In light of the recent financial and economic woes, the “bailout” of Fannie Mae and Freddie Mac, the recent trillion dollar mortgage “bailouts”, the crash of the housing market, and the resulting huge swings in the stock market and the predicted runs on banks, I felt it would be appropriate to discuss The Federal Reserve System (aka “The Fed”) and its history.

I remember in 2008 when Congress was attempting to pass the $700 billion “bailout,” I was sitting in the San Antonio airport waiting for a flight to Nashville. I watched several “financial experts” express their opinions on the pros and cons of the bailout, and as I listened, it seemed that at least once per sentence someone would refer to “The Fed.” I had to chuckle to myself as these supposedly sophisticated people (representatives of our largest and most prominent financial institutions and “think tanks”) were obviously ignorant of the truth about “The Fed.” 

You see, the simple truth is that The Federal Reserve System is neither “federal,” nor does it have any “reserves.” The Fed is a system of private banks, owned by rich foreign and American bankers. It is the biggest scam ever perpetrated upon the American people. The Fed is the reason we have inflation and an enormous national debt, which, by the way, will NEVER be paid off, since The Fed would rather have the interest on the loan (the national debt) than the principal, because they make trillions of dollars from the US being in debt.

 “But wait a minute! Doesn’t the US government control The Fed? Doesn’t the President appoint the Chairman of the Federal Reserve?” Well, yes, the President does appoint the Chairman…but NO, the US government does NOT control The Fed. Quite the opposite. The Fed actually controls the US government.  Baron M. Rothschild once wrote, “Give me control over a nation’s currency and I care not who makes its laws.” Well, The Fed not only controls the US currency, but it also controls our politicians. 

THE MEETING AT JEKYLL ISLAND:

Back in 1910, Jekyll Island (an island off the coast of Georgia) was privately owned by a small group of millionaires from New York, including William Rockefeller and J.P. Morgan.  Their families would travel to Jekyll Island to spend the winter months. There was a brilliant structure there, the clubhouse, which was the center of their social activities. The island has since been purchased by the state of Georgia, converted into a state park and the clubhouse has been restored. If you were to visit the clubhouse and walk downstairs, you would come to a door with a plaque stating: “In this room the Federal Reserve System was created.”

In November of 1910, Senator Nelson Aldrich sent his private railroad car to the railroad station in New Jersey.  From there, he and six other men traveled under the cloak of secrecy to Jekyll Island.  They were told to arrive separately at the railroad station, not to eat together, not to speak to each other, and to act like they were strangers.  They were told to avoid newspaper reporters since they were well-known people, and reporters would have wondered why these seven prominent men were all traveling together. 

Once they got on board the train, the deception continued. They were told to use first names only, not to use their last names at all.   A few of the men used pseudonyms.  Once they arrived at Jekyll Island, they spent over a week hammering out the details of what eventually became the Federal Reserve System.  When they were done they went back to New York.

After the meeting at Jekyll Island, for several years, these men denied that there ever was a meeting.  It wasn’t until after the Federal Reserve System was established in 1913 that they then began to talk openly about their secretive trip and meeting at Jekyll Island. As a matter of fact, they wrote books, magazine articles, and gave interviews to reporters, so now it’s possible to go into the public record and learn exactly what happened there off the coast of Georgia.

WHO WERE THE SEVEN MEN?

Senator Nelson Aldrich, whom I have already mentioned, was a Republican Senator and was the chairman of the National Monetary Commission.   He was also the very important business associate of J. P. Morgan and was the father-in-law of John D. Rockefeller, Jr. and was the grandfather of Nelson Rockefeller. 

Also in attendance at Jekyll Island was Abraham Andrew, who was Assistant Secretary of the Treasury.  Henry Davison, the senior partner of the J. P. Morgan Company, was in attendance, as was Charles Norton, the President of the First National Bank of New York.  Benjamin Strong, the head of J. P. Morgan’s Banker’s Trust Company, was at Jekyll Island, and in 1913, when the Federal Reserve Act was passed, Strong became the first head of The Fed.

Frank Vanderlip, the President of the National City Bank (NCB) of New York, was an attendee at Jekyll Island.  NCB just happened to be the largest of all of the banks in America representing the financial interests of William Rockefeller and the international investment firm of Kuhn, Loeb & Company.

Finally, there was Paul Warburg who was almost certainly the most important at the meeting because of his familiarity with banking as it was practiced in Europe.  Paul was one of the wealthiest men in the entire world.  He was a partner in Kuhn, Loeb & Company and was a representative of the Rothschild banking dynasty in France and England.  He maintained very close working relationships with his brother, Max Warburg, who was the head of the Warburg banking consortium in Germany and the Netherlands.  

These were the seven men aboard that railroad car who were at Jekyll Island.  According to G. Edward Griffin, author of The Creature from Jekyll Island, as amazing as it may seem, they represented approximately 1/4 of the wealth of the entire world!   These are the men that sat around the table and created the Federal Reserve System.

WHY WAS SECRECY IMPORTANT?

