"Let me issue and control a nation's money supply, and I care not who
makes its laws." (Mayer Amschel Rothschild, Founder of Rothschild
Banking Dynasty)
Many prominent Americans such as Benjamin Franklin, Thomas Jefferson, and
Andrew Jackson have argued and fought against the central banking polices
used throughout Europe.
A note issued by a central bank, such as the Federal Reserve Note, is bank
currency. These notes are given to the government in exchange for an
interest-bearing government bond. The primary means to pay for the interest
on these bonds is to borrow more bank notes, thus beginning a vicious cycle
that ultimately ends with the complete destruction of the currency and
bankruptcy of the nation. History is replete with such occurrences. (For a
list of countries that have experienced hyperinflation click here).
This begs the question as to why such a doomed system would exist? The
reason is that during the course of the arrangement, which can last for
centuries, the central bankers who issue the money amass great fortunes from
the large sums of interest collected. In essence it is a transfer of wealth
from the many to the elite few. Government leaders prefer such a system
because it does not require budgets to be balanced. It is far more
politically expedient to borrow, then to directly tax the citizens.
The effects of currency debasement and debt accumulation are not obvious
and in the words attributed to Vladimir Lenin by John Maynard Keynes,
"By a continuing process of inflation, governments can confiscate,
secretly and unobserved, an important part of the wealth of their citizens...There
is no subtler, no surer means of overturning the existing basis of society
than to debauch the currency. The process engages all the hidden forces of
economic law on the side of destruction, and does it in a manner which not
one man in a million is able to diagnose." (John Maynard Keynes)
Throughout the history of the United States there has been a struggle
between central bankers and their interest-bearing money and those who oppose
them. In fact, the United States was created as a direct result of that
struggle.
Colonial America
In order to pay debts incurred from the Seven Years War with France, King
George III of England sought to heavily tax the colonies in America. In 1742,
the British Resumption Act required that taxes and other debts be paid in
gold.
As a result of scarcity of gold, the colonists turned to alternative forms
of money including wampum, tobacco, and copper coins. Most silver coinage in
circulation came from Spanish America, Spain, the Netherlands, the German
States, France and other foreign countries. The colonies began issuing
colonial script that was paper fiat currency not backed by gold or silver.
This type of money was also known as colonial bills of credit. This radically
differed from the bills of debit issued by the central banks of Europe.
During a visit to Britain in 1763, The Bank of England asked Benjamin
Franklin how he would account for the newfound prosperity in the colonies.
Franklin replied.
"That is simple. In the colonies we issue our own money. It is called
'Colonial Script'. We issue it in proper proportion to the demands of trade
and industry to make the products pass easily from the producers to the
consumers...In this manner, creating for ourselves our own paper money, we
control its purchasing power, and we have no interest to pay to no one."
In response, the Bank of England influenced the British Parliament to put
a stop to this activity. Under the Currency Act of 1764, King George III
decreed that the Colonists cease printing their own money. The colonial
script in circulation was to be exchanged at a two-to-one ratio with notes
drawn from the Bank of England. This caused widespread unemployment and
economic depression in the colonies.
"In one year, the conditions were so reversed that the era of prosperity
ended, and a depression set in, to such an extent that the streets of the
Colonies were filled with unemployed." (Benjamin Franklin)
Additional British legislation further angered the colonists who protested
against taxation without representation. The Stamp Act of 1765 was the first
direct tax levied by the British Parliament on the colonies. Every item of
commerce - newspapers, almanacs, pamphlets and official documents, even decks
of playing cards - were required to have the stamps. An economic boycott of
British goods later led to its repeal.
The Townsend Acts of 1767 placed a tax on a number of essential goods
including paper, glass and tea. On April 12, 1770 all the taxes, except for
that on tea, were repealed
Increased British military presence in the colonies further reduced
Colonial support towards Britain. On March 5, 1770, a large boisterous mob
armed with sticks of firewood began throwing snowballs and debris at a group
of British soldiers. One of the soldiers was struck down and in the confusion
the British soldiers discharged their muskets into the crowd. Eleven people
were hit of which three were killed instantly. Two later died from their
wounds. The event became known as the Boston Massacre and was often cited and
exaggerated to illicit further discontent towards the British.
The currency restrictions, hated taxes and numerous clashes with British
soldiers set the stage for the infamous Boston Tea Party.
The Boston Tea Party
The colonists began smuggling in tea from Holland to circumvent British
taxes. Under the Tea Act of 1773, the British removed a duty always paid at
an English port by the tea merchant on his way from the Orient to America,
thereby making their tea cheaper than that from Holland.
Tea-laden ships reached Charleston, Philadelphia, New York, and Boston
late in the autumn of 1773. However, the colonists felt that principles were
at stake and, in defiance, refused to purchase the English tea. The only port
the tea landed was Charleston where it was left to rot in storage.
On December 16, 1773, a group of colonists disguised as Mohawk Indians,
led by Samuel Adams, boarded the ships of British tea merchants and dumped
340 chests of tea with an estimated value of £10,000 worth into the Boston
harbour.
The infuriated British government responded by passing several acts that
came to be known as the Intolerable Acts of 1774. These Acts included, among
other measures, the Boston Port Act which closed the important port until the
East India Company had been repaid for the destroyed tea and until the king
was satisfied that order had been restored.
