply - forbidding banks, cities, and colony governments from printing their own.  This law, passed so soon after the Sugar Act, started to really bring revolutionary tension inside the colonies to a higher level.  American bankers had learned early on that debasing a currency through inflation is a helpful way to pay off perpetual trade deficits - but Britain proved that the buyer of the currency would only take the deal for so long...

Establishing and Abolishing Central Banks

Following the (first) American Revolution, the "First Bank of the United States" was chartered to pay off collective war debts, and effectively distribute the cost of the revolution proportionately throughout all of the states.  Although the bank had vocal and harsh skeptics, it only controlled about 20% of the nation's money supply.  Compared to today's central bank, it was nothing.

Thomas Jefferson argued vocally against the institution of the bank, mostly citing constitutional concerns and the limitations of government found in the 10th amendment.  There was one additional quote that hints at the deeper structural flaw of a central bank in a supposedely free capitalist economy:

"the existing banks will, without a doubt, enter into arrangements for lending their agency, and the more favorable, as there will be a competition among them for it; whereas the bill delivers us up bound to the national bank, who are free to refuse all arrangement, but on their own terms, and the public not free, on such refusal, to employ any other bank" [2]

Basically, the existing banks will fight over gaining favor with the central bank - rather than improving their performance relative to a free market.  The profit margins associated with collusion would obviously outweigh the potential profits gained from legitimate business.

The Second Bank of the United States was passed five years after the first bank's charter expired.  An early enemy of central banking, President James Madison, was looking for a way to stabilize the currency in 1816.  This bank was also quite temporary - it would only stay in operation until 1833 when President Andrew Jackson would end federal deposits at the institution.  The charter expired in 1836 and the private corporation was bankrupt and liquidated by 1841.

1863 & 1864::  National Bank Act(s)

While the South had been the major opponent of central banking systems, the end of the Civil War allowed for (and also made necessary) the system of national banks that would dominate the next fifty years.

The Office of the Comptroller of the Currency (OCC) says that this post-war period of a unified national currency and system of national banks "worked well." [3]  Taxes on state banks were imposed to encourage people to use the national banks - but liquidity problems persisted as the money supply did not match the economic cycles.

Overall, the American economy continued to grow faster than Europe, but the period did not bring economic stability by any stretch of the imagination.  Several panics and runs on the bank - and it became a fact of life under this system of competing nationalized banks.  In 1873, 1893, 1901, and 1907 significant panics caused a series of bank failures.  The new system wasn't stable at all, in fact, many suspected it was wraught with fraud and manipulation.

1907-1913:  Triumph of the Robber Barons

"The most notable robber barons were J.P. Morgan (banking), John D. Rockefeller (oil), and Andrew Carnegie (steel)" [5]

Panic of 1907

The Federal Reserve Bank of Minneapolis is not shy about attributing the causes of the Panic of 1907 to financial manipulation from the existing banking establishment.  "If Knickerbocker Trust would falter, then Congress and the public would lose faith in all trust companies and banks would stand to gain, the bankers reasoned." [4]

In timing with natural economic cycles, major banks including J.P. Morgan and Chase launched an all-out assault on Heinze's Knickerbocker Trust.  Financial institutions on the inside started silently selling off assets in the competitor, and headlines about a few bad loans started making top spots in the newspapers.  The run on Knickerbocker turned into a general panic - and the Federal Government would come to the rescue of its privately owned "National Banks."

During the Panic of 1907,

"Depositors 'run' on the Knickerbocker Bank. J.P. Morgan and James Stillman of First National City Bank (Citibank) act as a "central bank," providing liquidity ... [to stop the bank run]

President Theodore Roosevelt provides J.P. Morgan with $25 million in government funds ... to control the panic. Morgan, acting as a one-man central bank, decides which firms will fail and which firms will survive."  [5]

Interlocking Directorates

How did JP Morgan get so powerful that the government would provide them with funding to increase their power?  This question will come up again in 2008.

As Congressman Arsène Pujo would discover in his Congressional investigation of the "robber barons" or "money trusts," the key to expanding wealth beyond typical monopolies is the practice of interlocking directorates.  Railroad and oil monopolists could still expand their power and wealth by creating series of banks, and sponsoring directors at the institutions.  Alliances across the insiders would be cemented with cross-institution investment.  Tycoon A would found banks 1, 2, and 3 - Tycoon B would found 4, 5, and 6 - and each bank would be heavily invested in the various banks and monopolies they represented.

The result is a sort of conglomeration of monopolies - a place where each industry's dominant corporation merges into a larger entity, a goal short of nothing but monopolization of everything.

