CENTRAL BANKS AND THE HISTORY OF BANKING IN AMERICA
by Dr. Lawrence Wilson
© December 2017, L.D. Wilson Consultants, Inc.
Modern
banking in Europe and America, and indeed most nations, depends upon several
concepts. These include central banking,
debt currency,
the fractional reserve system and often government bailout of banks that get into
financial trouble. Unknown to
most people, these ideas combine to impoverish nations and often cause wars and
social decay.
This
article begins with basic concepts of banking, followed by a history of banking
in America, from before the American Revolution to the present. It is very condensed and most of it
taken from an unusual and fascinating book, the Creature From Jekyll Island, by Edward
Griffin.
This
book, more than any other, shows why capitalism is the best system and why
bankers hate this system of economics and do all they can to ruin it. This is happening in America and the
entire world today.
CENTRAL BANKING BASICS
Why money? Money is like the blood in your
body. It is the medium of exchange
that permits people to buy and sell all goods and services easily and safely. Just as with blood, any blockage or
imbalance in the flow of money, especially in a modern society, is a very
serious problem.
Intrinsic value. Some forms of money also have intrinsic
value of their own, such as gold and silver. This means that this kind of money is a commodity or item
that has value whether or not it is used as money. Other forms of money such as paper dollars and electronic
currencies such as credit cards have no intrinsic value and are only worth what
the government says they are worth.
These are called fiat currencies.
Money
with intrinsic value such as precious metals adds a great deal of stability to
a currency. The United States
Constitution clearly states that only gold and silver may be used as money in
the United States. This provision
of the Constitution was violated about 50 years ago in America.
Why banking? Banks are places people can safely
deposit their money and earn interest on their money. The way this is supposed to work is the bank lends a certain
percentage of their deposits to people who want to borrow money to buy a house,
finance a business, or for other needs.
Borrowers
pay a fee to have their loans from the bank. The bank keeps some of this money as profit, and pays the
rest to the depositors as interest.
Banks
may also offer other services for their customers such as investments,
financial advice and more.
Why central banking? There is no need for one
central bank in a nation or in the world.
Many people can own banks, just as they own all other types of businesses.
However, banking is so vital that
powerful people have wanted to control this industry more than most
others. When they gain control of
the people or the government of a nation, they put into place something called
a central bank.
Most developed nations of the world
have one of these today, although America stood alone among developed nations
in not having a central bank for over 50 years at one point.
The world bankers, for lack of a better
term, hated this situation because the nation was prospering too much. They used their influence and cash to
make sure this independence did not last.
As a result, America has had central
banks just on and off, and the most recent one has been in place since
1913. It is called the Federal Reserve
System. This is a totally
false name because the bank is not federal and there is no reserve. The bank is privately owned.
Let us
compare how a free banking system works and then how a central bank works. The main
features of a privatized banking system are:
1.
Many independent banks serve the people in a diversified way, offering various
services. They compete based on
their record of service, safety and efficiency for the customer.
2.
If one or two banks fail, it is not a big loss. A few people are out their money, but most are just fine.
With
a central bank, the opposite occurs:
1. All banks must follow the orders of the
central banking authority even if the orders are silly or unethical. This is the case today.
2,
If the system fails, as is happening now, the catastrophe is so massive that
the government is practically forced to step in and bail out the banks. This is also happening this week in
Washington, D.C.
What
is not said is that bailouts are part of the package with centralized
banking, In other words, they
depend on the fact that with a centralized system, if anything goes wrong the
problem is so bad that they can force the government to intervene and save
them, no matter what it costs the taxpayers. This is inherent in the centralized or cartel concept of
banking.
FEATURES OF A CENTRALIZED BANKING SYSTEM
1. It has a monopoly on
issuing money. This means that the government of the nation gives this bank
the only privilege or right to issue money, either coins or paper money.
2. Usually, other bank
currencies or methods of payment are outlawed. The central bankers do not like
competition, in other words. Such
laws are called legal tender laws.
In
the US Constitution, only gold and silver or IOUs for these metals are legal
money. However, this requirement
was supposedly bypassed by the Federal Reserve Act of 1913.
