Hi, I’m Buck, your personal tour guide to
the Federal Reserve. I’m here to introduce
you to one of the most complex but effective
institutions in the United States. But don’t
worry, I’ll explain it all in plain English.
Just beside me is a roadmap of where we’re
going. Together we’ll walk through the Federal
Reserve system. Literally. And along the way
I’ll show you just what goes on around here
and why it’s important. By the end of this
tour, you, too will be able to explain the
Federal Reserve in plain English.
All our lives we’ve been told that economics
is boring. It’s dull. It’s not worth the time
it takes to understand it. And all our lives,
we’ve been lied to.
War. Poverty. Revolution. They all hinge on
economics. And economics all rests on one
key concept: money.
Money. It is the economic water in which we
live our lives. We even call it ‘currency’;
it flows around us, carries us in its wake.
Drowns those who are not careful.
We use it every day in nearly every transaction
we conduct. We spend our lives working for
it, worrying about it, saving it, spending
it, pinching it. It defines our social status.
It compromises our morals. People are willing
to fight, die and kill for it.
But what is it? Where does it come from? How
is it created? Who controls it? It is a remarkable
fact that, given its central importance in
our lives, not one person in a hundred could
answer such basic questions about money as
So if you were planning a family, you’d want
to know where babies come from. And this is
a lot about banking. So let me ask you: where
does money come from?
Where does the money come from? The government
prints it. It’s printed off.
How is new money created?
By labor. People work and produce wealth,
and the money is supposed to match that wealth.
Where does money come from?
Well I have a pretty different outlook on
money. It actually comes from, like, trees,
But why is this? How could we be so ignorant
about a topic of such importance? “Where does
money come from?” is a basic, childlike question.
So why is our only response the childlike
answer, meant as a joke: “It grows on trees”?
Such a profound state of ignorance could not
come about naturally. From the time we are
children, we are curious about the world and
eager to learn about the way it works. And
what could lead to a better understanding
of the way the world works than a knowledge
of money, its creation and destruction? Yet
discussion of this topic is fastidiously avoided
in our school years and ignored in our daily
life. Our monetary ignorance is artificial,
a smokescreen that has been erected on purpose
and perpetrated with the help of complicated
systems and insufferable economic jargon.
But it doesn’t take an economist to understand
the importance of money. Deep down we all
know that the wars, the poverty, the violence
we see around us hinges on this question of
money. It seems like a thousand piece jigsaw
puzzle just waiting to be solved. And it is.
The puzzle pieces, taken together, create
an image of the Federal Reserve, America’s
central bank and the heart of the country’s
banking system. Despite its central importance
to the economy, relatively few have heard
of it, and fewer still know what it is, despite
the bank’s attempts at self-description:
Our economy runs on a complex system of exchange
of goods and services in which money plays
a key part. Coin, currency, savings, and checking
accounts; the overall supply of money is managed
by the Federal Reserve. Money is the medium
through which economic exchanges take place,
and money as a standard of value helps us
to set prices for goods and services. The
job of managing money–monetary policy–is
to preserve the purchasing power of the dollar
while ensuring that a sufficient amount of
money is available to promote economic growth.
The Federal Reserve also promotes the safety
and soundness of the institutions where we
do our banking. It ensures that the mechanisms
by which we make payments, whether by cash,
cheque, or electronic means, operates smoothly
and efficiently.
And in its fiscal role acts as the banker
for the United States government.
Now these duties comprise the major responsibilities
of our central bank.
But in order to understand the Federal Reserve,
we must first understand its origins and context.
We must deconstruct the puzzle.
The first piece of that puzzle lies here,
in the White House. This is where the Federal
Reserve Act, then known as the Currency Bill,
was signed into law after passing the House
and Senate in late December, 1913.
The New York Times of Christmas Eve, 1913,
described the festive scene:
“The Christmas spirit pervaded the gathering.
While the ceremony was a little less impressive
than that of the signing of the Tarriff act
on Oct. 3 last in the same room, the spectators
were much more enthusiastic and seized every
occasion to applaud.”
There in the White House that fateful December
evening, President Wilson signed away the
last veneer of control over the American money
supply to a cartel; a well-organized gang
of crooks so successful, so cunning, so well-hidden
that even now, a century later, few know of
its existence, let alone the details of its
operations. But those details have been openly
admitted for decades.
Of course, just as we have been taught to
find economics boring, we have been taught
that this story is boring. This is the way
the Federal Reserve itself tells it:
The United States was facing severe financial
problems. At the turn of the century, most
banks were issuing their own currency called
“bank notes.” The trouble was, currency that
was good in one state was sometimes worthless
in another. People began to lose confidence
in their money, since it was only as sound
as the bank that issued it. Fearful that their
bank might go out of business, they rushed
to exchange their bank notes for gold or silver.
By attempting to do so, they created the panic
of 1907.
During the panic, people streamed to the banks
and demanded their deposits. The banks could
not meet the demand; they simply did not have
enough gold and silver coin available. Many
banks went under. People lost millions of
dollars, businesses suffered, unemployment
rose, and the stability of our economic system
was again threatened.
Well, this couldn’t go on. If the country
was going to grow and prosper, some means
would have to be found to achieve financial
and economic stability.
To prevent financial panics like the one in
1907, President Woodrow Wilson signed The
Federal Reserve Act into law in 1913.
But this is history as told by the victors:
a revisionist vision in which the creation
of a central bank to control the nation’s
money supply is merely a boring historical
footnote, about as important as the invention
of the zipper or an early 20th century hoola-hoop
craze. The truth is that the story of the
secret banking conclave that gave birth to
that Federal Reserve Act is as exciting and
dramatic as any Hollywood screenplay or detective
novel yarn, and all the more remarkable for
the fact that it is all true.
We pick up the story, appropriately enough,
under cover of darkness. It was the night
of November 22, 1910, and a group of the richest
and most powerful men in America were boarding
a private rail car at an unassuming railroad
station in Hoboken, New Jersey. The car, waiting
with shades drawn to keep onlookers from seeing
inside, belonged to Senator Nelson Aldrich,
the father-in-law of billionaire heir to the
Rockefeller dynasty, John D. Rockefeller,
Jr. A central figure on the influential Senate
Finance Committee where he oversaw the nation’s
monetary policy, Aldrich was referred to in
the press as the “General Manager of the Nation.”
Joining him that evening was his private secretary,
Shelton, and a who’s who of the nation’s banking
and financial elite: A. Piatt Andrew, the
Assistant Treasury Secretary; Frank Vanderlip,
President of the National City Bank of New
York; Henry P. Davison, a senior partner of
J.P. Morgan Company; Benjamin Strong, Jr.,
an associate of J.P. Morgan and President
of Bankers Trust Co., and Paul Warburg, heir
of the Warburg banking family and son-in-law
of Solomon Loeb of the famed New York investment
firm, Kuhn, Loeb & Company.
The men had been told to arrive one by one
after sunset to attract as little attention
as possible. Indeed, secrecy was so important
to their mission that the group did not use
anything but their first names throughout
the journey so as to keep their true identities
secret even from their own servants and wait
staff. The movements of any one of them would
have been reason enough to attract the attention
of New York’s voracious press, especially
in an era where banking and monetary reform
was seen as a key issue for the future of
the nation; a meeting of all of them, now
that would surely have been the story of the
century. And it was.