The harsh measures of these Acts made it difficult for moderates within
the colonies to continue supporting Britain and promoted sympathy towards
Massachusetts. This resulted in the formation of the First Continental
Congress. Measures discussed at this meeting included a formal agreement to
boycott British goods unless the Intolerable Acts were reversed and a pledge
that all colonies would support Massachusetts in case of any military action
from Britain.
Open hostilities began on April 19, 1775 in Middlesex County, Province of
Massachusetts Bay when a British regiment was dispatched to confiscate arms
and arrest revolutionaries. This sparked the beginning of the American
Revolutionary War, later identified as the War of Independence.
The Bank of North America (1781-1785)
The first attempt to set up a European style central bank was the
formation of the Bank of North America by Robert Morris who used gold loaned
from France as a reserve deposit. Using the system of fractional reserve
banking, money was loaned out to eager American political leaders who were
cash-strapped from the War of Independence.
Fractional reserve banking is a time-honoured tradition beginning with the
English goldsmiths of 1000 A.D. The goldsmiths, who at that time functioned
as early bankers, discovered that they could lend out more in paper receipts
for gold than they had of the actual metal so long as the majority of
depositors never asked for their gold back. Fractional reserve banking is the
tolerated, and now institutionalized, practice of banks lending out money
they don't have and charging interest on it. In any other industry, this
would be considered fraud. (For a more in-depth discussion of Fractional
Reserve banking, click here).
To illustrate the process, consider a bank having $1 million in reserve
deposits. Under a reserve ratio of 10%, that bank may legally lend out $10 million
in loans. At a modest interest rate of 7%, this equates to an annual revenue
of $700,000 from an underlying asset of just $1 million. It is through this
fraudulent practice that banking is such a profitable business and why all
the tallest buildings in major urban centers are owned by banks.
The large issue of bills from the Bank of North American led to a rapid
decline in their value and collapse of the bank in 1785. The interest money
collected during those years did not go unnoticed. Gouverneur Morris of
Pennsylvania, one of the authors of the Constitution of the United States,
stated in 1787 that,
"The rich will strive to establish their dominion and enslave the
rest. They always did. They always will... They will have the same effect
here as elsewhere, if we do not, by (the power of) government, keep them in
their proper spheres." (Gouverneur Morris of Pennsylvania)
The [First] Bank of the United States
Six years after the collapse of the Bank of North America, bankers in
Europe installed a private central bank, known as the [First] Bank of the
United States. The bank bill was officially proposed by Alexander Hamilton,
Secretary of the Treasury, to the first session of the First Congress in
1790.
Coincidently, one of Hamilton's first jobs after graduating from law
school in 1782 was as an aide to Robert Morris, the head of the Bank of North
America that collapsed in 1785.
Secretary of State Thomas Jefferson argued that the Bank violated
traditional property laws and that its relevance to constitutionally
authorized powers was weak.
"I believe that banking institutions are more dangerous to our
liberties than standing armies ... If the American people ever allow private
banks to control the issue of their currency, first by inflation, then by
deflation, the banks and corporations that will grow up around [the banks]
will deprive the people of all property until their children wake-up homeless
on the continent their fathers conquered. The issuing power should be taken
from the banks and restored to the people, to whom it properly belongs."
(Thomas Jefferson, 1743-1826)
Hamilton argued that the while the Constitution states that while no
single state government can create paper currency, there is no wording
preventing the federal government from doing so.
In the end, George Washington signed the bank bill into law on April 25,
1791 for a 20-year charter. In the first five years of operation, the
American government borrowed $8.2 million and prices rose by 72%.
"I wish it were possible to obtain a single amendment to our
Constitution - taking from the federal government their power of
borrowing." (Thomas Jefferson, 1798)
Twenty years later, the Democratic-Republican majority in Congress voted
against renewing the Federalist conceived institution and the [First] Bank of
the United States officially closed its doors on March 3, 1811.
War of 1812
Nathan Mayer Rothschild, son of Mayer Amschel Rothschild, is claimed by
some historians to have warned, "...that the United States would find
itself involved in a most disastrous war if the bank's charter were not
renewed." Coincidently, within five months of the closing of the [First]
Bank of the United States, the British declared war allegedly financed by
loans from the Rothschilds, whom at this time were already prominent bankers
in Europe.
The War of 1812 resulted in the first significant issue of treasury notes
from the United States of America. These notes differed from bank notes
because they were not exchanged for an interest-bearing government bond.
The U.S. Constitution defines a difference between legal currency and
bills of credit. As a result the treasury bills were not to circulate as
currency and could only be issued to persons who 'may choose' to accept them.
A resolution in 1814 seeking to make the treasury notes "legal tender in
all debts due" was voted down 95 to 42. Some 50 years later, Congress
would not demonstrate such wisdom again.
With the British busy fighting Napoleon, the War of 1812 ended in a draw
in 1814.
The Second Bank of the United States
Due to the costs of war, many banks had over-issued their currency from
making loans to the government. In order to protect the banking industry,
Congress suspended redemption of paper money in gold or silver. Instead of
just keeping merely the banks solvent, this measure allowed them to further
lend money. Soon the entire U.S. banking system was in chaos.
The banking system would ultimately be required to honour their
obligations. This would result in widespread bankruptcies, as loans would be
need to be called in to cover depositor withdrawals. The most politically
viable option to prevent this was to establish a central bank to function as
the lender of last resort.