But such a entity could not be expected to exist or thrive in a purely efficient (competitive) market.  It is important then to remember that the private national banks of this "Robber baron" period were effectively subsidized by a tax on their state-based competition.  This is of course in addition to the interest gained from public deposits, and the fees that the government paid for the printing of currency.

No, from the onset, the National Bank System was little more than a federally subsidized profit opportunity.

The resulting outrage and scandal would result in a chorus of calls all demanding the same thing:  More government action, a stronger central bank.  What few but the bankers understood is that the government action and stronger central bank subsidies allowed the creation the things the people feared the most:  corruption, monopoly, and central planning of mundane activity and commerce.

1913 The Federal Reserve

Government interventionists got their wish in 1913 with the Federal Reserve (and income tax amendment).  Just in time, too, because the nation needed a new source of unlimited cash to finance both sides of WW1 and eventually our own entry to the war.  After the war, with both sides owing us debt through the federal reserve backed banks, the center of finance moved from London to New York.

But did the Federal Reserve reign in the money trusts and interlocking directorates?  Not by a long shot.  If anything, the Federal Reserve granted new powers to the National Banks by permitting overseas branches and new types of banking services.  The greatest gift to the bankers, was a virtually unlimited supply of loans when they experience liquidity problems. [5]

From the early 1920s to 1929, the monetary supply expanded at a rapid pace and the nation experienced wild economic growth.  Curiously, however, the number of banks started to decline for the first time in American history.  [6]

Toward the end of the period, speculation and loose money had propelled asset and equity prices to unreal levels.  The stock market crashed, and as the banks struggled with liquidity problems, the Federal Reserve actually cut the money supply.  Without a doubt, this is the greatest financial panic and economic collapse in American history - and it never could have happened  on this scale without the Fed's intervention.  The number of banks crashed and a few of the old robber barons' banks managed to swoop in and grab up thousands of competitors for pennies on the dollar.

[1]  The Currency Act, 1764 -  http://www.ushistory.org/declaration/related/currencyact.htm

[2]  Jefferson's Opinion on the Constitutionality of a National Bank, 1791 - http://www.yale.edu/lawweb/avalon/amerdoc/bank-tj.htm

[3]  National Bank Notes:  A Uniform Curency (1865-1914) - http://www.occ.treas.gov/exhibits/histor4.htm

[4]  F. Augustus Heinze of Montana and the Panic of 1907 - http://minneapolisfed.org/pubs/region/89-08/REG898C.cfm

[5]  FDIC Learning Bank:  1900-1919 - http://www.fdic.gov/about/learn/learning/when/19-1919.html

[6] Depression-era bank failures: the great contagion or the great shakeout? - http://www.encyclopedia.com/doc/1G1-132680382.html

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  1. Excellent synopsis of major events in our nation’s banking history. I have greatly expanded upon them in my new book: Vile Acts of Evil – Volume 1 – Banking in America, filling-in the blanks and adding much more detail than can be presented here. You are on the right track.

  2. Like so many of the big subjects, (especially the grand conspiracies lurking in the shadows), getting to the truth seems to be nearly impossible.
    With no certificates of authenticity or concern for basic credibility, the internet is infected with unsubstantiated claims. Anybody with a computer, an internet connection and a little time on their hands can put forth any of countless theories.
    UFO’s and reptilian aliens, the Bilderburgs and the Illuminati and the impending New World Order are enough to keep the average paranoid schizophrenic or conspiracy nut darned busy.
    So what are the real facts about the Federal Reserve, it’s history and the way it was enacted into law?
    Whom did what? When did they do it, and who was involved in the conspiracy? What was their agenda? Who benefited?
    Are powerful groups able to pervert history — hiding their intents, motives and ambitions — all the while carrying out self-serving agendas that are profound in their implications?
    Is the Federal Reserve, (and the IRS), designed to be the largest legalized theft organizations on the planet, yet carefully disguised and supported by countless stooges?
    By and large, the major news outlets endorse the FED as a completely legitimate and a valued aspect of the American economy and monetary system.
    Do institutions such as mainstream media obfuscate and gloss over when they are instructed to? Are they protecting their own interests?
    And finally, with so many of history’s big events inaccurately portrayed, how can one place their trust in institutional renditions of the “facts”?
    Completely undecided and thoroughly confused,
    Michael McCoy

  3. Secrets of the Federal Reserve by Eustace Mullins
    It is ALL right there.

  4. Confusion is precisely what its all about! The powers behind the scenes pulling the strings practice making the bad guys look good at times, other times bad, and vise versa, so the average guy doesn’t know who to trust. But if you follow the money trail it isn’t hard to figure out who is at the helm. And, as the Good Book says, it isn’t God who is the author of confusion.