Their destination? The secluded Jekyll Island
off the coast of Georgia, home to the prestigious
Jekyll Island Club whose members included
the Morgans, Rockefellers, Warburgs and Rothschilds.
Their purpose? Davison told intrepid local
newspaper reporters who had caught wind of
the meeting that they were going duck hunting.
But in reality, they were going to draft a
reform of the nation’s banking industry in
complete secrecy.
G. Edward Griffin, the author of the bestselling
The Creature from Jekyll Island and a long-time
Federal Reserve researcher, explains:
What happened is the banks decided that since
there was going to be legislation anyway to
control their industry, that they wouldn’t
just sit back and wait and see what happened
and cross their fingers that it would be OK.
They decided to do what so many cartels do
today: they decided to take the lead. And
they would be the ones calling for regulations
and reform.
They like the word “reform.” The American
people are suckers for the word “reform.”
You just put that into any corrupt piece of
legislation, call it “reform” and people say
“Oh, I’m all for ‘reform’,” and so they vote
for it or accept it.
So that’s what they were doing. They decided,
“We will ‘reform’ our own industry.” In other
words, “We will create a cartel and we will
give the cartel the power of government. We’ll
take our cartel agreement so we can self-regulate
to our advantage and we’ll call it ‘The Federal
Reserve Act.’ And then we’ll take this cartel
agreement to Washington and convince those
idiots there to pass it into law.”
And that basically was the strategy. It was
a brilliant strategy. Of course we see it
happening all the time, certainly in our own
day today we see the same thing happened in
other cartelized industries. Right now we’re
watching it unfold in the field of healthcare,
but at that time it was banking, alright?
And so the banking cartel wrote their own
rules and regulations, called it “The Federal
Reserve Act,” got it passed into law, and
it was very much to their liking because they
wrote it. And in essence what they had created
was a set of rules that made it possible for
themselves to regulate their industry, but
they went even beyond that. In fact, it’s
clear to me when I was reading their letters
and their conversation at the time, and the
debates, that they never dreamed that Congress
would go along and also give them the right
to issue the nation’s money supply. Not only
were they now going to regulate their own
industry, which is what they started out as
wanting to do, but they got this incredible
gift that they didn’t dream would be given
to them (although they were negotiating for
it), and that was that Congress gave them
the authority to issue the nation’s money.
Congress gave away the sovereign right to
issue the nation’s money to the private banks.
And so all of this was in The Federal Reserve
Act, and the American people were joyous because
they were told, and they were convinced, that
this was finally a means of controlling this
big creature from Jekyll Island.
Amazingly enough, they were successful, not
just in conspiring to write the legislation
that would eventually become the Federal Reserve
Act, but in keeping that conspiracy a secret
from the public for decades. It was first
reported on in 1916 by Bertie Charles Forbes,
the financial writer who would later go on
to found Forbes magazine, but it was never
fully admitted until a full quarter century
later when Frank Vanderlip wrote a casual
admission of the meeting in the February 9,
1935 edition of The Saturday Evening Post:
“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 what eventually became the Federal
Reserve System.”
Over the course of their nine days of deliberation
at the Jekyll Island club, they devised a
plan so overarching, so ambitious, that even
they could scarcely imagine that it would
ever be passed by congress. As Vanderlip put
“Discovery [of our plan], we knew, simply
must not happen, or else all our time and
effort would be wasted. If it were to be exposed
publicly that our particular group had got
together and written a banking bill, that
bill would have no chance whatever of passage
by Congress.”
So what, precisely, did this conclave of conspirators
devise at their Jekyll Island meeting? A plan
for a central banking system to be owned by
the banks themselves, a system which would
organize the nation’s banks into a private
cartel that would have sole control over the
money supply itself. At the end of their nine
day meeting, the bankers and financiers went
back to their respective offices content in
what they had accomplished. The details of
the plan changed between its 1910 drafting
and the eventual passage of the Federal Reserve
Act, but the essential ideas were there.
But ultimately, this scene on Jekyll Island,
too, is just one piece of a larger puzzle.
And like any other puzzle piece, it has to
be seen in its wider context for the bigger
picture to become visible. To understand the
other pieces of the puzzle and their importance
in the creation of the Federal Reserve, we
have to travel backward in time.
The story begins in late 17th century Europe.
The Nine Years’ War is raging across the continent
as Louis XIV of France finds himself pitted
against much of the rest of the continent
over his territorial and dynastic claims.
King William III of England, devastated by
a stunning naval defeat, commits his court
to rebuilding the English navy. There’s only
one problem: money. The government’s coffers
have been exhausted by the waging of the war
and William’s credit is drying up.
A Scottish banker, William Paterson, has a
banker’s solution: a proposal “to form a company
to lend a million pounds to the Government
at six percent (plus 5,000 “management fee”)
with the right of note issue.” By 1694 the
idea has been slightly revised (a 1.2 million
pound loan at 8 percent plus 4000 for management
expenses), but it goes ahead: the magnanimously
titled Bank of England is created.
The name is a carefully constructed lie, designed
to make the bank appear to be a government
entity. But it is not. It is a private bank
owned by private shareholders for their private
profit with a charter from the king that allows
them to print the public’s money out of thin
air and lend it to the crown. What happens
here at the birth of the Bank of England in
1694 is the creation of a template that will
be repeated in country after country around
the world: a privately controlled central
bank lending money to the government at interest,
money that it prints out of nothing. And the
jewel in the crown for the international bankers
that creates this system is the future economic
powerhouse of the world, the United States.
In many important respects, the history of
the United States is the history of the struggle
of the American people against the bankers
that wish to control their money. By the 1780s,
with colonies still fighting for independence
from the crown, the bankers will get their
In 1781 the United States is in financial
turmoil. The Continental, the paper currency
issued by the Continental Congress to pay
for the war, has collapsed from overissue
and British counterfeiting. Desperate to find
a way to finance the end stages of the war,
Congress turns to Robert Morris, a wealthy
shipping merchant who was investigated for
war profiteering just two years earlier. Now
as “Superintendent of Finance” of the United
States from 1781 to 1784 he is regarded as
the most powerful man in America next to General
In his capacity as Superintendent of Finance,
Morris argues for the creation of a privately-owned
central bank deliberately modeled on the Bank
of England that the colonies were supposedly
fighting against. Congress, backed into a
corner by war obligations and forced to do
business with the bankers just like King William
in the 1690s, acquiesces and charters the
Bank of North America as the nation’s first
central bank. And exactly as the Bank of England
came into existence loaning the British crown
1.2 million pounds, the B.N.A. started business
by loaning $1.2 million to Congress.
By the end of the war, Morris has fallen out
of political favor and the Bank of North America’s
currency has failed to win over a skeptical
public. The B.N.A. is downgraded from a national
central bank to a private commercial bank
chartered by the State of Pennsylvania.
But the bankers have not given up yet. Before
the ink is even dry on the constitution, a
group led by Alexander Hamilton is already
working on the next privately-owned central
bank for the newly formed United States of
So brazen is Hamilton in the forwarding of
this agenda that he makes no attempt to hide
his aims or those of the banking interests
he serves:
“A national debt, if it is not excessive,
will be to us a national blessing,” he wrote
in a letter to James Duane in 1781. “It will
be a powerful cement of our Union. It will
also create a necessity for keeping up taxation
to a degree which, without being oppressive,
will be a spur to industry.”