You might ask, “What is the big deal about a group of bankers getting together in private and talking about banking?”  According to Vanderlip, “If it were to be exposed publicly that our particular group had gotten together and written a banking bill, that bill would have no chance whatever of passage by Congress.”  You see, the purpose of the bill was to break the grip of what was referred to as the “money trust,” which was the concentration of wealth in the hands of a few large banks in New York on Wall Street . . . and it was written by the money trust!  Had that fact been known from the beginning, the US would never have had a Federal Reserve System because as Vanderlip said, Congress would never have passed it.  It would have been like hiring the fox to install the security system at the henhouse.  This was why secrecy was so important.  The goal was to create a “central bank” much like those in existence in Europe for centuries.

How could they conceal that from the American people? Congress was already on record as saying they did not want a central bank in America.  Their challenge was to create a central bank that nobody would know was a central bank. This was their strategy:  first, they would give it a name and including the word “Federal” so that it appears to be an official government entity. Then they would add the word “Reserve” so that it would appear there were reserves somewhere.  Then, they would add the word “System” so that it would appear that there was a system of regional banks which would spread power over the entire country and remove the concentration of financial power from New York City. When you analyze it, you will realize that what they created there was not federal, there are no reserves, and it’s not a system at all in the sense of diffusion of power.  It was brilliant strategy.

CONVINCING THE PUBLIC:

The next thing was to “sell” The Fed to the public. The first draft of the Federal Reserve Act as it was presented to Congress was called the Aldrich Bill (named after the sponsor, Senator Nelson Aldrich).  However, since Aldrich was so identified with big business interests, the people were outraged and Congress voted it down.  But, just like Congress does today, they took the bill, rearranged the paragraphs, took Aldrich’s name off the bill and found a couple of Democrats (Carter Glass and Robert Owen) to sponsor the new bill. Since everybody “knew” that the Republicans represented big business and that Democrats represented the “common man,” this was a brilliant move. The Aldrich Bill had morphed into the Glass-Owen bill, and the new bill was perceived as being totally different from the Aldrich Bill.

The next step was for Aldrich and Vanderlip to give speeches and interviews to newspaper reporters condemning the Glass-Owen Bill. They would frequently state that the new bill would be “ruinous to banking and terrible for the country.”  By the time the American public would read that comment in the local newspaper, he would gullibly say, “Gee whiz, I reckon if the big bankers don’t like the bill very much then it must be pretty good.”

With this kind of expert tactics and deception, the public didn’t stand a chance.  It is no surprise that popular support was finally gained for the bill and on December 22, 1913 the bill was passed by Congress and the following day was signed into law by President Wilson. 

As author G. Edward Griffin states, “the creature from Jekyll Island finally moved into Washington, DC.”  After the passage of the Federal Reserve Act, Congressman Charles Lindbergh stated:  “This Act establishes the most gigantic trust on earth....When the President signs this Act, the invisible government by the money power, proven to exist by the Money Trust Investigation, will be legalized....The new law will create inflation whenever the trust wants inflation....From now on, depression will be scientifically created.” That’s right, Lindbergh stated that future depressions would be “created” by the bankers.  

Louis McFadden, Chairman of the House Banking Committee during the 1930s, said about the stock market crash of 1929: “It was not accidental; it was a carefully contrived occurrence. The international bankers sought to bring about a condition of despair so that they might emerge as ruler of us all.”  Since 1913, the Federal Reserve Act has been amended over 100 times, with each amendment expanding the power and reach of the Federal Reserve System to “create money out of nothing.”

THE “MANDRAKE MECHANISM” -  MONEY OUT OF NOTHING:

The passage of the Federal Reserve Act in 1913 was the beginning of the partnership between a cartel of private bankers and the US government.  This is VERY IMPORTANT.   Cartels often go into partnership with governments because they need the force of law to enforce their cartel agreement.  I have heard many economists refer to The Fed’s process of creating money from nothing as the “Mandrake Mechanism” named after the comic-book character of the 1940s, Mandrake the Magician, who could create something out of nothing.   

Let’s take a simplified look and see how they create money through the Mandrake Mechanism. Here’s how it works.  It starts with the government side of the partnership, it starts in Congress which only knows how to spend, spend, spend.  Let’s say Congress needs an extra billion dollars today so it goes to the treasury and says “we need a billion dollars” and the Secretary of the Treasury says “you’re crazy, we’re plum out of money, we ran out of the tax money back in May.”   Congress then gets together and strolls down Constitution Avenue and stops at the local Kinko’s and prints off some “official” US Government bonds, which are really nothing more than fancy IOU’s.   After printing a billion dollars worth of these bonds, they offer them to the private sector (i.e. the American sheeple).  Well, tens of thousands of Americans are anxious to lend their money to the government, since they’ve been told by their trusted investment advisors that this is the most sound investment that you can make, since these bonds are backed by the “full faith and credit of the US government.”  They’re not quite sure what that means but it sure sounds good.   

