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The History of the Federal Reserve System

Brief Intro

Have you ever looked at the currency in your wallet and thought, where did this piece of paper come from? Why does society value it so much to the point we use our most valuable asset, time, in exchange for it? What gives our green and blue bills greater or lesser value than that of other countries with other dead political figures' portraits?

These are all good questions and they all have answers. This sytem in which the whole world's population has been forced into without our consent is one formed in secrecy with malicious intentions in mind. The current global economic system runs on a fiat currency basis, in other words, currency is printed up by governments and backed not by a valuable asset but by a military and force. If you don't accept dollars you alienate yourself from the global economy beacuse the dollar has wedged itself into every transaction between every country on the planet regardless of what is being exchanged, whether it be oil between the Saudis and Taiwanese, Chinese manufactured goods being sent to corporations in Greece, or any number of other transactions that occur on a global scale every day. It is all transacted in dollars.

What Does the Fed Do?

The fisrt question of where did this paper come from has a relatively simple answer, it comes from the Federal Reserve. They created it. They brought it into existance from nothing. It is just paper. The value comes from the delusion that society lives under that it holds some value because the government said it does. There are no assets backing the money created by the Federal Reserve, they have not owned valuable assets like gold, offically, since 1934.

"When you or I write a check, there must be sufficient funds in our account 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" - The Boston Fed

At first the Federal Reserve was created under the same template of all other central banks until then, it was a reserve of liquidity to be used in times of distress in financial markets. Rather than allowing the natural cycle of the economy play out, purging all the inefficent businesses that waste comparative advantages and fail, or malinvestments that started out with no comparative advantage that fail, the Fed steps in and buys it up with loans. As noted by the Fed itself, these loans are created from nothing and then charged interest, which means a hefty profit margin for the banks.

Where Did Central Banks Originate?

The first recorded central bank in history was the Bank of England. The Nine Years' war had recently ended and King William III needed to build a new navy but had no money and very little credit. A Scottish banker stepped in and surmised a solution that would resolve the issue. When it was all said and done the banker was able to form a company to "loan" the government 1.2 million pounds, at 8% interest and a 4000 pound fee.

That was the beggining of the central banking system which would go on to infect nearly every nation in the world. The U.S. was one of those countries. In 1781 the continental note, created by congress to fund the revolutionary war had collapsed in value due to over issuance and British counterfiting. Enter Robert Morris, a wealthy shipping merchant and superintendent of finance in the country from 1781-1784. During his stint as superintendent, he proposed setting up a central bank of the same kind they were rebelling against in England. Congress being broke from the war and needing financing desperately, they agreed. Just as the Bank of England was started, Morris created the Bank of North America (BNA), loaning the government 1.2 million dollars to congress.

By the end of the war the BNA was downgraded from national bank to private bank due to its unfavorability among the people. Next up was Alexander Hamilton. Hamilton put it straightforward and said the way to prosperity with a central bank is to use it to accrue debt that can be paid back through taxation. The First Bank of the US was chartered in 1791, even though it was heavily opposed by Thomas Jefferson. Hamilton, Morris and another man Thomas Willing were all directors of the BNA, and Hamilton and Willing went on to be directors of the second central bank as well. Management stays the same, only the name changes.

In the first 5 years of the banks existance, the US government borrows 8.2 million and prices rose 72%. By 1795, the government is in need of more money and sells off it's 20% share in the bank making it a fully private entity. When it's charter came up for renewal before congress in 1811 it was voted out due to changes in political power.

Less than 1 year later the US was once again at war with England. The debt of the country triples from ~45 million to ~120 million dollars. In 1816, with rising inflation and debt, president Madison creates the Second Bank of the US. Just as before, it is granted the right of issuance of the nation's currency. The bank realizes that it will need a renewal in 4 years, and that at that time president Jackson wouldn't need to worry about re-election and would surely veto it's renewal. So they sent in their proposal during his first term, four years early. Jackson still vetoed it, undertanding the dangers of debt accumulation through central bank borrowing. He would go on to be the only president in history to pay off the national debt. In 1833 the government makes good on it's vows and promises to stop using the bank in pursuit of paying off the debt. In 1834 the bankers retaliated, staging a financial crisis and using propganda to pin the blame on the government's discarding of the bank. In 1836 it loses it's charter and the bank is shut down.

In the 77 years between the central banks seperate existances, the banks did all they could to retaliate agaisnt Jackson's actons. They contact trade, remove capital from the US, demand cash for exports and reduced credit availability. The result is the financial panic of 1837. Throughout the 19th century the US is rocked with financial panics and sharp credit contractions. During that time, the wealth in the US becomes increasingly concentrated into the hands of a selct few bankers and industrial revolution families that gained an upperhand and used it to create monopolies on things like rail roads and iron.

Jekyll Island

This consolidation of wealth lead the financial elites of the time to the banking industry. At the center of this nexus of capital was John Pierpont Morgan. It was Morgan that financed some of the largest enterprises to form during this time period, from AT&T to General Electric to GM, he owned a large portion of the country's capital and resources.