In
fact, this act never changed the earlier passages in the constitution, so it is
not totally legal to use paper money backed by nothing at all in America, as we
have today.
3. This legal tender issued
by the central bank is always issued as a debt currency. This means the government must pay
interest on their own money, as it were.
If this sounds bizarre, it is.
But we owe the Federal Reserve, in America, for example, trillions of
dollars on paper, at least, because they issue our money as a debt with
interest.
James Bond Movies contain
more truth than the evening news. This
brings up another point about the world bankers. They want everyone in debt to them, and paying them compound
interest. The real owners of all
this wealth are unbelievably wealthy individuals, by the way.
They
stay totally out of the public view, however, so you donÕt hear about them at
all, except maybe in James Bond movies.
In fact, the crooks in these movies are far more real than one might
imagine and that is why such movies do well.
4. The central bank is
privately owned in most cases. It is rarely truly a government entity, though it may be
called ÒThe Bank of EnglandÓ or in America ÒThe Federal ReserveÓ.
This
name, by the way, is a complete deception. The central bank in America is not owned by the federal
government at all, there is no reserve and it is not strictly a system.
It
is privately run and controlled for the benefit of the bankers, not the
American people, no matter what they claim. They do not want America to fail because their revenue would
go down. Their ÒnationalÓ interest
is for this selfish reason and not because they love America, as they often
claim.
In
other words, the people are deceived to believe that they or the nation owns
the central bank. However, it is
not true in America, Great Britain or most other nations. World bankers like to own nations, and
not the other way around. This is
the history of banks, bankers and banking.
5. The central bank does
not print up the currency in most nations. This is left to the Treasury
Departments of the USA and other nations.
However, the central bank regulates how much currency is printed or issued
in other ways. So it is, in fact,
in control of the money supply and not the Treasury Departments of the nations.
One
might ask, then, why we tolerate such as system of banking in our world. The answer is that since about the
1700s the present system was put in place by very powerful and sneaky
individuals who convinced kings, rulers and others that their services were
needed or there would be wars and worse things in their nations.
However,
it is time for the whole show to be exposed, and hence we share this
information. By the way, much more
details about the central bankers is found in many books in the libraries,
especially one called The
Creature From Jekyll Island by Edward Griffin.
Now
let us look at the history of banking in America.
THE HISTORY OF BANKING IN AMERICA
The
main purpose of a colony at the time of the founding of America was to increase
the wealth of the mother nation, particularly the banking class and the
royalty. If others did well, that
was acceptable, too.
England
exported the wealth of the colonies such as cotton and tobacco, supposedly in
return for protection against pirates and other enemies. America has a similar arrangement with
many nations that justifies military intervention whenever the mother country
desires. The system is called
mercantilism. It is not Òfree
tradeÓ, which is trade between sovereign nations.
EARLY COLONIAL BANKING
The
first American experiment with paper money was from 1690 to 1764. Starting with Massachusetts, most colonies
began printing up Òbills of creditÓ.
The process was simple and direct. There was no central bank. Benjamin Franklin remarked concerning
this system:
"This 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 anyone.Ó
The
system worked well at first.
However, the British money masters did not like the idea, of
course. They live by collecting
interest. They made sure too much
was printed and so it lost value.
The
results were predictable. As more
and more money was printed, the value of the money decreased. Prices started rising. People began to distrust the local
currency and demanded gold or British money. As a result, laws were passed to force people to accept the
worthless paper. These are called
Òlegal tender lawsÓ (which we have today). This just made people angrier.
Inflation
became intense. In Connecticut,
prices rose by 800%, the Carolinas it was 900%, in Massachusetts prices rose
1000% and Rhode Island 2300%.
There was much hardship and great personal loss.
In
1751, the situation was so bad the British parliament stepped in and outlawed
the printing of all money in the American colonies. This, of course, was the hidden objective all along for the
British bankers. Henceforth, only
the Bank of England would supply money in the colonies.
While
the effects were positive in some ways due to stable money, the colonists were
angered by this heavy-handed approach.