Now, after selling half a billion of US bonds, Congress still needs more money…after all, they’ve got a spending addiction. They’ve already milked the American public with the issuance of the bonds, so the next day they stroll down to the Federal Reserve building. The Fed has been waiting for them – that’s one of the reasons it was created. By the time they get inside the Federal Reserve building, the Fed officer is already opening up his checkbook, and he writes a check to the US Treasury for half a billion bucks. 

WHERE DOES THE MONEY COME FROM?

You might be asking, “Where did The Fed get half a billion dollars to give to the US Treasury?” Did they have $500,000,000 in their account?  The startling answer is there is no money in the account at the Federal Reserve System.  NONE. In fact, technically, there isn’t even an account, there is only a checkbook.   That billion dollars springs into being at precisely the instant the officer signs that check and, if you remember in Economics 101, that is what the professor called “monetizing the debt.”   This is how the government gets its instant access to any amount of money at any time without having to go to the taxpayer directly and justify it or ask for it.  Otherwise, they would have to come to the taxpayer and say we’re going to raise your taxes another $7,500 this year.  Of course, if they did that, then the American taxpayer would vote them out of office quick, fast, and in a hurry.   No, Congress really likes the Mandrake Mechanism because it’s a “no questions asked” source of instant cash. 

Now, this is where it really gets interesting.  Let’s go back to that half billion dollar check that the Fed official just wrote.  The Treasury official deposits the check into the government’s checking account and all of a sudden the computers indicate that the government has a billion dollar deposit.  So now the government can write a billion dollars in checks against that deposit, which Congress does very quickly, as they are going through withdrawals from not having enough money for their “spending sprees.”  For the sake of our simplistic analysis, let’s just follow $100 out of that half a billion.  Let’s say Congress writes a $1000 check to Johnny, who cuts the lawn at the White House.  He gets a check for $1000, completely clueless that only a day before, this money didn’t even exist, but he doesn’t care, so he deposits it into his bank account. Now, the bank manager sees that a $1000 deposit has been made he runs over to the loan window and opens it up and says “Attention, attention, we now money to loan.”  Everyone is thrilled since that’s one of the chief reasons that people go to banks, right? They want to borrow money. 

Well, it just so happens that Freddie (Johnny’s neighbor) needs to borrow $900 for a home renovation.   The Federal Reserve System requires that the banks hold no less than 10% of their deposits in reserve, so the bank holds 10% of that $1000 in reserve ($100) and it loans Freddie the $900 he needs for his home renovation.   What do you think Freddie does with the $900? He wants to spend it so he puts it into his checking account. When he puts this $900 into his checking account, it’s considered a deposit, then the bank is only required to keep $90 in deposits and can turn around and loan out $810.  The next fellow also needs a loan, so he borrows the $810, deposits it into his checking account, and then the bank has more deposits which can, in turn, create more loans.  At the end of the day, the bank can eventually loan out $9000 based on the initial $1000 deposit, as a result of the 10% fractional reserve requirement.

Where did the $9000 come from?  The answer is the same as when the Fed officer wrote the check… there was no money. The money is “created” precisely at the point at which the loans are made.   Think about this for a minute. This money was created out of nothing and yet the banks collect interest on it which means that they collect interest on nothing. What a racket, huh?

MONEY SOUP:

But the story doesn’t stop there.  This newly created money goes out into the economy and it dilutes down the value of the dollars that were already out there.  My lovely wife Charlene cooks an amazing homemade chicken tortilla soup.  The broth is amazing.  Now, if I were to add a gallon of water to the cauldron, it would ruin the broth.  But this is analogous to what’s happening with the money supply.  Injecting this “money created from nothing” into the economy is like pouring water into a wonderful pot of soup.  

So by throwing more and more money into the US “economic soup,” the money gets weaker and weaker and weaker and we have the phenomenon called inflation which is the appearance of rising prices.  But inflation is just the “appearance” of rising prices.  In reality, prices are not really rising.  Inflation is a result of our money falling in value, more commonly referred to as the “devaluation of the dollar.” If this dollar devaluation continues, our money will be more useful as toilet paper than as a medium of exchange.

And with the recent housing crisis, I’m sure that you are all familiar with the fact that, when you get that bank loan of money created out of nothing, the bank wants something from you.  It wants you to sign on the dotted line and pledge your house, your car, your inventory, your assets so that in case for any reason you cannot continue to make your payments they get your assets. The banks are NOT going to lose anything on this. Whether it’s expansion or contraction, inflation or deflation, the banks are covered and we like sheep go right along with it because we haven’t figured it out, we don’t know that this is a scam.  

There you have in a condensed form a crash course on the Federal Reserve System.  I can assure you that you now know more about The Fed than you probably would if you enrolled in a four year course in economics because they don’t teach this in school.

CLOSING:

In closing, let’s hear from one of the most influential Founding Fathers of the United States:

So, in light of the recent financial chaos in America, I ask you this question: Will the private bankers who own The Fed help stabilize our markets?

I leave you with this thought: In the Bible, we learn that the debtor is a slave to the lender. That is the relationship of the USA to The Federal Reserve System. In essence, we are all slaves to the international private bankers who own The Fed.