Opposition to Hamilton and his debt-based
system for establishing the finances of the
US is fierce. Led by Jefferson and Madison,
the bankers and their system of debt-enslavement
is called out for the force of destruction
that it is. As Thomas Jefferson wrote:
“[T]he spirit of war and indictment, […] since
the modern theory of the perpetuation of debt,
has drenched the earth with blood, and crushed
its inhabitants under burdens ever accumulating.”
Still, Hamilton proves victorious. The First
Bank of the United States is chartered in
1791 and follows the pattern of the Bank of
England and the Bank of North America almost
exactly; a privately-owned central bank with
the authority to loan money that it creates
out of nothing to the government. In fact,
it is the very same people behind the new
bank as were behind the old Bank of North
America. It was Alexander Hamilton, Robert
Morris’ former aide, who first proposed Morris
for the position of Financial Superintendent,
and the director of the old Bank of North
America, Thomas Willing, is brought in to
serve as the first director of the First Bank
of the United States. Meet the new banking
bosses, same as the old banking bosses.
In the first five years of the banks’ existence,
the US government borrows 8.2 million dollars
from the bank and prices rise 72%. By 1795,
when Hamilton leaves office, the incoming
Treasury Secretary announces that the government
needs even more money and sells off the government’s
meager 20% share in the bank, making it a
fully private corporation. Once again, the
US economy is plundered while the private
banking cartel laughs all the way to the bank
that they created.
By the time the bank’s charter comes due for
renewal in 1811, the tide has changed for
the money interests behind the bank. Hamilton
is dead, shot to death in a duel with Aaron
Burr. The bank-supporting Federalist party
is out of power. The public are wary of foreign
ownership of the central bank, and what’s
more don’t see the point of a central bank
in time of peace. Accordingly, the charter
renewal is voted down in the Senate and the
bank is closed in 1811.
Less than a year later, the US is once again
at war with England. After 2 years of bitter
struggle the public debt of the US has nearly
tripled from $45.2 million to $119.2 million.
With trade at a standstill, prices soaring,
inflation rising and debt mounting, President
Madison signs the charter for the creation
of another central bank, the Second Bank of
the United States, in 1816. Just like the
two central banks before it, it is majority
privately-owned and is granted the power to
loan money that it creates out of thin air
to the government.
The 20 year bank charter is due to expire
in 1836, but President Jackson has already
vowed to let it die prior to renewal. Believing
that Jackson won’t risk his chance for reelection
in 1832 on the issue, the bankers forward
a bill to renew the bank’s charter in July
of that year, 4 years ahead of schedule. Remarkably,
Jackson vetoes the renewal charter and stakes
his reelection on the people’s support of
his move. In his veto message, Jackson writes
in no uncertain terms about his opposition
to the bank:
“Whatever interest or influence, whether public
or private, has given birth to this act, it
can not be found either in the wishes or necessities
of the executive department, by which present
action is deemed premature, and the powers
conferred upon its agent not only unnecessary,
but dangerous to the Government and country.
It is to be regretted that the rich and powerful
too often bend the acts of government to their
selfish purposes.[…]If we can not at once,
in justice to interests vested under improvident
legislation, make our Government what it ought
to be, we can at least take a stand against
all new grants of monopolies and exclusive
privileges, against any prostitution of our
Government to the advancement of the few at
the expense of the many, and in favor of compromise
and gradual reform in our code of laws and
system of political economy.”
The people side with Jackson and he’s reelected
on the back of his slogan, “Jackson and No
Bank!” The President makes good on his pledge.
In 1833 he announces that the government will
stop using the bank and will pay off its debt.
The bankers retaliate in 1834 by staging a
financial crisis and attempting to pin the
blame on Jackson, but it’s no use. On January
8, 1835, President Jackson succeeds in paying
off the debt, and for the first and only time
in its history the United States is free from
the debt chain of the bankers. In 1836 the
Second Bank of the United States’ charter
expires and the bank loses its status as America’s
central bank.
It is 77 years before the bankers can regain
the jewel in their crown. But it is not for
lack of trying. Immediately upon the death
of the bank, the banking oligarchs in England
react by contracting trade, removing capital
from the U.S., demanding payment in hard currency
for all exports, and tightening credit. This
results in a financial crisis known as the
Panic of 1837, and once again Jackson’s campaign
to kill the bank is blamed for the crisis.
Throughout the late 19th century the United
States is rocked by banking panics brought
about by wild banking speculation and sharp
contractions in credit. By the dawn of the
20th century, the bulk of the money in the
American economy has been centralized in the
hands of a small clique of industrial magnates,
each with a near monopoly on a sector of the
economy. There are the Astors in real estate,
the Carnegies and the Schwabs in steel, the
Harrimans, Stanfords and Vanderbilts in railroads,
the Mellons and the Rockefellers in oil. As
all of these families start to consolidate
their fortunes, they gravitate naturally to
the banking sector. And in this capacity,
they form a network of financial interests
and institutions that centered largely around
one man, banking scion and increasingly America’s
informal central banker in the absence of
a central bank, John Pierpont Morgan.
John Pierpont Morgan, or “Pierpont” as he
prefers to be called, is born in Hartford,
Connecticut in 1837 to Junius Spencer Morgan,
a successful banker and financier. Morgan
rides his father’s coattails into the banking
business and by 1871 is partnered in his own
firm, the firm that was eventually to become
J.P. Morgan and Company.
It is Morgan who finances Cornelius Vanderbilt’s
New York Central Railroad. It is Morgan that
finances the launch of nearly every major
corporation of the period, from AT&T to General
Electric to General Motors to Dupont. It is
Morgan who buys out Carnegie and creates the
United States Steel Corporation, America’s
first billion dollar company. It is Morgan
who brokers a deal with President Grover Cleveland
to “save” the nation’s gold reserves by selling
62 million dollars worth of gold to the Treasury
in return for government bonds. And it is
Morgan, who, in 1907, sets in motion the crisis
that leads to the creation of the Federal
That year, Morgan begins spreading rumors
about the precarious finances of the Knickerbocker
Trust Company, a Morgan competitor and one
of the largest financial institutions in the
United States at the time. The resulting crisis,
dubbed the Panic of 1907, shakes the U.S.
financial system to its core. Morgan puts
himself forward as a hero, boldly offering
to help underwrite some of the faltering banks
and brokerage houses to keep them from going
under. After a bout of hand-wringing over
the nation’s finances, a Congressional Committee
is assembled to investigate the “money trust,”
the bankers and financiers who brought the
nation so close to financial ruin and that
wield such power over the nation’s finances.
The public follows the issue closely, and
in the end a handful of bankers are identified
as key players in the money trust’s operations,
including Paul Warburg, Benjamin Strong, Jr.,
and J.P. Morgan.
Andrew Gavin Marshall, editor of The People’s
Book Project, explains:
At the beginning of the 20th century there
was an investigation following the greatest
of these financial panics, which was in 1907,
and this investigation was on “the money trust.”
It found that three banking interests–J.P.
Morgan, National City Bank, and the City Bank
of New York–basically controlled the entire
financial system. Three banks. The public
hatred toward these institutions was unprecedented.
There was an overwhelming consensus in the
country for establishing a central bank, but
there were many different interests in pushing
this and everyone had their own purpose behind
advocating for a central bank.