  5. Fight the Machine. Pray for meteor! We need new begining even if it means death to humans!

  6. Great synopsis, great comments, Switzer, the Good Book also says that government will suppress it’s people… just saying

  7. The Fed/IRS theory explains a lot about human nature, and does not seem that far-fetched when benchmarked against the depiction of human nature as presented in the Holy Bible. Of course, the average American would think this theory is too far-fetched to believe. I do not believe that we should all be Chicken Little and scream “the sky is falling,” or lurk around in paranoia because the government is out to get us.

    The American economic system has its roots in free market enterprise, and free enterprise works when it is allowed to. The federal government has its place in taking care of the “externalities” not answered by the free market system. The problem, however, is when power overreaches its boundary, which is the tendency of human nature, and greed & corruption are allowed to creep in to an efficient system. This often times occurs with the collusion of government figures. This throws off the balance of the free market system. Government intervention tends to inhibit the ability of free markets to “right the ship” when things get askew. Our Constitution was a beautiful attempt to keep the balance of power in check, giving a separation of powers within the government, and drawing a distinct line where the government stays at the “water’s edge.” Self interest and politics has blurred those lines and have moved the waters edge inland, giving the government more discretion, crowding out free markets.

    This should not surprise us, as to err is human. Absolute power corrupts absolutely. The closer we adhere to the Holy Bible and the US Constitution (as it was written) the closer we get to the model that made America great. The great American experiment worked, human nature just got in the way. The answer is to look upward and to seek the mind of God by studying His word. This is what our founding fathers intended.

  8. Who cares. I live in the Federal Reserve Forest, eat bugs and grubs and wear recycled clothes. I don’t pay any taxes, own nothing and transform into the same dust when I die. I live while you all are taken for a ride. If you don’t want to do what i do, live in the system you do and accept smarter more powerful people will always control your destiny.

  9. This is helpful. I agree that the conspiracy theories out there that appeal to occultism elements, or anything beyond naturalism, is just a form of disinformation meant to dilute the argument.

    For a longbtime I struggled with this “free market” ideology until I realized the markets are not free. We are in the era of monopoly capitalism and neoliberalism, both corrupting one another with the public and democracy taking a back seat to government collusion, bribery, and a lack of transparency.

    The latter is the most pernicious problem, the inevitable result of the “national security” trump card. This decade alone has born witness to a litany of whistleblowers, each one marginalized and swept away.

    Multiple-national corporations are very powerful, and by definition are totalitarian and devoid of empathy. The problems we are having right now are because of their tremendous weight in the political process. The last mid-term election is proof that are democracy is officially broken.

    Corporations can now spend an infinite amount on a particular election, drowning out individual voices.

    Notice how Americans are supposedly against everything in their own sel interest? Why would they be against a consumer protection agency, affordable health care, or environmental protection. They would be, and of course are, but the collective zeitgeist is painted with a corporate brush, and in a sea of disinformation they lose interest in their own autonomy and reluctantly walk away from the game, leaving corporate interests with even more power.

    This is a very dangerous time.

  10. This is a good subject to talk about. Sometimes I fav stuff like this on Redit. This article probably won’t do well with that crowd. I’ll take a look around your site though and submit something else.

  11. I would love to here more about the federal reserve im in the military and im studying economics and iv always thought that the banking system has been controlling the us for as far as I can remember id love to touch base with someone who has more information on the federal reserve please contact me at sce1992@yahoo.com

  12. What I always find interest of the federal reserve is the story of where it was created on Jekil’s Island. That stuff would make a great movie… too bad they won’t allow it!

  13. To Steven… google “The Creature From Jekyll Island” for a very well researched history of the “Fed” in the audio form of a lecture from the author of the book by the same name. He predicted a massive bailout in the near future, which ironically occurred just days after I heard the lecture. Something else to ponder is Thomas Jefferson’s statement in a letter to the Secretary of the Treasury. He writes “If the US ever allows private banks (The Fed) to have control over the issuance of coin and currency, first by inflation and then by deflation, they will rob the citizens of all property and value until their children wake up homeless on the continent their forefathers conquered.” Housing crisis? Bailouts? Economic crisis? Eleventh hour budget vote…US almost defaults? Hmm, well… what will we do? Nothing! I havw NEVER met anyone who was in favor of the first bailout. Not only did it pass (the second time after they added bribes and it went from 650 to 800 billion) but the funds were given to the people who stole it in the first place (Wall St bankers) then… the vast majority of those stooge politicians were re-elected! Why? Because all anyone does is drink beer and watch American Idol. RESEARCH…TURN OFF YOUR TV…THINK!

