one; it has no budget; it is subject to no audit; and no Congressional committee knows of, or can truly supervise, its operations. The Federal Reserve, virtually in total control of the nation’s monetary system, is accountable to nobody.
Here’s how it all got started. You might call this the not so humble beginning.
In 1907 there was a banking and stock market panic in the U.S., aptly called the Panic of 1907. It was widely believed that the big New York banks known as the Money Trust had been causing crashes, and then capitalizing on them by buying up stocks from rattled investors and selling them for tremendous profit just days or weeks later. The Panic of 1907 was a particularly devastating one for the U.S. economy, and there was an outcry by the general public for the government to do something.
In 1908 Congress created the National Monetary Commission to research the situation, and to recommend banking reforms that would prevent such panics, as well as to investigate the Money Trust. Senator Nelson Aldrich was appointed chairman, and immediately set out for Europe, spending two years and $300,000 (that’s $6 million adjusted for inflation) to consult with the private central bankers of England, France, and Germany.
Upon his return, Senator Aldrich decided to take some time off and organized a duck hunt with some friends. The friends he invited on vacation with him were the who’s who of U.S. economic power, the very New York bankers he was supposed to be investigating: Paul Warburg (Kuhn, Loeb & Company), Abraham Pete Andrew (assistant secretary of the treasury), Frank Vanderlip (president of the Rockefeller-lead National City Bank of New York), Henry P. Davison (senior partner at J. P. Morgan), Charles D. Norton (president of the Morgan-led First National Bank of New York), and Benjamin Strong (head of J. P. Morgan Bankers Trust, and to become the first Federal Reserve head).
It is estimated that these men represented one quarter of the world’s wealth. The retreat took place on a little island off the coast of Georgia called Jekyll Island. But there wasn’t much duck hunting; instead Aldrich and his distinguished guests spent nine days around a table hatching a plan that eventually created the Federal Reserve.
Here is what some of the attendees had to say about that meeting:
Picture a party of the nation’s greatest bankers stealing out of New York on a private railroad car under cover of darkness, stealthily hieing hundreds of miles South, embarking on a mysterious launch, sneaking on to an island deserted by all but a few servants, living there a full week under such rigid secrecy that the names of not one of them was once mentioned lest the servants learn the identity and disclose to the world this strangest, most secret expedition in the history of American finance.
I am not romancing. I am giving to the world, for the first time, the real story of how the famous Aldrich currency report, the foundation of our new currency system, was written.
B. C. Forbes, Forbes magazine, 1916
The results of the conference were entirely confidential. Even the fact there had been a meeting was not permitted to become public. Though eighteen years have since gone by, I do not feel free to give a description of this most interesting conference concerning which Senator Aldrich pledged all participants to secrecy.
Paul Warburg, The Federal Reserve System: Its Origin and Growth
There was an occasion, near the close of 1910, when 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. We were told to leave our last names behind us. . . . We were instructed to come one at a time and as unobtrusively as possible to the railroad terminal on the New Jersey littoral of the Hudson, where Senator Aldrich’s private car would be in readiness. . . . The servants and train crew may have known the identities of one or two of us, but they did not know all, and it was the names of all printed together that would have made our mysterious journey significant in Washington, in Wall Street, even in London. Discovery, 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.
Frank Vanderlip*, quoted in The Saturday Evening Post, February 9, 1935
Secrecy was so important to the attendees of this summit because Aldrich, as the chairman of the National Monetary Commission, was charged with investigating banking practices and recommending reforms after the Panic of 1907, not to conspire with the bankers on a remote island. So the bankers who were under investigation for needed reforms got together with the chairman of the congressional investigating committee (the guy that was supposed to investigate the suspects) at a secret meeting on an isolated island and concocted a bill, the Aldrich Plan, for a private central bank that they (the suspects) would own. When the bill was presented to Congress, the debates raged.
In one debate, Congressman Charles Lindbergh was quoted as saying, “Our financial system is a false one and a huge burden on the people. I have alleged that there is a Money Trust. The Aldrich Plan is a scheme plainly in the interest of the Trust. Why does the Money Trust press so hard for the Aldrich Plan now, before the people know what the Money Trust has been doing?”
But the Aldrich Plan never came to a vote in Congress, because it was a Republican-backed bill and the Republicans lost control of the House in 1910, and the Senate in 1912.
Not accepting defeat, the bankers essentially took the Aldrich Plan and changed a few details. In 1913 a nearly identical bill, called the Federal Reserve Act, was presented to Congress.
Again the debates raged. Many saw this bill for what it was: a prettied-up version of the Aldrich Plan. But on December 22, 1913, Congress gave up its right to coin money and regulate the value thereof, which was given it by the Constitution, and passed that right to a private corporation, the Federal Reserve.
The Fed and the Death of the Dollar—Fractional Reserve Banking
Since the Fed opened for business in 1914, the currency of the United States (the U.S. dollar) has been borrowed into existence from a private bank (the Fed). The reason I say “borrowed” into existence is because every single dollar the Fed has ever created is owed back to that bank, with interest. The Fed creates all currency, not the U.S. government, and lends it out to the U.S. government and private institutions—with interest. Now you may be asking yourself, “If we pay back all the currency that was borrowed into existence, but we still owe the interest, where do we get the currency to pay the interest?” Answer: We have to borrow it into existence. This is one reason why the national debt keeps expanding. It can never be paid off. It is mathematically impossible.
But even more disconcerting is the way the Federal Reserve creates currency:
1. It makes loans to the government or banking system by writing a bad check.
2. It buys something with a bad check.
In the Fed’s own words, published in a 1977 paper called Putting It Simply, “When you or I write a check there must be sufficient funds in our account to cover the check, but when the Federal Reserve writes a check there is no bank deposit on which that check is drawn. When the Federal Reserve writes a check, it is creating money” Of course, as you know by now, I would beg to differ. They are creating currency, not money.
And once those newly created dollars are deposited in the banks, the banks get to employ the miracle of fractional reserve banking.
Here is fractional reserve banking in a nutshell. All banks have a reserve requirement, meaning they must keep a certain