So to represent most people, you had farmer
interests, populists, progressives, who were
advocating a central bank because they couldn’t
take the recurring panics, but they wanted
government control of the central bank. They
wanted it to be exclusively under the public
control because they despised and feared the
New York banks as wielding too much influence,
so for them a central bank would be a way
to curb the power of these private financial
On the other hand, those same financial interests
were advocating for a central bank to serve
as a source of stability for their control
of the system, and also to act as a lender
of last resort to them so they would never
have to face collapse. But also, in order
to exert more control through a central bank,
the private New York banking community wanted
a central bank under the exclusive control
of them. There’s a shocker.
So you had all these various interests which
converged. Of course, the most influential
happened to be the New York financial houses
which were more aligned with the European
financial houses than they were with any other
element in American society. The main individual
behind the founding of the Federal Reserve
was Paul Warburg, who was a partner with Kuhn,
Loeb and Company, a European banking house.
His brothers were prominent bankers in Germany
at that time, and he had of course close connections
with every major financial and industrial
firm in the United States and most of those
existing in Europe. And he was discussing
all of these ideas with his fellow compatriots
in advocating for a central bank. In 1910,
Warburg got the support of a Senator named
Nelson Aldrich, whose family later married
into the Rockefeller family (again, I’m sure
just a coincidence). Aldrich invited Warburg
and a number of other bankers to a private,
secret meeting on Jekyll Island just off the
coast of Georgia where they met in 1910 to
discuss the construction of a central bank
in the United States, but one which would
of course be owned by and serve the interests
of the private bank. Aldrich then presented
this in 1911 as the “Aldrich Plan” in the
U.S. Congress, but it was actually voted out.
The public, suspicious of Senator Aldrich’s
banking connections, ultimately reject the
Jekyll Island cabal’s “Aldrich Plan.” The
cabal does not give up, however. They simply
revise and rename their plan, giving it a
new public face, that of Representative Carter
Glass and Senator Robert Owen.
In the end, the money trust that was behind
the Panic of 1907 uses the public’s own outrage
against them to complete their consolidation
of control over the banking system. The newly-retitled
Federal Reserve Act is signed into law on
December 23, 1913 and the Fed begins operations
the next year.
So how does the Federal Reserve system work?
What does it do? Who owns and controls it?
These are the basic questions that would get
to the heart of the fundamental question:
‘what is money?’ And that is why the answer
to these questions have been shrouded in impenetrable
economic jargon.
Even the Federal Reserve’s own educational
propaganda, which has an unusual tendency
toward cutesy animation and talking down to
its audience, has a difficult time summarizing
the Fed’s mission and responsibilities. According
to the Fed:
To achieve [its] goals, the Fed, then and
now, combines centralized national authority
through the Board of Governors with a healthy
dose of regional independence through the
reserve banks. A third entity, the Federal
Open Market Committee, brings together the
first two in setting the nation’s monetary
Precisely what imaginary gaggle of schoolchildren
is this economic gibberish aimed at?
The simple truth, hidden behind the sleight
of hand of economic jargon and magisterial
titles, is that a banking cartel has monopolized
the most important item in our entire economy:
money itself.
We are taught to think of money as the pieces
of paper printed in government printing presses
or coins minted by government mints. While
this is partially true, in this day and age
the actual notes and coins circulating in
the economy represent only a tiny fraction
of the money in existence. Over 90% of the
money supply is in fact created by private
banks as loans that are payable back to the
banks at interest.
Although this simple fact is obscured by the
wizards of Wall Street and gods of money who
want to make the money creation process into
some special art of alchemy carefully overseen
by the government, the truth is not hidden
from the public.
In December 1977, the Federal Reserve Bank
of New York published another of its dumbed-down
cartoon-ridden information pamphlets for the
general public attempting to explain the functions
of the Federal Reserve System. There in black
and white they carefully explain the money
creation process:
“Commercial banks create checkbook money whenever
they grant a loan, simply by adding new deposit
dollars to accounts on their books in exchange
for a borrower’s IOU.[…]Banks create money
by ‘monetizing’ the private debts of businesses
and individuals. That is, they create amounts
of money against the value of those IOUs.”
There it is, in plain English: the vast majority
of money in the economy, the “checkbook” money
in our accounts at the bank and that we use
in our electronic transfers and digital payments,
is created not by a government printing press,
but by the bank itself. It is created out
of thin air as debt, owed back to the bank
that created it at interest. This means that
bank loans are not money taken from other
bank depositors, but new money simply conjured
into existence and placed into your account.
And the bank is able to create much more money
than it has cash to back up those deposits.
The Fed claims to be the entity overseeing
and backing up the banking industry. It was
established, according to its own propaganda,
to stabilize the system and prevent bank runs
like the Panic of 1907 from happening again:
Throughout much of the 1800s, almost any organization
that wanted could print its own money. As
a result, many states, banks, and even one
New York druggist, did just that. In fact
at one time there were over 30,000 different
varieties of currency in circulation. Imagine
the confusion.
Not only were there multitudes of currencies,
some were redeemable in gold and silver, others
were backed by bonds issued by regional governments.
It was not unusual for people to lose faith
both in the value of their currency and in
the entire financial system. With many people
trying to withdraw their deposits at once,
sometimes the banks didn’t have enough money
on hand to pay their depositors. Then when
the funds ran out the banks suspended payment
temporarily and some even closed. People lost
their entire savings. Sometimes regional economies
Obviously something had to be done. And in
1913, something was. In that year, President
Woodrow Wilson signed into effect the Federal
Reserve Act. This act created the Federal
Reserve system to provide a safer and more
stable monetary and banking system.
If that was indeed its aim, it signally failed
to do so in running up one of the greatest
bubbles in American history to that point
in the 1920s, just a decade after its creation.
The popping of that bubble, of course, lead
directly into the Great Depression and one
of the greatest periods of mass poverty in
American history. Economists have long argued
that the Fed itself was the cause of the depression
by its complete mismanagement of the money
supply. As former Federal Reserve Chairman
Ben Bernanke admitted in a speech commemorating
Fed critic Milton Friedman’s 90th birthday:
“Regarding the Great Depression. You’re right,
we did it. We’re very sorry. But thanks to
you, we won’t do it again.”
“Price stability” is another cited tenet of
the Federal Reserve’s mandate. But here, too,
the Fed has completely failed to live up to
its own standards:
Aside from the banking system, the Federal
Reserve has another responsibility that’s
probably even more important. It’s in charge
of something called “monetary policy.” Basically,
it means trying to keep prices stable to avoid
inflation. Say you buy a CD today for $14.
But what if next year the price of the CD
jumped to $20 or $50, not because of a change
in supply or demand, but because all prices
were going up. That’s inflation.
There are a lot of different causes of inflation,
but one of the most important is too much
money. The Fed can adjust the money supply
by injecting money into the system electronically,
or by withdrawing money from the economy.
Think of it: the Federal Reserve has the ability
to create money, or make it disappear. What’s
most important is what happens as a result.
Any time the supply of money is altered, the
effects are felt throughout the economy.
The Fed’s methods have changed over time to
take advantage of the latest computers and
electronics, but its mission remains the same:
to aim for stable prices, full employment
and a growing economy.
100 years ago, in 1913, the Fed was created,
and we’ve marked it with a vertical line there.