The Second Bank of the United States was chartered in 1816 under the
administration of U.S. President James Madison. It was founded with a mandate
similar to that of the previous [First] Bank of the United States whose
charter had expired five years prior. These mandates were to issue currency,
purchase government debt, and serve as the official depository for Treasury
funds.
The bank was to raise $7 million in as reserves but never acquired more
than $2.5 million. In 1818, the Bank had $2.36 million in reserves, and $21.8
million of notes and deposits on record giving it a reserve ratio of 0.11.
Within one and half years the bank had added $19.2 million to the Nation's
money supply thus sparking an economic boom.
As a result of soaring prices from currency devaluation the bank became in
danger of being unable to honour redemptions on its reserves. To prevent such
a calamity, the bank decreased the money supply from $21.9 million to $11.5
million. The 47% reduction in money supply led to a text-book example of a
deflationary bust caused by manipulation of the money supply.
Andrew Jackson 'Kills the Bank'
President Jackson was an advocate of sound monetary policies as outlined
in the U.S. Constitution. He opposed the central bank system of issuing
currency against debt.
Jackson had an investigation done on the Second Bank of the United States
which he said established "beyond question that this great and powerful
institution had been actively engaged in attempting to influence the
elections of the public officers by means of its money."
In 1832, Andrew Jackson's re-election slogan was "JACKSON and NO BANK!"
On July 10, 1832 President Jackson vetoed congress' decision to renew the
charter of The Second Bank of The United States.
"It is not our own citizens only who are to receive the bounty of our
government. More than eight millions of the stock of this bank are held by
foreigners... is there no danger to our liberty and independence in a bank
that in its nature has so little to bind it to our country? ... Controlling
our currency, receiving our public moneys, and holding thousands of our
citizens in dependence... would be more formidable and dangerous than a
military power of the enemy." (President Andrew Jackson - July 10, 1832)
In 1833, President Andrew Jackson instructed his Secretaries of the
Treasury to cease depositing funds to the bank. Two refused to obey, so he
fired them, one after the other, until he got one who did: Roger B. Taney,
his former Attorney General and the future Supreme Court Chief Justice.
In 1835, Jackson paid off the final instalment on the national debt. He
was the first and only president to ever accomplish this. A few weeks later,
Richard Lawrence tried to shoot Jackson. However, both revolvers failed and
he was arrested and tried but was found not guilty by reason of insanity. Allegedly,
he spoke to several friends that wealthy people in Europe had put him up to
it and promised to get him released if he was caught.
Abraham Lincoln
In order to finance the North's Civil War efforts, Lincoln approached the
European banks controlled by the Rothschilds in 1861. They demanded 24% to
36% interest. Lincoln refused and instead passed the Legal Tender Act of
1862. Under this new piece of legislation, Lincoln issued US$449,338,902 of
interest-free money, known as Greenbacks, so-called from the green ink they
used. It served as legal tender for all debts, public and private and was
used to finance the Union's Civil War efforts.
"The government should create, issue and circulate all the currency
and credit needed to satisfy the spending power of the government and the
buying power of consumers ... The privilege of creating and issuing money is
not only the supreme prerogative of Government, but it is the Government's
greatest creative opportunity. By the adoption of these principles, the long-felt
want for a uniform medium will be satisfied. The taxpayers will be saved
immense sums of interest..." (Abraham Lincoln)
An editorial in the London Times reveals sentiment of the European
bankers,
"If this mischievous financial policy, which has its origin in North
America, shall become endurated down to a fixture, then that Government will
furnish its own money without cost. It will pay off debts and be without
debt. It will have all the money necessary to carry on its commerce. It will
become prosperous without precedent in the history of the world. The brains,
and wealth of all countries will go to North America. That country must be
destroyed or it will destroy every monarchy on the globe." (London
Times, 1865)
By the end of 1863, Congress had authorized the printing of US$850 million
worth of Greenbacks. Private banks used these Greenbacks as bank reserves,
against which the issued their own bank notes and demand deposits. Over the
course of the U.S. Civil War the money supply went from $45 million to $1.77
billion. Prices subsequently skyrocketed.
In 1863, Congress passed the National Bank Act from which point forward,
all money in circulation would be created out of debt from bankers buying
U.S. government bonds in exchange for bank notes. By 1865, the national banks
had 83 percent of all bank assets in the United States.
Lincoln was assassinated by John Wilkes Booth on April 14, 1865, just five
days after Lee surrendered to Grant. On April 12, 1866, Congress passed the
Contraction Act which called for retiring Lincoln's greenbacks from
circulation as soon as they came back to the Treasury in payment of taxes.
Assassination of President Garfield
President James A. Garfield was inaugurated in 1881 and was the second
American president to be assassinated. He was shot by Charles J. Guiteau on
July 2, 1881 and later died from medical complications on September 19. Two
weeks before being shot, President Garfield is attributed with saying,
"Whoever controls the volume of money in our country is absolute
master of all industry and commerce...and when you realize that the entire
system is very easily controlled, one way or another, by a few powerful men
at the top, you will not have to be told how periods of inflation and
depression originate." (President James A. Garfield, 1881)
Panic of 1907
Three failed attempts of establishing a central bank in the United States
did not dissuade a fourth. By the beginning of the 20th century the most
influential business men and bankers were the J.D. Rockefeller, J.P. Morgan,
Paul Warburg, and the Rothschilds.