Nov 22, 1910 the same men came together under cover of night to meet in secret. They met in Hoboken to ride the private rail car of senator Nelson Aldridge. Aldridge was also father-in-law to John D Rockefeller Jr. and a central figure on the senate finance comittee. Among the constituents to take part in this secret affair were JP Morgan, Nelson Aldridge, Aldridge's personal secretary, the assistant treasury secretary A. Piatt Andrew, national City Bank of New York owner Frank Vanderlip, Henry P Davidson who was a senior partner of JP Morgan, Ben Strong Jr. an associate of JP Morgan and president of the Bankers Trust Co., and Paul Warburg member of a famous banking family from Germany.

These men traveled in secret, using only their first names to remain under cover from the attention of the media. Their destination was Jekyll Island, a small island in Georgia home to a prestigious country club whose members included the Morgans, Rockefellers, Warburgs and Rothschilds. Upon arriving a reporter in Georgia heard of the meeting and asked Davidson what was the meaning of the meeting, his repsonse was they were duck hunting.

Their true goal, which is known now due to Vanderlip's later writing about it, was to draw up the legislation that would be used to "regulate" their own industry. Upon examining their letters and correspondance, G Edward Griffin, author of the book "The Creature From Jekyll Island", he realized they had an even greater goal. They never thought it would be actually grated to them but their true incentive was to gain control over the issance of the currency supply in the nation. Low and behold congress played into their tricks and granted them exactly that along with everything else they've asked for since.

Deceptive Tactics Used

They knew that if the public was aware that they had written the legislation themselves it would never be passed into law. In fact, the first time they tried, they failed. The original drafting of the Federal Reserve Act happened in 1910 but wasn't passed into law until 1913. The first time around they used Nelson as a sponsor for the bill. Nelson was a republican and the bill was about banking so congress figured it had big business interests in mind not the people and it was voted out. Instead of giving up, they repackaged the same bill with minor changes, but this time they tapped two democrats to sponsor the bill, Carter Glass and Robert Owens, who was a succesful banker turned politician himself. It worked, and on December 22nd it was passed by congress and December 23rd it was signed into law by Woodrow Wilson.

There were other tactics used to garner support. The bankers who had originally written the bill, Nelson and Vanderlip, when it was being pushed by democrats spoke publicly and wrote articles condeming the bill. They said it would ruin the banks and be bad for the nation. That was reverse psychology to trick the working class into thinking "if the bankers don't like it, it must be good for the average person". They led their own opposition to trick the American people and congress into supporting the bill.

Paul Warburg even added several provisions to the bill that seemed to hinder the power and abilities granted to the bankers. He recognized that passing the bill into law was the main goal of the group and they could "fix it up later" to allow them more powers. These provisions proved to be the reason it would be passed, even tricking William Jennings Brian, the leader of the populist movement. Originally he was strongly opposed to the bill but with these provisions in place his mind was changed and he was fooled along with the rest of the country. Since then the Federal Reserve Act has been amended over 100 times.

They went one step further. They funded the lobbying in Washington to garner political support for the bill. They financed the creation of "grass-roots study clubs" which popped up all over the nation. These clubs disseminated info on the Federal Reserve act and held public forums to "educate" the people. They donated large sums of money to well-known universities and created new departments of economics. They then chose who was chair of those departments, and those people began teaching, speaking publicly, and writing "scholarly papers" on the wonders of the Federal Reserve system.

It was not until 25 years later that the information was disclosed to the public. In the February 9th 1935 edition of the Saturday Evening Post, Vanderlip wrote a piece on what he and his colleagues had done all those years ago, admitting they knew all along how they were deceiving the nation:

"Discovery, we knew, simply must not happen, or else all our time and effort would be wasted. If it were exposed publicly that our particulur group had gotten together and written a banking bill, that bill would have no chance whatever of passage by congress." - "From Farm Boy to Financier" - Frank Vanderlip

Who Owns the Fed?

The general structure of the Fed makes it seem like there is a system of dispersed powers. It is made up of 12 regional banks and a national bank in NY. The regional banks all have their own boards of directors and the national bank has it's own national board which includes the president of the whole Fed, currently Jerome Powell.

This however is an illusion. The Fed is a unique mixture of a private corporation and a government entity. Alan Greesnspan, former chairman of the Fed put it best when he said:

"There is no other agency of government which can overrule actions we take." - Alan Greenspan

Just like any other private corporation, it has stock certificates, and those are held by the owners, the private regional and national banks. This is the only similarity between a typical corporation's stock and the Fed's stock. Fed stock cannot be sold. Owning this stock does give you a vote, but unlike normal stock, how much you own doesn't influence your voting power. Each stockholder gets one vote. What can they vote on? Well essentially nothing. The national board members, including the president of the Fed are appointed by the president of the US. The chairman and vice-chairman of each regional board is appointed by the national board. They can vote on members of their regional board, however the national board may veto any member voted in on a regional level. It also allows the regional banks to set local interest rates for the banks in their regions, but that also is subject to veto under the powers of the national board.