Consumer prices now are about 30 times higher
than they were when the Fed was created in
Paper money, too, is the responsibility of
the Federal Reserve. Hence the dollars in
circulation are not Treasury notes, not bills
of credit, but Federal Reserve Notes, debt-based
notes backed up ultimately by the government’s
own promise to pay, its “sovereign bonds”
secured by the taxpayers themselves. At one
time, the Federal Reserve Banks were legally
required to keep large stockpiles of gold
in reserve to back up these notes, but that
requirement was abandoned and today the notes
are backed up mostly by government securities.
The Fed no longer keeps any actual gold on
its books, but gold “certificates” issued
by the treasury and valued not at the spot
price of $1300 per troy ounce, but an arbitrarily
fixed “statutory price” of $42 2/9 per ounce.
But I do have one question: During the crisis
or at any time that you’re aware of, has the
Federal Reserve or the Treasury participated
in any gold swap arrangements?
The Federal Reserve does not own any gold
at all. We have not owned gold since 1934
so we have not engaged in any gold swaps.
But it appears on your balance sheet that
you hold gold.
What appears on our balance sheet is gold
certificates. When we turned in…before 1934,
we did…the Federal Reserve did own gold.
We turned that over by law to the Treasury
and received in return for that gold certificates.
If the Treasury entered into…because under
the Exchange Stabilization Fund I would assume
they probably have the legal authority to
do it…they wouldn’t be able to do it then
because you have the securities for essentially
all the gold?
No, we have no interest in the gold that is
owned by the Treasury. We have simply an accounting
document that is called “gold certificates”
that represents the value at a statutory rate
that we gave to the Treasury in 1934.
And still measured at $42 an ounce which makes
no sense whatsoever.
Clearly, there is a discrepancy between what
we are led to believe is motivating the Fed
and what it actually does. To understand what
the Fed is actually intended to do, it’s first
important to understand that the Federal Reserve
is not a bank, per se, but a system. This
system codifies, institutionalizes, oversees
and undergirds a form of banking called fractional
reserve banking, in which banks are allowed
to lend out more money than they actually
have in their vaults.
The process of decay and corruption starts
with something called “fractional reserve
banking.” That’s the technical name for it.
And what that really means is that as the
banking institution developed over several
centuries, starting of course in Europe, it
developed a practice of legalizing a certain
dishonest accounting procedure.
In other words, in the very, very beginning
(if you want to go all the way back), people
would bring their gold or silver to the banks
for safe keeping. And they said, “give us
a paper receipt, we don’t want to guard our
silver and our gold because people could come
in in the middle of the night and they could
kill us or threaten us and they’ll get our
gold and silver so we can ‘t really guard
it so we’ll take it to the bank and have them
guard it and we just want a paper receipt.
And we’ll take our receipt back and get our
gold anytime we want.” So in the beginning
money was receipt money. Then, instead of
changing or exchanging the gold coins, they
could exchange the receipts, and people would
accept the receipts just as well as the gold,
knowing that they could get gold. And so these
paper receipts being circulated were in essence
the very first examples of paper money.
Well the banks learned early on in that game
that here they were sitting on this pile of
gold and all these paper receipts out there.
People weren’t bringing in the receipts anymore,
very few of them, maybe five percent maybe
seven percent of the people would bring in
their paper receipts and ask for the gold.
So they said, “Ah ha! Why don’t we just sort
of give more receipts out then we have gold?
They’ll never know because they only ask for,
at the best, seven percent of it. So we can
create more receipts for gold then we have.
And we can collect interest on that because
we’ll loan that into the economy. We’ll charge
interest on this money that we don’t really
have. And it’s a pretty good gimmick don’t
ya think?” And they go, “Well, yeah, of course.”
And so that’s how fractional reserve banking
And now it’s institutionalized and they teach
it in school. No one ever questions the integrity
of it or the ethics of it. They say, “Well,
that’s the way banking works, and isn’t it
wonderful that we now have this flexible currency
and we have prosperity” and all these sorts
of things. So it all starts with this concept
of fractional reserve banking.
The trouble with that is that it works most
of the time. But every once and a while there
are a few ripples that come along that are
a little bit bigger than the other ripples.
Maybe one of them is a wave. And more than
seven percent will come in and ask for their
gold. Maybe twenty percent or thirty percent.
And well, now the banks are embarrassed because
the fraud is exposed. They say, “well we don’t
have your gold” “What do you mean you don’t
have my gold!! I gave it to you and put it
on deposit and you said you’d safe guard it.”
“Well we don’t have it, we loaned it out.”
So then the word gets out and everyone and
their uncle comes out and lines up for their
gold. And of course they don’t have it, the
banks are closed, and they have bank holidays.
Banks are embarrassed, people lose their savings.
You have these terrible banking crashes that
were ricocheting all over the world prior
to this time. And that is what caused the
concern of the American people. They didn’t
want that anymore. They wanted to put a stop
to that.
And that was the whole purpose, supposedly,
of the Federal Reserve system. Was to put
a stop to that. But since the people who designed
the plan to put a stop to it were the very
ones who were doing it in the first place,
you can not be surprised that their solution
was not a very good one so far as the American
people were concerned. Their solution was
to expand it. Not to control it, to expand
it. See, prior to that time, this little game
of fractional reserve banking was localized
at the state level. Each state was doing its
own little fractional reserve banking system.
Each state, in essence, had its own Federal
Reserve. Central banks were authorized by
state law to do this sort of thing. And that
was causing all this problem. So the Federal
Reserve came along and said, “No no, we’re
not going to do this at the state level anymore,
because look at all the problem it’s causing.
We’re going to consolidate it all together
and we’re going to do it at the national level.”
The key to the system, of course, is who controls
this incredible power to “regulate” the economy
by setting reserve requirements and targeting
interest rates. The answer to this question,
too, has been deliberately obscured.
The Federal Reserve system is a deliberately
confusing mish-mash of public and private
interests, reserve banks, boards and committees,
centralized in Washington and spread out across
the United States.
So you have the Federal Reserve Board in Washington
appointed by the President. That’s the only
part of this system that is directly dependent
on the government for input that’s the “federal”
part: that the government–the president specifically–gets
to choose a few select governors. The twelve
regional banks–the most influential of which
is the Federal Reserve Bank of New York which
is essentially based in Wall Street to represent
Wall Street–is a representative of the major
Wall Street banks who own shares in the private,
not federal, but private Federal Reserve Bank
of New York. All of the other regional banks
are also private banks. They vary according
to how much influence they wield but the Kansas
City fed is influential, the St. Louis fed,
the Dallas fed, but the New York Fed is really
the center of this system and precisely because
it represents the Wall Street banks who appoint
the leadership of the New York fed.
So the New York fed has a lot of public power,
but no public accountability or oversight.
It does not answer to Congress the way that
the chairman of the Federal Reserve Board
of Governors does and even the chairman of
the Federal Reserve board who is appointed
by the President, does not answer to the President,
does not answer to Congress. He goes to Congress
to testify but the policy that they set is
independent. So they have no input from the
government. The government can’t tell them
what to do legally speaking, and of course
they don’t.
Do you think it would cause problems for the
Fed or for the economy if that legislation
was to pass?
My concern about the legislation is that if
the GAO is auditing not only the operational
aspects of our programs and the details of
the programs, but is making judgements about
our policy decisions, that would effectively
be a takeover of monetary policy by the Congress,
a repudiation of the independence of the Federal
Reserve which would be highly destructive
to the stability of the financial system,
the dollar, and our national economic situation.