The Panic of 1907 was a run on the American banking system as a result of
a public announcement by J.P. Morgan that a prominent bank in New York was
insolvent. The results were wide-spread mass withdrawals on the entire banking
system. This forced the banks to call in their loans. Bankruptcies,
repossessions and financial turmoil emerged.
Congress created the National Monetary Commission after the Panic of 1907
to draft up a plan for banking reform. Nelson Aldrich headed the Commission
that comprised of two components - one to study the European central banking
systems headed by Aldrich himself and another to study the American monetary
system.
Centralized banking was met with much opposition from the American public,
who were suspicious of a central bank and who charged that Aldrich was biased
due to his close ties to wealthy bankers such as J.P. Morgan and his
daughter's marriage to John D. Rockefeller, Jr.
Creation of the Federal Reserve
Allegedly, in exchange for financial support for his presidential
campaign, Woodrow Wilson agreed that if elected, he would sign a bill that
would lead to the formation of a central bank for the United States.
On 1910, a secret meeting took place on the Morgan estate on Jekyll
Island, Georgia. Aldrich met with representatives of prominent banking firms.
Such men included Henry Davison (senior partner of J.P. Morgan Company),
Frank Vandelip (President of the National Bank of New York associated with
the Rockefellers), Charles D. Norton (president of the Morgan-dominated of
First National Bank of New York), Benjamin Strong (representing J.P. Morgan),
and the primary architect of the Act, Paul Warburg (representing Kuhn, Loeb
& Co.)
Over a period of ten days they drafted the Federal Reserve Act that was
voted on in Congress on Monday 22 December 1913 between the hours of 1:30 am
to 4:30 am when much of Congress was either sleeping or at home with their
families for the Christmas holidays. It passed through the Senate the
following morning and Woodrow Wilson signed the bill into law later that same
day at 6:02 pm. This Act transferred control of the money supply of the
United States from Congress as defined in the U.S. Constitution to the
private banking elite.
The deceptive terminology of the name was carefully chosen because the
American public did not want a central bank similar to those in Europe. The
Federal Reserve is not a federal governmental entity nor is it a reserve,
such as a governmental treasury, backing up its currency. The Federal Reserve
is a legalized cartel of the money supply owned by private national banks,
operating for the benefit of the few under the guise of protecting and
promoting public interests.
The meeting on Jekyll Island remained unknown to the public until Forbes magazine
founder Bertie Charles Forbes wrote an article about it in 1916, three years
after the Federal Reserve Act was passed.
Wilson wrote in his book, The New Freedom,
"A great industrial nation is controlled by its system of credit. Our
system of credit is privately concentrated. The growth of the nation,
therefore, and all our activities are in the hands of a few men ... [W]e have
come to be one of the worst ruled, one of the most completely controlled and
dominated, governments in the civilized world--no longer a government by free
opinion, no longer a government by conviction and the vote of the majority,
but a government by the opinion and the duress of small groups of dominant
men." (Woodrow Wilson, The New Freedom: A Call for the Emancipation of
the Generous Energies of a People)
A central banking system wherein every dollar created is an instrument of
debt requires the collection of large sums of money from the people to pay
off the interest. Interestingly, 1913 was also the year that introduced the
Sixteenth Amendment, thereby giving government the power to collect taxes
based on income.
World War I
In 1914, when war broke out in Europe, the American public did not want to
become involved. While President Woodrow Wilson publicly declared that the United
States would remain neutral, efforts were being made behind the scenes to
ensure America's entry into the war.
Wars are extremely profitable for central bankers because it forces the
governments to further borrow addition money at interest. Secretary of State,
William Jennings Bryan wrote, "the large banking interests were deeply
interested in the world war because of the wide opportunities for large
profits."
Allegedly on May 7, 1915 the Lusitania, an ocean-liner carrying American
passengers, was deliberately sent into German controlled waters. The German
Imperial embassy paid to have a warning ad in fifty East Coast newspapers,
including those in New York, stating that anyone boarding the Lusitania would
be doing so at their own risk . The ad appeared only in the Des Moines
Register.
As expected, a German U-boat torpedoed the Lusitania. German records
indicate that a large secondary explosion followed the torpedo hit leading
some to speculate the storing of ammunition. As a result 1,198 people of the
1,959 aboard lost their lives and the U.S. shortly entered the war
thereafter.
The First Moves of the Federal Reserve
The public was told that the creation of the Federal Reserve would
stabilize the economy. From 1914-1919 the money supply nearly doubled. This
resulted in extensive loans to small businesses and the public. A calling in
of the loans in 1920 resulted wide-spread bankruptcies and bank-runs marking
the steep 1920-1 recession. Over 5400 independent and competitive private
banks outside of the Federal Reserve System collapsed thus consolidating the
power of the central banks.
The Harding administration did not intervene despite political pressure to
do so. Harding's approach to the problem was, "the banks got themselves
into this mess, so let them get themselves out of it." Since the Harding
administration public management of the economy has emerged as a primary
activity of the government.
President Harding was the sixth president to die while in office. It was
during his "Voyage of Understanding", during which he was returning
from Alaska. The official cause of death as stated in the New York Times was,
"a stroke of apoplexy". Gaston B. Means, an amateur historian and
gadfly, noted in his book The Strange Death of President Harding (1930) that
the circumstances surrounding his death lend themselves to speculation he had
been poisoned.