  14. James- Thank-you for your post.

  15. Anyone who desires to know who or what controls our Federal Reserve System needs to study the Rothschild (Jew) Banking Family. Meyer Amschel Rothschild started it all in the late 1700’s along with his five sons. This family OWNS and controls our Federal Reserve, The World Bank, IMF. Their allegiance is to no country and their aim is to enslave us all. It is not my fault they are Jews nor is it my fault that what is written in the PROTOCOLS OF THE LEARNED ELDERS OF ZION is happening at their direction. Untils we elect a candidate like Ron Paul who wants to ultimately ABOLISH the Federal Reserve/IRS the United States of America is doomed and destined to become a debt slave serf nation at the hands of parasite JEW Bankers AKA the Rothschilds. God’s “Chosen” people are actually the CHILDREN OF THE DEVIL. God Bless the U.S.

  16. Who are you? It looks like you are the originator of this article that, amazingly, has been plagiarized on the web at least 18 times, since you have the intact footnotes. But, this site (http://premiumhype.blogspot.com/2009/02/truth-federal-reserve.html) has your 1st paragraph dated 2/22/2009. Did you publish this somewhere earlier?

    What is your formal education in economics, law, political science, history? Just curious.

    – Dan

  17. Who am I? Well, that is a tough question, so I’ll stick to the credentials! I earned a bachelor’s degree in political science, on the economics track (with honors), and my minor is in history. If the college formally recognized multiple minors, I’d also have them in literature and international studies. I also spent about two years in student government and that was enough formal politicking for this lifetime.

    Since graduating I’ve mostly been self-employed, but I have worked off and on with some companies that are involved in the financing of higher education – mostly with scholarships and financial aid, but also minimally in political analysis for student lenders. Much like my experience with politics, I’ve spent enough time working in banks for this lifetime. (My first job at a bank was scanning and shredding mortgage documents for WaMu… well, I walked out when we got to the shredding part…)

    And yes, I did publish this article before the date shown above. This website was originally put together in Joomla, but a severe SQL injection attack forced me to scrap the entire thing and start over. Unfortunately, this is one of the few articles I was able to keep and it looks like the pictures are still missing. Hey, I never said I was an expert in web design or network security!

  18. While I am definitely not a conspiracy theorist, certain things just hold true over the recorded history of mankind. Pretty much everything is related to money, which of course is power… the power to make more money. I have taken to a simple extrapolation when pondering the why’s of such events like the Federal Reserve Act, or for that matter Sub-Prime Mortgages. By the way it’s staggering how many people think that Sub-Prime Mortgages meant that people were getting loans below the prime lending rate. Just for the record it means that the people who were getting the loans were “less than good credit risks” given their below average credit scores.
    The extrapolation mentioned earlier…”If you want to know the “real reason” something happened, look at “who” stands to benefit finically, and you can generally figure out the how and why”.

    Quite simply the Federal Reserve System was created so rich greedy bankers and oil barons could get richer. Before the act, the wealthiest people in the U.S.
    got together “in secret” at Jekyll Island. Why would they meet in secret? Because their agenda was not to stabilize the dollar or the economy, it was to control every cent of every dollar in the U.S. Before the act the banks controlled an estimated 35%, and soon after the act passed they were basically in control, through banks, hidden companies and federal allocations, of every dollar. Being in control of 100% of the currency gives one lots of leeway to earn more money.

    There are even substantiated rumours that once they (The Jekyll Island group ) devised the system, they realized that it would never pass with the American public if the public believed it was in the best interest of the banks. So the group conjured a devious plan to get what they wanted by campaigning for something they really didn’t
    want, but with the ability to refine the plan (it went trough 3 re-writings) and eventually they ended up with exactly what they were looking for in the first place.
    There is evidence the Rockefeller’s and the Morgans funded local splinter activist groups, who campaigned to the public that the banks and major corporations were against the Federal Reserve bill being passed….quite fraudulent, but ingenious.

    The reasoning stands that the bill passed largely because the American people were fooled into thinking it was good for them…including those in congress.
    What was the real agenda?….To control every cent of every dollar
    Who stands to benefit?……….The banks and largest corporations of the day
    Who met on Jekyll Island….The richest men in America, who owned the largest banks, oil companies and corporations in the country.

  19. Michael McCoy : you can get many answers by reading , EN ROUTE TO GLOBAL

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