Benjamin Franklin believed this was an important factor in causing the
American Revolution. He wrote in
1755:
"The colonies would
gladly have born the little tax on tea and other matters had it not been that
England took away from the Colonies their money, which created unemployment and
dissatisfaction.Ó
THE REVOLUTION WAS IN PART ABOUT MONEY
Thus
the creation and control of money had something to do with the American
Revolution. It was not simply high
taxes, because the taxes were not high.
It was control of the currency.
In
addition, according to many sources, the British bankers were the ones who
finally allowed the American Revolution to be successful. According to the story, when things
looked very grim for the ragtag American army, the bankers saw their
opportunity. General George
Washington lacked money to pay his soldiers, not mention funds for supplies of
every kind.
A
message was sent that if America agreed to a central bank under foreign control
(British), that funds would be lent to the Americans. Washington quickly accepted the offer, due to a very
desperate situation. Soon the
British Òtired of the warÓ and the Americans emerged victorious. Here is a quote by Revolutionary War
historian Bill Still:
ÒAmerican
(colonists) had learned the secret of money and that genie had to be returned
to its bottle. The owners of the
Bank of England inspired (or at least allowed a successful) Revolutionary War
to put the American people's money system out of business and to establish a
national bank owned by them. They succeeded temporarilyÓ.
THE FIRST CENTRAL BANK IN AMERICA
The
first central bank was chartered in 1781, while the Revolution was still going
on. It began operations the
following year. Its name was
grandiose, The Bank of North America, because many banking families felt that
the colony to the north, Canada, would soon join the rebels in America to form
a North American nation.
Robert
Morris, the main force behind the bank, was a politician and wealthy merchant
who had profited greatly from trade with England. He had studied the secret science of money and knew about
interest-bearing money, the benefits of inflation of paper money for bankers,
and he knew about fractional reserve banking. These are among the most important aspects of central
banking. He wanted America to be
just like England in this regard.
The
Bank, as we will call it, was essentially privately owned. However, it received a monopoly on
issuing money in the new nation.
(This was a pattern to note, as it has been repeated many times in history). Also, the government accepted their
paper money as payment for all taxes and other government debts. Also, the bank was made the official
depository for all federal funds.
No law was passed demanding that people accept the bankÕs paper, but the
facts above made their banknotes very attractive as the circulating money in
the new nation.
THE DEMISE OF THE FIRST CENTRAL BANK
This
first central bank had a short life.
Its founder, Morris, was greedy and printed too much paper money. Also, the people hated the bank, as
they knew it was a carbon copy of the Bank of England. They preferred using gold coins and
other locally-printed paper money.
Murray
Rothbard, another financial historian, wrote in Mystery, pp.194-195:
ÒDespite
the monopoly privileges conferred on the Bank of North America, and its nominal
redeemability in specie (gold), the marketÕs lack of confidence in the inflated
notes led to their depreciation outside the BankÕs home base in
Philadelphia. The Bank even tried
to bolster the value of its notes by hiring people to urge redeemers of its
notes not to insist on (gold) – a move scarcely calculated to improve the
long-run confidence in the Bank.
After
a year of operation, MorrisÕs political power slipped, and he moved quickly to
shift the Bank of North America from a central bank to a purely commercial bank
chartered by the state of Pennsylvania.
By the end of 1783 É the first experiment with as central bank in the
United States had ended.Ó
THE SECOND CENTRAL BANK IN AMERICA
The
idea of a central bank was far from dead, however. The new Constitution of the United States, which replaced
the failed Articles of Confederation, forbade the government from printing
money. To avoid inflation, the
founders of the nation tried to insist that gold and silver coins minted by the
government would be the only Òlegal tenderÓ in America.
However,
a flaw was left in the Constitution.
The federal government could borrow paper money. This fact is what the bankers, many of whom were elected in
the Congress, exploited. Alexander
Hamilton, firmly in the banking class, became the first Secretary of the
Treasury. In 1790, he introduced
legislation to establish a new Bank of the United States. Hamilton, by the way, was a former aide
to Robert Morris, founder of the first Bank of North America.