The Great Depression
From 1921 to 1929 the Federal Reserve increased the money supply by 62%
thus fuelling the period known as the Roaring Twenties. Further fuelling the
rise in stock market indices was a new type of loan, known as a margin loan,
whereby an investor would only need to put down 10% of the value of a stock
with the remaining 90% being loaned from the broker. Like today, these loans
could be called in at any time and had to be paid within 24 hours, known as a
margin call. This is typically accomplished by the selling of the stock
purchased using the loan.
These two factors, loose monetary policy and easy loans resulted in a
fivefold increase in the Dow Jones Industrial Average over the latter half of
the 1920's.
The mass calling in of these margin loans by the New York banking
establishment resulted in the devastating market crashes of October of 1929. "Black
Thursday", the initial crash, occurred on October 24. The crash that
caused general panic five days later on October 29 was known as "Black
Tuesday".
Then, instead of expanding the money supply, the Federal Reserve
contracted it, thereby creating the period known as the Great Depression.
Congressman Wright Patman in A Primer On Money, reported that the money
supply decreased by eight billion dollars from 1929 to 1933, causing 11,630
banks of the total of 26,401 in the United States to go bankrupt. This
allowed central bankers to buy up rival banks and whole corporations at a
deep discount.
It is interesting to note that biographies of J.P. Morgan, Joe F. Kennedy,
J.D. Rockefeller and Bernard Baruch indicate that they all managed to
transfer their assets out of the stock market and into gold just before the
crash of 1929.
Legend has it that Joseph P. Kennedy decided to sell his considerable
stock holdings after hearing an investment tip from a shoe-shiner. Joe
Kennedy went from having $4 million in 1929 to over $100 million in 1935.
One must wonder if that 'shoe-shiner' was Paul Warburg, a founder and
original member of the Federal Reserve warning of the coming collapse and
depression in an annual report to the stockholders of his International
Acceptance Bank,
"If the orgies of unrestrained speculation are permitted to spread,
the ultimate collapse is certain not only to affect the speculators
themselves, but to bring about a general depression involving the entire
country." (Paul Warburg, March 1929)
On June 10, 1932, Congressman Louis McFadden, a long-time adversary to the
Federal Reserve, made a 25-minute speech before the House of Representatives,
in which he accused the Federal Reserve of deliberately causing the Great
Depression.
In 1933, McFadden introduced House Resolution No. 158, Articles of
Impeachment for the Secretary of the Treasury, the Comptroller of the
Currency, and the Board of Governors of the Federal Reserve, for numerous
criminal acts, including but not limited to, conspiracy, fraud, unlawful
conversion, and treason.
Louis McFadden died in Oct 3, 1936 during a visit to New York City. The
official reason of death was "heart-failure sudden-death", after a
"dose" of "intestinal flu."
There were previously two alleged attacks on McFadden's life. The first
came in the form of two revolver shots when he was in a cab outside one of
the Capitol hotels. Both shots missed their intended target. The second was
when he became violently ill after a political banquet at Washington. He was
saved from a physician friend at the same banquet that procured a stomach
pump and gave McFadden emergency treatment.
Seizure of the American Publics' Gold
Under the pretense of helping to end the Great Depression came the 1933
Gold Seizure whereby the Roosevelt Administration outlawed private ownership
of gold. Under the threat of imprisonment for 10 years, a US$10,000 fine or
both, everyone in America was required to turn in all gold bullion to the
U.S. Treasury.
The rationale for the seizure was that the declining prices of the Great
Depression were a direct result of overcapacity. This flawed reasoning
resulted in the creation of disastrous policies such as National Industrial
Recovery Act where business cartels were deliberately constructed to keep
prices high and the Agricultural Adjustment Act that ordered mass destruction
of livestock and crops in order to reduce supply and drive up prices. In a
time when unemployment is at record highs and people are suffering from
economic hardship, these policies are the complete opposite of what is
required.
As a final component to the Roosevelt Administration's desire to increase
prices was to devalue the dollar. To do so required that the dollar be
uncoupled from gold. As long as the dollar was tied to a gold standard, the amount
of money in circulation could not dramatically increase as the public would
convert the paper into gold when they became aware of the over-issuance of
paper currency.
On April 5, 1933, Roosevelt signed Executive Order 6102, which ordered
people to turn in their gold to the government at payment of $20.67 per
ounce. Individuals could hold up to $100 in gold coins, and there were some
exceptions for dental use, jewelry, and artists and others who used gold in
their jobs.
While U.S. citizens could be ordered not to hoard gold, Roosevelt knew he
could not impose such a law on sovereign nations. Foreigners could still
exchange there U.S. dollars for gold, but shortly after issuing Order 6102,
Roosevelt devalued the dollar to US$35 per ounce thereby decreasing the value
of the dollar overnight by 40.94%.
The result of these policies allowed greater ability of the Federal
Reserve to increase the amount of money in circulation thereby increasing
their revenue from interest.
World War II
"The question was how should we maneuver them [Japan] into firing the
first shot... it was desirable to make sure the Japanese be the ones to do
this so that there should remain no doubt as to who were the
aggressors." (Henry Stimson, U.S. Secretary of War prior to WWII, Nov.