This structure of 12 regional banks and a national bank in NY was set up to trick the people into believing there was no centralization of powers. Calling itself the "Federal" Reserve is another trick seeing as it is a privately owned corporation that has been granted federal powers.

The Fed's Report Card

The official goal of the fed is a dual mandate of low unemployment (5%) and a stable rate of inflation (2%). These were arbitrary percentages chosen by Fed officials without any statistical reasoning behind their choices. It can be summed up in general as maintaining stability within the economy through interest rate manipulation and "guiding" the market with it's Federal Open Market Committee's (FOMC) forward guidance policy in which high ranking Fed officials make statements in hopes of controlling the direction of overall economic trends. This is a large step from their original mandate of providing liquidity during times of financial panic.

Since the creation of the Fed it has been in power during the crashes of 1921 and 1929, the great depression from '29-'39, recessions in the years of '53, '57, '69, '75, '81, the black monday of '87, a crisis in '99, the dotcom bubble of '00-'01, the great recession of '08, and the current global depression we are entering now, which has unknowable duration and potential for depressed economic factors. Corporate and national debt have entered the 10's of trillions range, interest rates have been near zero, and when adjusted for inflation, negative for nearly a decade. It seems as though the economy would be a lot better off without the Fed's "stabilizing" help.

The reason it has failed for 106 years now is that those are not it's true objectives. The goal of the Fed is to allow government to spend as much as it would like, raising shadow taxes in the form of inflation, and pumping up asset prices through the same means and artificial interest rates. The point of the Fed is to keep the financial elites in power at the cost of the working class people.

Since it's inception the Fed has been holding onto a monopoly on the issuance of the nation's currency and being in charge of the very industry it participates in. It is a private banking cartel and it has stifled all competition through the ultimate advantage; unlimited liquidity. Rockefeller said it himself, "competition is a sin".

Solutions

Many would say that we need to relinquish the power of the Fed from the private banks and hand it over to congress, the treasury, or some new federal entity. To suggest this is to misunderstand the problem entirely. The issue is not entirely who is in power, though that is a large issue, but rather the power to print up currency infinitlely in the first place.

A need for a value system based on scarcity is more important than ever. The dollar is on the verge of following in the footsteps of every fiat currency before it. Towards the end of all fiat currency there are currency wars with other soveriegn nations in which the winner is the one who can devalue their currency the fastest. This is done through hyperinflation to pay away the debt, because if the value of the dollar is eroded this way, the value of the debt is also eroded. This will lead to civil unrest and from there entropy will play a role in the final outcome, there is no way to tell exactly what will happen, but some educated guesses can be surmised. Likely the people of this country will for the most part not wake up until it is too late and the hyperinflation has already kicked in and destroyed the value of the dollar. There will be protests and hopefully this is the catalyst that ends the current central banking regime in the US. Sadly that is where this issue of misunderstanding the deeper issue will play a large role.

Which system would best replace the dollar is still yet to be seen but there are two obvious front runners in this race. The first is gold. Thousands of years ago, in the bazzaars of egypt, a rich man could go to the market with a gold coin and purchase a fine toga, a belt, and a new pair of sandals. Today a rich man can use a gold coin to purchase a fine suit, a belt, and a new pair of dress shoes. The value of gold when denominated in fiat currencies has continually changed over time but the true purchasing power has not.

Why has gold held its value over thousands of years? Scarcity. There is a set limit on the amount of gold on this planet due to gold's unusual formation process which occurs when stars reach critical mass states, turn into supernovas, and explode. The gold we have mined so far came here in the form of asteroids when the earth was still very young. There will likely be no more gold coming to earth, at least in our lifetimes.

Another asset which may seem similiar, except for it's extraterrestrial origins, is Bitcoin. With a hard set limit of 21 million bitcoin to ever exist, it is inherently scarce. The advantage Bitcoin has as gold is it's network. The need for a permissionless, borderless, and pseudonymous payment system has never been greater. The ability to transact freely across the globe on a peer-to-peer level is revolutionary on many scales. Bitcoin has the potential to continue on to be a form of digital gold.

One argument against this is the store of value bitcoin presents. In the short-term, it's store of value is dependent on what price level you entered at. That is if you bought in 2018 at 20k it has not been a store of value for you, but if you bought in at 5000 then it has. However this is due to the speculation on bitcoin's price not fluctuations in the value or overall scarcity of Bitcoin as a transactable asset. Over the long run it will almost certainly prove to be a store of value from any entry point within the next 3-5 years.

The only way to take down the central bank system, which has permeated the globe almost entirely, is to stop using it as a means of transacting. It needs to be replaces with decentralized cryptocurrencies that offer freedom over your financial sovereignty. Crypto is the future. That isn't to say every ICO and token created will have a revolutionary impact. Bitcoin however is a good start on the path to freedom from the enslavement of central banks.