On
the other side of the debate was Thomas Jefferson, who was then Secretary of
State. He was extremely outspoken
about it. He wrote:
"If
the American people ever allow private banks to control the issue of their
currency, first by inflation, then by deflation, the banks... will deprive the
people of all property until their children wake up homeless on the continent
their fathers conquered...Ó
ÒA
private central bank issuing the public currency is a greater menace to the
liberties of the people than a standing army. We must not let our rulers load us with perpetual debt.Ó
Alexander Hamilton answered
back:
ÒNo
society could succeed which did not unite the interest and credit of rich
individuals with those of the stateÓ
ÒA national debt, if it is not excessive, will be to us a national
blessing.Ó
What he meant here in
veiled language is that the national debt is a great blessing to the bankers,
because they collect the interest on the debt. This is still the case today.
Another
outspoken critic of the central bank was president James Madison. He wrote:
"History records that
the money changers have used every form of abuse, intrigue, deceit, and violent
means possible to maintain their control over governments by controlling money
and its issuance."
After
a year of intense debate, Hamilton won out. In 1791, the Bank of the United States was granted a 20-year
charter, just as the bankers had been promised during the Revolutionary War.
THE DEMISE OF THE SECOND CENTRAL BANK
It
was no surprise that the Bank of the United States was modeled closely after
the Bank of England. It was also
essentially a continuation of the failed Bank of North America. It even had the same president, Thomas
Willing.
It
was given a monopoly on the issuance of paper money, there were no legal tender
laws, but its banknotes were deemed the official legal tender for payment of
government obligations. Also, once
again it was made the official repository of government funds.
Officially,
it had to redeem its paper in gold upon demand. However, it was not forced to keep enough gold on hand, so
that was only a theoretical requirement.
Eighty
percent of the bankÕs investors were to be private individuals, including
foreigners, while the federal government was to put up only 20 percent of its
funds. In other words, the bank
could be easily controlled by private foreign individuals. This, too, was identical to the old
Bank of North America.
In
actual fact, private individuals put up only a meager $675,000 out of a
supposed $10 million. The rest was
ÒborrowedÓ from the government and by a sleight of hand trick, given right back
to the government in the form of paper money that was created out of thin
air. So the bankers controlled the
money policies of the nation without having to invest event a pittance of their
own money.
Here
is a quote from Gustavus Myers, from his History of the Great American Fortunes:
ÒUnder
the surface, the Rothschilds (the dominant European banking family even today)
had a powerful influence in dictating American financial laws. The law records show that they were the
power in the old Bank of the United States.Ó
INFLATION COMES AGAIN TO AMERICA
The
government borrowed and borrowed more and more paper money from the Bank of the
United States. Within five years,
wholesale prices rose 72%. This is
another way to say that 42% of everything people had saved in paper money was quietly
confiscated by the government through the hidden tax called inflation.
Thomas
Jefferson was appalled. He wrote:
ÒI
wish it were possible to obtain a single amendment to our Constitution. I would be willing to depend on that
alone for the reduction of the administration of our government to the general
principle of the Constitution; I mean an additional article, taking from the
federal government their power of borrowing.Ó
The
people again became angry and public opinion turned against against the
bank. It was not just Thomas
Jefferson, James Madison an others who opposed it on Constitutional and moral
grounds. It was a coalition of
freedom-minded people who did not necessarily understand banking but knew
something was dreadfully wrong with giving a monopoly to one private central
bank. In spite of the bankers in
Congress, and all those whom they paid off, this coalition was able to repeal
the BanksÕ charter by one vote on January 24,1811 when it came due for renewal.
THE THIRD CENTRAL BANK IN AMERICA
The
central bankers were furious with this decision and began laying plans for
their return to power. Without a
central bank, many state banks flourished to serve the peopleÕs needs. This is called Òfree bankingÓ because
almost anyone could set up a bank, and indeed they did. These local banks competed for
business. They performed several
vital functions of banks:
1) Safety Of The PeopleÕs
Gold and Silver.