25, 1941 in a journal documenting his conversation with President Roosevelt)
Franklin Delano Roosevelt's uncle, Frederic A. Delano, was appointed by
Woodrow Wilson to the First Federal Reserve Board on August 5, 1914.
Roosevelt may have been sympathetic to the central bankers desire for
American entry into the Second World War. There exists some suggestive
evidence that the Roosevelt administration provoked the Japanese into
attacking American forces stationed at Pearl Harbor.
In 1940, FDR ordered the pacific fleet transferred from the West Coast to
Hawaii. Admiral Richardson complained of inadequate protection from both air
and torpedo attack. He twice disobeyed orders to berth the fleet there and
was replaced by Admiral Kimmel, who later brought up the same issues.
On October 7, 1940, Lieutenant Commander Arthur McCollum wrote an eight
page memo describing a process to force Japan into war with the U.S.
On February 11, 1941, FDR proposed sending six cruisers and two carriers
to Manila.
It is generally agreed that the U.S. oil embargo on Japan lead promptly to
the Japanese invasion of the Dutch East Indies.
Roosevelt further antagonized Japan by freezing all of the Japanese assets
in the United States, supplied financial aid to Nationalist China and
military aid to the British in violation to the existing international war
rules.
On Dec 4, three day prior the attack on Pearl Harbor, Australian
intelligence warned Roosevelt of a Japanese task force moving towards Pearl
Harbor.
The attack resulted in the deaths of 2,400 American soldiers and resulted
in the entry of the United States into the war. Before the attack on Pearl
Harbor, 83% of the American public did not want to enter the war. After the
attack, one million men volunteered for the military service.
Bretton Woods Agreement
The United States had emerged from the Second World War as a dominant
world power both militarily and economically. It had grown wealthy selling
weapons and lending money to both sides of the war. In 1945, the U.S.
produced half the world's coal, two-thirds of the oil, and more than half of
the electricity. The U.S. manufacturing industry was able to produce great
quantities of machinery, including ships, airplanes, vehicles, armaments,
machine tools, and chemicals. In addition, the U.S. held over 65% of world's
gold reserves and was the sole possessor of the atomic bomb.
Delegates from 44 Allied nations gathered at the Mount Washington Hotel in
Bretton Woods, New Hampshire for the United Nations Monetary and Financial
Conference during the first three weeks of July 1944. The purpose of the
conference was to establish the rules for commercial and financial relations
amongst the world's major industrial states. The agreements signed at this
conference became known as the Bretton Woods Monetary System.
The Bretton Woods Monetary System was basically a pegged rate currency
exchange system with the U.S. dollar functioning as the underlying currency.
All countries would peg their currency to the U.S. dollar and would buy and
sell U.S. dollars to keep the market exchange rates within a trading band of
plus or minus 1% from the original ratio. The U.S. dollar would be
convertible into gold at a rate of US$35 per troy ounce. In effect, the U.S.
dollar took over the role held by gold under the previous international gold
standard financial system.
The U.S. has enjoyed an enormous advantage of such a system because they
are the only entity legally capable of creating more of the reserve currency,
that being U.S. dollars. Other nations were forced to buy large amounts of
U.S. dollar reserves to maintain their currency within the trading band.
John Fitzgerald Kennedy
On June 4, 1963, John F. Kennedy signed a virtually unknown Presidential
decree, Executive
Order 11110, a mere four months before his assassination on November 22,
1963. This decree returned to the U.S. Federal government the Constitutional
right to create and "to issue silver certificates against any silver
bullion, silver, or standard silver dollars in the Treasury."
As a result, US$4,292,893,815 of new "Kennedy Bills" were
created through the U.S. Treasury instead of the Federal Reserve System. In
1964, Kennedy's successor, Lyndon B. Johnson, stated that, "Silver has
become too valuable to be used as money." The Kennedy bills were removed
from circulation.
Below are examples of the $2 and $5 dollar denominated "Kennedy
Bills" (also known as "Red Seal Bills"). Note the 1963 date
and words "United States Note" at the top instead of the familiar
"Federal Reserve Note" wording.
The importance of these bills is not to be underestimated. The regular
Federal Reserve Notes are created through the Fed who exchanges them for an
interest-paying government bond. These "United States Notes" were
directly created through the U.S. Treasury and backed by the silver held
there.
There was no interest to be paid on these bills by the government (or more
correctly, by the tax-payer) to the Federal Reserve.
Vietnam War
U.S. involvement in Vietnam began as far back as 1954, but the
"official" position was that no combat missions were conducted
until late 1963. The official declaration of war on Vietnam in 1964 came as a
direct result of two alleged attacks on two U.S. destroyers by North
Vietnamese PT boats in the Gulf of Tonkin. A report released in 2005 by
the National Security Agency indicated that the second attack likely never
occurred.
During the Vietnam War, many American air commanders were convinced that
rigid Rules of Engagement (ROEs) prevented an American aerial victory over
North Vietnam during the Rolling Thunder air campaign form 1965-1968. These rules
of engagement were declassified in 1985. Many were so restrictive that it
was impossible to achieve effective results. Some of the rules included:
- North Vietnamese anti-aircraft missile systems could not
be bombed until they were known to be operational.
- No enemy could be pursued if they crossed into
neighbouring Laos or Cambodia.
- Critical strategic targets could only be engaged unless
initiated by high military officials.
- Pilots were restricted from attacking enemy airfields,
SAM sites, power plants, naval craft in some areas, a 30 mile area
around Hanoi, and a 10 mile area around Haiphong.