The Federal Open Market Committee is responsible
for setting interest rates. Now this committee,
which is enormously powerful, has as its membership
the Governor and Vice Chair of the Federal
Reserve Board, but on the Federal Open Market
Committee most of the membership is the presidents
of the regional Federal Reserve Banks representing
private interests. So they have significant
input into setting the interest rates. Interest
rates are not set by a public body, they’re
set by private financial and corporate interests.
And that’s whose interests they serve, of
The reason that the Federal Reserve goes to
such great lengths to make its organizational
structure as confusing as possible is to cover
up the massive conflicts of interest that
are at the heart of that system. The fact
is that the Federal Reserve system is comprised
of a Board of Governors, 12 regional banks,
and an open market committee. The privately-owned
member banks of each Federal Reserve Bank
vote on the majority of the Reserve Bank’s
directors, and the directors vote on members
to serve on the Federal Open Market Committee
which determines monetary policy. What’s more,
Wall Street is given a prime seat at the table,
with tradition holding that the President
of the powerful New York Federal Reserve Bank
be given the Vice Chairmanship of the FOMC
and be made a permanent committee member.
In effect, the private banks are the key determinants
in the composition of the FOMC which regulates
the entire economy.
According to the Fed “its monetary policy
decisions do not have to be approved by the
President or anyone else in the executive
or legislative branches of government, it
does not receive funding appropriated by the
Congress, and the terms of the members of
the Board of Governors span multiple presidential
and congressional terms.”
Or, in the words of Alan Greenspan: “The Federal
Reserve is an independent agency and that
means there is no other agency of government
that can overrule actions that we take.”
The Fed goes on in its self-mythologization
to state that it is “not a private, profit-making
institution.” This characterization is dishonest
at best, and an outright lie at worst.
The regional banks are themselves private
corporations, as noted in a 1928 Supreme Court
ruling: “Instrumentalities like the national
banks or the federal reserve banks, in which
there are private interests, are not departments
of the government. They are private corporations
in which the government has an interest.”
This point is even admitted by the Federal
Reserve’s own senior counsel.
Yvonne Mizusawa: Our regulations do specify
overall terms for the lending, but the day
to day operation of the banking activities
are conducted by the Federal Reserve Banks.
They are banks, and indeed they do lend…
Peter W. Hall: So they’re their own agency,
then, essentially, in that regard.
Yvonne Mizusawa: They are not agencies, your
honor, they are “persons” under FOIA. Each
Federal Reserve Bank, the stock is owned by
the member banks in the district, 100% privately
held, they are private boards of directors.
The majority of those boards are appointed
by the independent banks, private banks in
the district. They are not agencies.
These private corporations issue shares that
are held by the member banks that make up
the system, making the banks the ultimate
owners of the Federal Reserve Banks. Although
the Fed’s profits are returned to the Treasury
each year, the member banks’ shares of the
Fed do earn them a 6% dividend. According
to the Fed, the fixed nature of these returns
mean that they are not being held for profit.
Despite the dishonest nature of this description,
however, it is important to understand that
the bankers who own the Federal Reserve indeed
do not make their money from the Fed directly.
Instead, the benefits are much less obvious,
and much more insidious. The simplest way
that this can be understood is that, as a
century of history and the specific example
of the last financial crisis shows, the Fed
was used as a vehicle to bail out the very
bankers who own the Fed banks in the most
obvious example of fascistic collusion imaginable.
A handful of financial institutions have enriched
themselves as a result of institutional speculation
on a large scale, as well as manipulation
of the market. And secondly what they have
done is that they have then gone to their
governments and said, “Well, we are now in
a very difficult situation and you need to
lend us…you need to give us money so that
we can retain the stability of the financial
And who actually lends the money, or brokers
the public debt? The same financial institutions
that are the recipients of the bailout. And
so what you have is a circular process. It’s
a diabolical process. You’re lending money…no,
you’re not lending money, you’re handing money
to the large financial instutions, and then
this is leading up to mounting public debt
in the trillions. And then you say to the
financial institutions “We need to establish
a new set of treasury bills and government
bonds, etc.” which of course are sold to the
public, but they are always brokered through
the financial institutions which establish
their viability and so on and so forth. And
the financial institutions will probably buy
part of this public debt so that in effect
what the government is doing is financing
its own indebtedness through the bailouts.
It hands money to the banks, but to hand money
to the banks, it becomes indebted to those
same financial institutions, and then it says
“We now have to emit large amounts of public
debt. Please can you help us?” And then the
banks will say: “Well, your books are not
quite in order.” And then the government will
say: “Obviously they’re not in order because
we’ve just handed you 1.4 trillion dollars
of bailout money and we’re now in a very difficult
situation. So we need to borrow money from
the people who are in fact the recipients
of the bailout.”
So this is really what we’re dealing with.
We’re dealing with a circular process.
The 2008 crisis and subsequent bailouts are
merely the latest and most brazen examples
of the fundamental conflicts of interest at
the heart of America’s privately-owned central
banking system.
Beginning with the collapse of Lehman Bros.
in September of that year, the Federal Reserve
embarked on an unprecedented program of bailouts
and special zero interest lending facilities
for the very banks that had caused the subprime
meltdown in the first place. By the cartelization
of the Federal Reserve structure, and thus
not by accident, it was the very bank presidents
who had overseen their banks’ lending practices
that ended up in the director positions of
the Federal Reserve Banks that voted on where
to direct the trillions of dollars in bailout
money. And unsurprisingly, they directed it
toward their own banks.
A stunning 2011 Government Accountability
Office report examined $16 trillion of bailout
facilities extended by the Fed in the wake
of the crisis and exposed numerous examples
of blatant conflicts of interest. Jeffrey
Immelt, chief executive of General Electric
served as a director on the board of the Federal
Reserve Bank of New York at the same time
the Fed provided $16 billion in financing
to General Electric. JP Morgan Chase chief
executive, Jamie Dimon, meanwhile, was also
a member of the board of the New York Fed
during the period that saw $391 billion in
Fed emergency lending directed to his own
bank. In all, Federal Reserve board members
were tied to $4 trillion in loans to their
own banks. These funds were not simply used
to keep these banks afloat, but actually to
return these Fed-connected banks to a period
of record profits in the same period that
the average worker saw their real wages actually
decrease and the economy on main street slow
to a standstill.
Then Fed Chairman Ben Bernanke was confronted
about these conflicts of interest by Senator
Bernie Sanders upon the release of the GAO
report in June 2012.
Senator, you raised an important point, which
is that this is not something the Federal
Reserve created. This is in the statute. Congress
in the Federal Reserve Act said “This is the
governance of the Federal Reserve.” And more
specifically that bankers would be on the
6 out of 9.
6 out of 9 in the regional banks are from
the banking industry.
That’s correct. And that is in the law. I’ll
answer your question, though. The answer to
your question is that Congress set this up,
I think we’ve made it into something useful
and valuable. We do get information from it.
But if Congress wants to change it, of course
we will work with you to find alternatives.
Bernanke is completely right. These conflicts
are in fact a part of the institution itself.
