How the Federal Reserve was born

The Federal Reserve is not a part of the government of the United States. It is a privately owned enterprise. The book, “The Creature from Jekyll Island,” by G. Edward Griffin, is about how the central bank we know as the Federal Reserve (the Fed, for short) was formed, what was behind it, and what effect it has on our lives today. I have the edition from June 2005. I’m sure more recent editions have some very gloomy, yet exciting chapters at the end, where the author describes what will happen to our economy if monetary and fiscal policies continue on the same trajectory.
Seven powerful men made a trip to Jekyll Island, off the coast of Georgia, in November of 1910, for a highly secretive meeting. The wealth of these seven men represented approximately ¼ of the wealth in the world. A senator and the Secretary of the U.S. Treasury were amongst this group of men. The rest were bankers who were from rival banking concerns. This group of powerful bankers represented the interests of J.P. Morgan, the Rothschilds, the Rockefellers, Kuhn, and Loeb.
These men were unhappy with the way things were going in the world of banking. At the time, New York was the banking center of the U.S. consisting mainly of Federally-chartered banks. These National-level banks were allowed to issue their own currency  in the form of bank notes. Lately, many small, non-national banks were springing up in the South and the West. At the time of this secret meeting, these small, competitive banks were holding more banking deposits than the Federally-chartered banks on Wall Street. These New York bankers wanted to stop this trend.
To make matters worse, many businesses were funding their growth with their own profits. The free market created an environment in which there was a healthy balance between taking on debt and being frugal. Interest rates adjusted based on demand. Those who could fund their ventures using their own capital (and thereby avoid paying interest), did so. Those who could not self-fund, but were confident in their ability to repay at the current interest rate, borrowed from the banks.
To maintain their power, these powerful men (known as the “money trust”) wanted to create a banking cartel. This cartel’s goal, as with any monopoly, was to maximize the profits of the members. To achieve that goal, they had to minimize competition. And to carry out the mandate of their cartel, they planned to use the force of the U.S. government.
This whole scheme conjures up memories of my kids watching the cartoon “Pinky and the Brain.” The Brain was determined to take over the world and Pinky was his accomplice who was sent out to do all the dirty work. One could make the analogy that the “money trust” was the Brain and the U.S. government was Pinky.
Back in 1910, the only way banks could earn money was to make loans and charge interest on those loans. With controlled and rational borrowing, these big New York banks weren’t making as much as they wanted to make. They wanted to encourage borrowing in order to earn more interest. The way to do that was to set interest rates artificially low, thereby making borrowing more attractive. Does this sound familiar?
Incidentally, the ideas built into this scheme were all based on the central banking systems that had already been established in Europe.
Once these 7 powerful men came up with how they wanted the monetary system to work, they had to create a way to get it enacted into law. This was a delicate maneuver, considering the American people did not trust the big bankers, or “money trust.” They had spokespeople who portrayed it as a mechanism that would help the public, the nation, and commerce, and would lower interest rates and stabilize the economy. Unfortunately, the actual plan was to use the taxpayers to insure this cartel, which was designed purely to benefit the private bankers.
The American people wanted to disarm the “money trust” and neutralize the powers they already had. The public wanted broader control over money and credit, not control by a select few. Oddly enough, the ruse under which the Federal Reserve Act was passed was that it would protect the public. The money reforms that established the current central bank of the United States, known as the Federal Reserve, became law in 1913.
Sadly, the result of enacting this law was to preserve and enhance the power of the “money trust.” Nothing changed except that they now had the force of the U.S. government behind them. I want to make it clear, though, that the Federal Reserve is not an agency of the U.S. government. It is privately owned.


How the Federal Reserve was born — 1 Comment

  1. I believe your comments about getting residency in Panama are confusing – you use residency and citizenship together – but they are very different. Residency is relatively simple and requires no renunciation – citizenship is an entirely different matter and does require renunciation. Most people either cross the border and renew their visitor visas and come back to Panama and can do this indefinitely or become a resident. Much fewer see the need for citizenship.

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