- In many instances up until early 1967, U.S. pilots were
not allowed to engage enemy fighters unless they themselves had been
attacked first.
These rules of engagement were televised in North Vietnam thus enabling
them to strategize their war tactics around them.
In 1966 Johnson lifted trade restrictions against the Soviet Union knowing
full well that the Soviets were funding up to 80% of the North Vietnamese war
supplies. David Rockefeller financed factories in the Soviet known to
manufacture military equipment for North Vietnam.
The war in Vietnam was never meant to be won. It was intended to be
sustained for the benefit of the central bankers who lent money for the war
effort. The war resulted in the deaths of 58,000 U.S. soldiers and three
million Vietnamese.
Nixon Unilaterally Closes the Gold Window
Escalating costs from both the Vietnam War and domestic social programs
resulted in ever increasing amounts of U.S. dollars being printed. In the
early 1970's, the United States as a whole began running a trade deficit for
the first time in the twentieth century. Foreign owners of U.S. dollars began
to question the ability of the U.S. government to reduce budget and trade
deficits.
Increasingly, foreign nations, in particular the French under Charles de
Gaulle, began to send the U.S. dollars earned by exporting to the U.S. back
to be redeemed in gold as legally entitled under the Bretton Woods Agreement
signed in 1944.
The drain on U.S. gold threatened to completely empty the U.S. Treasury.
To prevent this from happening, on August 15, 1971, President Richard Nixon
unilaterally closed the gold window. He made the dollar inconvertible to gold
directly, except on the open market.
The severing of this last link between gold and paper money meant that all
the world's currencies now "floated" against one another. The
result was inevitable with gold soaring from US$35 to US$195 an ounce by the
end of 1974.
This was the final step in abandoning the gold standard. All the central
banks had to control now was the public's perception of inflation to allow
them to create as much money as desired.
Central Bank Gold Auctions
On January 1, 1975, after 42 years, it became "legal" for
individual Americans to own gold again. Anticipating the demand, many central
banks sold off large quantities of their gold reserves. The effect was a
decline in the price of gold to US$103 a troy ounce in eighteen months.
Gold regained its previous nominal high of US$195 set on December 1974,
almost three-and-a-half years later on July 1978. It then went on to new
highs, hitting US$250 in February 1979, US$300 in July, and US$400 by
October.
The new Fed Chairman, Paul Volcker, appointed by Jimmy Carter announced a
change in policy upon return from a conference in Belgrade concerning the
global financial system. He announced that the U.S. Federal Reserve was
switching its policy from controlling interest rates to controlling the money
supply.
Gold reached a peak of US$850 on Jan 21, 1980 amidst soaring interest
rates. The U.S. Prime rate hit 20% in April 1980 and stayed there (with a
brief dive in mid-1980) until the end of 1981. This resulted in a rush out of
gold and back to U.S. dollars.
By 1982, interest rates had dropped and gold had fallen to US$296 an
ounce. Investors piled both into the stock market and gold. The price of
bullion reached a peak of US$510 an ounce at the end of January 1983.
However, in the last four trading days of February 1983, gold fell US$105 and
the Dow broke above the 1100 point level for the first time.
Thus began the long bear market in gold and boom in equity markets.
The Rise of Debt
Further fuelling the rise in equities was the effective abandonment of the
permanent debt ceiling of US$400 billion set in March 1971. By late 1982, the
public debt had tripled to US$1.25 trillion. Presently, the public debt of
the United States stands at over US$9 trillion.
This explosion of debt led to worldwide monetary inflation as the U.S.
still enjoys a de facto reserve currency status by virtue of history and an
agreement made with OPEC in 1973 that world oil would be priced in U.S.
dollars.
Monetary inflation leads to the formation of economic bubbles wherein
market speculators bid up the prices of assets to unrealistic highs. When all
market participants have clambered into the market the market generally
collapses when it becomes apparent that there is nobody left to buy.
There have been four notable economic bubbles formed since 1982:
- The global stock market boom of 1982-87
- The Japanese stock market boom of 1988-90
- The Dot-com boom from late 1994 to early 2000.
- The U.S. and global housing market from 2001 to
present-day
It is important to be aware of the fact that these booms, and subsequent
busts, are not the result of free-market capitalism as commonly held. They
are the direct result of monetary manipulation by central banks no different
in principle than Soviet-era market intervention.
In Summary
The current Federal Reserve banking system is modeled after the European
central banking system Americans revolted against during their War of
Independence.
Every dollar created under the present monetary system does not represent
a tangible asset. It represents an I.O.U. from the government, and therefore
the people, to the central bank. After three failed attempts, central bankers
finally gained control the monopoly on the issuance of American money with
the creation of the Federal Reserve in 1913.
There are two unavoidable results of the Federal Reserve System: (1)
devaluation of the dollar and (2) accumulation of debt.
Devaluation
Since the establishment of the Federal Reserve, the U.S. dollar has lost
over 95% of its purchasing power.
Rising prices is not intrinsic to free-market capitalism. It is a monetary
phenomenon caused by increasing money supply. Money, like anything else, is
subject to the laws of supply and demand. The more abundant the money, the
lower its value.
If the amount of money were to remain constant relative to population, we
would see a general decrease in the prices of goods as technologies and
transportation efficiencies improved. This would be a boon to consumers.