A structural feature of the Federal Reserve
that was baked into the Federal Reserve Act
itself over 100 years ago by the bankers who
conspired to cartelize the nation’s money
supply. You could not ask for a more succinct
reason why the Federal Reserve itself, this
admitted cartel of banking interests, needs
to be abolished…but you could get one.
We now know that for centuries the people
of the United States have been at war with
the international banking oligarchs. That
war was lost, seemingly for good, in 1913,
with the creation of the Federal Reserve.
With the passage of the Federal Reserve Act,
President Woodrow Wilson consigned the American
population to a century in which the money
supply itself has depended on the whims of
the banking cabal. A century of booms and
busts, bubbles and depressions, has led to
a wholesale redistribution of wealth toward
those at the very top of the system. At the
bottom, the masses toil in relative poverty,
single-income households becoming double-income
households out of necessity, their quality
of life being slowly eroded as the Federal
Reserve Notes that pass for dollars are themselves
Worse yet, the fraud itself perpetuates Alexander
Hamilton’s persistent myth that a national
debt is necessary at all. The US is now locked
into a system whereby the government issues
bonds to generate the funds for their operations,
bonds that are backed up by the taxation of
the public’s own labor.
The perpetrators of this fraud, meanwhile,
remain in the shadows, largely ignored by
a general public that could instantly recognise
the latest Hollywood heartthrob or pop idol,
but have no clue what the head of Goldman
Sachs or the New York Fed does, let alone
who they are. This cabal bear allegiance to
no nationality, no philosophy or creed, no
code of ethics. They are not even motivated
by greed, but power. The power that the control
of the money supply inevitably brings
with it.
did not take long for this lust for power
to rear its head. In 1921, just 7 years after
the Fed began operations, the same J.P. Morgan-connected
banking elite that founded the Federal Reserve
incorporated an organization called The Council
on Foreign Relations with the goal of taking
over the foreign policy apparatus of the United
States, including the State Department. In
this quest, it was remarkably successful.
Although there are only about 4000 members
in the organization today, its membership
has included 21 Secretaries of Defense, 18
Treasury Secretaries, 18 Secretaries of State,
16 CIA directors and many other high-ranking
government officials, military officers, business
elite, and, of course, bankers. The first
Director of the CFR was John W. Davis, J.P.
Morgan’s personal lawyer and a millionaire
in his own right.
Together with its sister organizations in
Britain and elsewhere around the world, these
groups would work together toward what they
called a “New World Order” of total financial
and political control directed by the bankers
themselves. As Carroll Quigley, noted Georgetown
historian and mentor of Bill Clinton, wrote
in his 1966 work, Tragedy and Hope: A History
of The World In Our Time:
“The powers of financial capitalism had [a]
far-reaching aim, nothing less than to create
a world system of financial control in private
hands able to dominate the political system
of each country and the economy of the world
as a whole. This system was to be controlled
in a feudalist fashion by the central banks
of the world acting in concert, by secret
agreements arrived at in frequent private
meetings and conferences. The apex of the
system was to be the Bank for International
Settlements in Basel, Switzerland, a private
bank owned and controlled by the world’s central
banks which were themselves private corporations.”
This is why the bankers and their partners
in government and business conspired to bring
about the 2008 crisis. Not for the pursuit
of money, but power. In the same way the bankers
used the Panic of 1907 to consolidate their
control over the money supply, they hope to
use the 2008 crisis and subsequent panics,
which they themselves have created, to consolidate
their political control.
inevitable conclusion, one that flows
necessarily from the true understanding of
this situation, is that the Federal Reserve
system needs to be consigned to the dustbin
of history. After a century of enslavement,
it is time for the American public to finally
throw off the bankers’ debt chains.
If there was ever a point in human history
to start questioning alternatives, this would
be it. And to think that where we are…and
simply say “Oh, well this is the best of our
options,” how many of the best options lead
to self-destruction? Doesn’t sound like a
best option.
I think that with a world of seven billion
people we can probably come up with something
better than a system in which a few thousand
people benefit so much at the expense of everything
else on this world and at the expense of the
potential for the future of mankind. They’re
leveraging our future and so long as we accept
this way of thinking, so long as we accept
these institutions as having dominance, that’s
the direction we’ll be going.
So I think reform is a good way to try and
stall and to push back directly against the
expanding and evolving power structures, but
radical change is what’s really needed and
that has to be built from the bottom up. But
I think that these two processes can and should
go together in parallel.
If you’ve made it this far, congratulations.
You are now better informed on the economic
history of the United States and the truth
about the Federal Reserve than 99% of the
population. If you do nothing else, then just
working to get those around you educated on
this information alone will have a profound
effect. Once they learn of the scam, many
are motivated to do something about it, and
they, in turn, inform others. This is the
viral nature of suppressed truth, and it is
the reason that more people are aware of and
energized by the issue of the Federal Reserve
and the nature of money than ever before.
Perhaps even more amazingly, this movement
is spreading to other parts of the globe.
Recognizing the interlocking nature of the
modern global economy, and the international
nature of the banking oligarchy, movements
to abolish the Federal Reserve have sprung
up in Europe, where protests against the cartelized
central banking system are taking place in
over 100 cities attracting 20,000 people on
a weekly basis.
I started this movement because I realized
that the Federal Reserve Act, in my opinion,
is one of the worst laws in the whole world.
So a private banking company is lending America
the money, and in my opinion is not democratic
anymore. The Federal Reserve tells the government
what to do, and that’s the problem.
It’s a very big problem, especially in the
U.S. Why is it a global issue, and why are
people doing it here in Germany?
Because when you realize that this finance
system, it’s a global system, you have to
go really to the beginning of the system.
And in my opinion it’s also the World Bank
and the International Monetary Fund and stuff
like this, but at the beginning of all this
is a law from 1913. Woodrow Wilson signed
it, and this is the beginning of all this
hardcore capitalism we are now suffering from.
And the only way to stop this is maybe to
break this law.
But what if the burgeoning movement to End
The Fed is successful? What system do people
propose as the answer? There have been several
proposals along different lines by various
researchers. Some argue for a return to America’s
colonial roots of debt-free money issued by
state run banks, pointing to the Bank of North
Dakota as one already functioning, successful
model of this approach.
We’ve had two banking systems ever since the
1860’s with the state bank system and the
federal bank system, and the federal bank
system are the big Wall Street banks particularly.
They dominate the federal system. So, they’re
taking over right now. In California we don’t
even have any local banks where I am. We had
two and I had accounts in both of them and
now one of them is Chase Bank and the other
is U.S. Bank. So they’re both big Wall Street
banks now that have been taken over.
So it’s the local banks that have an interest
in serving the local business. The big banks
have no interest in making loans to local
businesses; it’s too risky, why should they
bother? They’ve got this virtually free money
they can get from the Fed and from each other
and it’s much more lucrative to them either
to speculate in commodities or other thing
abroad, or what works very well for them is
to buy long-term government bonds at 3% because
these have no capital requirement. The capital
requirements for government bonds are zero.
So they can buy all of those that they want.
Whereas if they make loans for mortgages or
they make loans to businesses then they have
to worry about the capital requirement and
as soon as they’ve used up all their capital–in
other words eight dollars in capital will
get you a hundred dollars of loans–then they
can’t make any more loans they have to wait
for thirty years for the loans to get paid
off. So what they if they do if they do buy
mortgages is sell them off too investors and
so that’s the whole mortgage backed security
scam that we’ve seen. They had no motivation
to make sure that these borrowers were actually
sound borrowers; they just wanted to make
a sale. So they sold the stuff to the unwary
investors who might be somebody in Iceland
or Sweden or pension funds. So that didn’t
work out so well.