Consider the rapid spread of telecommunications and computers, two
industries where technological improvements have actually been able to
outpace the price escalation caused by the monetary inflation of central
banks. Lower prices have led to a surge in consumer usage. People don't hold
onto their money in hopes of waiting for a better computer or phone. Quite
often they buy a second or third one. The consumer base grows as well because
for those who previously could not afford one now can do so.
Despite these blatant observations, conventional economic thought believes
that decreasing prices are bad for the economy because it encourages saving.
It is widely held that consumer spending, not saving, is what drives the
economy.
This is a falsehood, perpetrated by those would stand much to gain by
further and further indebtedness of the public. Savings leads to capital
investment which is the real driver behind capitalism.
Debt
Every dollar created is an instrument of debt lent out at interest. The
extra money required to pay back the interest can only come from one place,
that being the central bank. As such, the central banks must continuously
increase the money supply.
For the 2007 fiscal year ending Sept 30, 2007, the total
interest charges to the Total Outstanding Public Debt of the United
States was US$430.0 billion making it the forth largest expense after Human
and Health Services, Social Security Administration and National Defense.
By means of comparison, for that same 2007 fiscal year, the total revenue
collected from individual income taxes was US$1,156.8 billion (see table S-8
Receipts by Source on page 169 of the Budget for the Fiscal Year 2008 here).
Thus, the equivalent of a little over 37 cents of every dollar the U.S. government
collects under the Sixteenth Amendment goes towards paying the interest on
the national public debt. This amount doesn't include any repayment on the
principal, nor does it include any State or Local public debt.
Not a bad rate of return for the Federal Reserve which literally creates
the money that indebts the nation out of nothing but the want thereof!
How do We Get Out of this Mess?
The current monetary system uses questionable practices on both moral and
legal grounds. Monetary inflation erodes the wealth of citizens. Fractional
reserve banking enable banks to fraudulently lend out more than they have.
Debt is incurred every time new money is created. This debt must is inherited
by future generations.
Below are three measures that would establish an honest monetary system.
Repay the Public Debt
The U.S. government must begin by first balancing the annual budget and
then begin reducing the public debt. This would reduce the tax burden and
ultimately allow tax dollars to be spent only on services requested by the
people and not to banking agencies. (For a discussion of to whom the debt is
owned to click here).
Introduce a Hard Currency
A hard currency should be introduced that competes against Federal Reserve
Notes. Each of these bills would be backed by a defined quantity of a hard
asset, such as gold, that are fully convertible at any time. Such a system
could be comprised of bills representing a number of grams of gold.
There should be no legislation regarding the exchange ratios between gold
and any other commodity or fiat currency. The free market should determine
what the price of silver or Euros is in gold.
Borrowers and lenders should negotiate an interest rate on any lending
arrangement using the hard currency.
Lastly, there should be no law requiring that people must use this new
currency. Legal tender laws are needed to make people accept a bad currency,
not a good one.
This hard currency would require banks to store gold in their vaults. Any
bank without gold would be unable to issue out the hard currency either in
cash or as a loan.
In essence, the hard currency is a paper receipt convertible on a 1:1
exchange basis with gold. The gold is the money; the paper receipt is merely
a representation of the physical metal.
Abolish Fractional Reserve Banking
The practice of fractional reserve banking should be criminalized, as is
any other form of fraud. No business should be able to lay claim to assets
they do not have, let alone lend out these assets and charge interest on
them. This would eliminate the phenomena of bank-runs whereby panicked
depositors line up to withdraw their assets for fear that the bank is
insolvent. A bank should be able to lend out $10,000, only if it has $10,000
to begin with.
With the present system, banks can lend out multiples in loans to what
they have in reserve deposits.
|
U.S.
Reserve Requirements
|
|
Amount of Liability
|
Reserve Required
|
|
$0 to $8.5 million
|
0%
|
|
$8.5 million to $45.8 million
|
3%
|
|
More than $45.8 million
|
10%
|
Within these ratios a financial institution may legally lend out up to
$8.5 million without any reserve or $45.8 million with less than $1.4 million
in assets.
Benefits of an Honest Monetary System
The most significant expenses facing people are: taxes, interest and
inflation. The relative significance of each of these costs depends upon
one's socio-economic status. Each of them is further exacerbated by the
current fiat monetary system of centralized banks and the industry's use of
fractional reserve banking.
The measures described above would ensure price stability, preserve wealth
and reduce debt.
Price Stability
Price stability can be seen in the following chart that shows the price of
oil from 1950 to the present day. Note the marked change in the price of oil
before and after Nixon took the U.S. dollar off the gold standard when he
closed the gold window in 1971.
The reason for the price stability under a gold standard is that the
relative value between commodities fluctuates much less than their prices in
fiat currency.
Preservation of Wealth
Personal wealth would be preserved under an honest monetary system. Under
a fiat monetary system, newly created money diminishes the value of those
already out in circulation. It is no different from theft, albeit an
insidious form that the victim doesn't even realize. The amount of gold being
mined inflates the gold supply by about 2% per year. Much less than the
estimated 12-15% money supply growth rate of fiat money.
Reduction in Debt
Future generations would be spared the burden of a large debt for
obligations promised by a previous administration.
To do this, would require that we begin living within our means. Perhaps
this is the most serious roadblock to us ever having an honest monetary
system.