So a state bank partnering with the local
banks can provide the capital. It can help
them with capital. In North Dakota the state
bank guarantees the loans of the local banks,
allowing them to make much bigger loans than
they could otherwise. The state bank provides
liquidity to the small banks. That’s why the
local banks aren’t making loans to small business
right now, because they don’t know that they
can get money from the other banks as needed.
The way banking works is they make the loan
first. I mean, if you have credit lines to
many different businesses and if they all
hit up their credit lines at once you are
going to run out of money. So you don’t dare
do that unless you know that you can get short-term
loans from the other banks. And so what’s
happening right now, even though there’s $1.6
trillion is excess reserves sitting on the
books of the big banks, they’re not available
to the little banks and the reason is because
the Fed is paying 0.25% interest on those
reserves. So the banks have no incentive to
lend them to the little banks. Why let go
of them when you can make just as much keeping
them and then you still have your reserves
and you can use them as collateral to buy
bonds or something that’ll make you more money?
So the whole system is messed up and in North
Dakota, the bank of North Dakota provides
liquidity for these local banks.
Others advocate a decentralized system of
alternative and competing currencies that
greatly reduce or even eliminate altogether
the need for a central bank.
Well, 22 years ago in Ithaca, New York I noticed
there were a lot of people, friends particularly,
that had skills and time that were not being
employed or respected by the prevailing economy.
While we had much desire to create things
and trade them with each other and many services
we could provide to each other, we didn’t
have the money. So since I have a background
in graphic design, journalism and arrogance
I went to my computer and designed paper money
for Ithaca, New York. I designed pretty colourful
money with pictures of children, waterfalls
and trolley cars denominated in hours of labor.
One-hour note, half-hour, quarter, eight-hour
notes and two-hour notes. I then began to
issue to each of those pioneer traders who
had agreed to being listed in the directory
a specific starter amount, and the game began.
An hour has been worth basically $10 U.S.
dollars which at that time 20 years ago was
double the minimum wage. People who usually
expect more than $10 per hour of their service
can charge multiple hours per hour but the
denomination puts between us as residents
of our community, that reminds us that we
are fellow citizens, not merely winners or
losers scrambling for dollars. It introduces
us to each other on the basis of these skills
and services that we have, that we are more
proud to provide for each other than often
is the case with a conventional job. Just
the stuff we have to do to get the money to
pay the bills.
So through that trading process, that more
intimate scale process within the community,
we’re more easily able to become friends and
lovers and political allies.
It’s an inspiring story. And tell people about
how much money has circulated through this
community. I mean, it’s important for people
to understand just how successful this has
Because we are not a computer system we don’t
have a specific volume of trading recorded
but by the grapevine, by phone surveys and
over the years watching the money move we
were able to guess very reliably that several
million dollars equivalent of this money has
transacted over those years. Making loans
without charging interest up to $30,000 value,
which is the fundamental monetary revolution
in our system. Then as well, making grants
of the money to over a hundred community organizations.
Some argue for currencies whose mathematical
nature prevent them from being merely conjured
into existence whenever a federal government
wants to wage another war of aggression or
forge another link in the seemingly endless
train of governmental tyranny and abuse.
What people have to understand about Bitcoin
is that it’s a completely decentralized network.
There’s no central server, there’s no controlling
company, there’s no office, it’s just free
software that anyone can download and start
running on their computer anywhere in the
world. And that the Bitcoins themselves can
be transferred to or from anyone, anywhere
in the world and it’s impossible for any bank
or government or entity to block you from
sending or receiving those Bitcoins. There’s
a limited supply of those Bitcoins, there
will never ever be anymore than 21 million
Bitcoins. So, like everything the price is
set based on supply and demand. Because the
supply of Bitcoins is limited and the demand
is increasing as more and more people start
to use them and more and more websites start
to accept them, the price of Bitcoins in terms
of dollars is going to have to increase, even
a lot more than the $500 per Bitcoin that
it is today.
Are there any drawbacks at all to the idea
of using a crypto-currency?
If you’re part of the current power elite
that can just print money at will to spend
on whatever you feel like then yeah, the world
switching over to Bitcoin is probably not
going to benefit you. But if your one of the
normal people that aren’t working for the
Federal Reserve or any central bank that’s
printing money to pay to your friends and
that sort of thing, then a Bitcoin world is
a wonderful thing for you.
Sound money. Cryptocurrencies. State banks.
LETS programs. Self-issued credit. These and
many other solutions have all been proposed
and many of them are in use in different localities
today. Information on all of these ideas and
how they are being applied in various parts
of the world are widely available online today.
The point is that the question of what money
is and how it should be created is perhaps
the single greatest question facing humanity
as a whole, and yet it is one that has been
almost completely eliminated from the national
conversation…until recently.
For the first time in living memory, people
are once again rallying around the monetary
issue, and American politics stands on the
threshold of a transformation almost unimaginable
just two decades ago.
And so the rest of the story is now in our
hands. Once we understand the scam that has
taken place, the gradual consolidation of
wealth and power in the hands of an elite
few banking oligarchs and the growing impoverishment
of the masses, all in the name of banking
funny money created out of nothing and loaned
to the public at interest, we can choose to
get active or to do nothing at all.
For those who choose to get active, there
are some steps that you can take to help change
the course of this system:
1) Follow the links and resources from the
transcript of this documentary at corbettreport.com/federalreserve
to familiarize yourself with the history,
the connections and the functions of the Federal
Reserve system. If you can’t explain this
material to yourself then you will never be
able to teach it to others.
2) Begin reaching out to others to bring them
up to speed on the issue. It can be as simple
as broaching this conversation in the Monday
morning water cooler talk or passing out a
copy of this documentary or sending out links
to this information to your email list. Insert
this topic into your conversations. When people
start talking about the national debt or the
state of the economy or other political talking
points, get them to question the roots of
these issues, and why there is a national
debt at all.
3) When you are able to find or create a group
of like-minded people in your area who are
engaged with the issue, start a study group
on the issue and its solutions. The study
group can help source alternative or complementary
currencies in the local area, or, if none
exist already, the group can form the basis
for a community of local businesses and customers
who are willing to start experimenting with
ways to wean themselves off of the Federal
Reserve notes.
4) Use the resources at corbettreport.com,
including the Federal Reserve information
flyer, or hold DVD screenings, to attract
interest in your group and draw others into
studying the true nature of the monetary system.
The work of building up an alternative to
the current system can seem daunting, even
at times overwhelming. But it’s important
to keep in mind that the Federal Reserve system
that seems so monolithic today has only been
around for one century. Central banks have
been defeated in America before and they can
be defeated again.
The question of how we decide to change this
system is not rhetorical; it will either be
answered by an informed, engaged, active population
working together to create viable alternatives
and to dismantle the current system, or it
will be answered by the same banking oligarchy
that has been controlling the money supply,
and indeed the lifeblood of the country, for
Now, one century after the creation of the
Federal Reserve system, we have a choice to
make: whether the next century, like the one
before it, will be a century of enslavement,
or, transformed by the actions and choices
that we make in the light
of this knowledge, a century
of empowerment.