Gold and silver are real money according to the US Constitution. The people could store their gold and
silver coins at the bank. This was
generally much safer than keeping them at home, unless the bank was robbed or
went bust, which occasionally happened.
2) Issuing Simpler Mediums
of Exchange.
For buying and selling, in return for storing gold and silver with them,
the bank issued paper money.
Swapping small pieces of paper was much easier than carrying and
swapping heavy gold coins every time one wanted to buy something. The buyer would give the seller paper
money and the seller would take the paper to your bank and exchange it for gold
or silver, which is the real money.
If the seller used the same bank as the buyer, it was even easier. The seller would simply keep the paper
money and use it to buy something else from another person. This is the proper use of paper money.
Checks were soon invented. A check is better than paper money, as
one does not have to carry a wad of paper everywhere. Also, one can write a check for any amount, while the paper
money is only for specified amounts such as one dollar or ten dollars. Checks were a wonderful invention,
although they carried much more risk for a bank. This would lead to many bank failures.
Checking
had problems we do not have today.
The account could be easily overdrawn. This is checked instantly today, but recall that even the
telephone or telegraph had not been invented 180 years ago. So check-writing was limited.
3) Lending. Banks also found they had on hand a lot
of gold and silver that they could lend to other people who wanted to build a
house or start a business. This
was risky, however, because the depositor might arrive at any time and want his
gold coins back. The bank had to
be careful that they kept on hand enough specie, as gold and silver are called, in case
a depositor want to withdraw his funds.
Too
much lending led to many bank failures and still does today. Rules to control lending were
instituted in many states to prevent it.
However, unscrupulous banks, due to greed, sometimes violated the rules
and caused loss of funds for their depositors.
4) Investments. This was mainly a later offering from
banks. Banks, however, can do this
today.
Under
this system of free banking, many banks issued checks and paper currency. This presented the problem of whether
to trust the banknotes of a bank with which one is not familiar. Out of state banks were the worst
problem to evaluate.
This
was solved to a great degree through the free market. People began offering services to check the solvency of
banks. They were like todayÕs
Consumer Reports on banks.
A
discount system developed. This
means that, based on a bankÕs safety rating, lists were published suggesting
that if one accepts banknotes or checks from a particular bank, one should only
accept 70% of the value, for example, because of the risk involved in that
particular bank.
This
function had been performed by the central banks in the past. However, in many cases the central bank
had been in cahoots with some of the state banks and so their ratings were not
always to be trusted. Independent
rating companies were generally safer in this regard.
NO INFLATION TO SPEAK OF
Inflation
was still somewhat of a problem because the federal government borrowed money
from the state banks to pay its bills.
The US Congress, as today, did not have the discipline to always stay
within its budget. However, inflation
at least was not institutionalized as it was in the days of the central
banking.
Currency
in circulation was controlled by the amount of gold available in the
banks. Banks that inflated their
paper or check money too much were soon out of business. In these cases, a small number of
people would lose their money.
Meanwhile, the rest of the nation prospered and this helped build the
nation.
If the free market had been allowed to
flourish, the bad banking operations would have been continually weeded out as
must occur in all new industries.
However, this was not to happen due to the War of 1812, a war that was
likely created or at least encouraged by the bankers to create debts and the
need for another central bank.
THE WAR OF 1812 WAS A BANKERS WAR
The
War of 1812 was very odd. It was
fought with the British over the issue of British ships stopping American
merchant ships on the high seas.
The American sailors were then forced to serve on British ships,
supposedly to fight the French navy.
European nations were almost continually fighting with each other for
control of the sea and land.
However,
the order to impound American ships had already been cancelled before the war
was underway. Also it is notable
that the Northern states, where most of the American sailors lived, was against
the war. The Western and inland
Southern states, where many so-called Òwildcat banksÓ were, wanted the war.
It
turns out, these Western and Southern banks were mainly controlled by the same
central banking interests that had set up the earlier central banks. The banks wanted war because to fight a
war the federal government of the United States had to borrow lots of
money. Bankers make lots of
money charging interest on loans.
Without a central bank, the federal government had no choice but to go
to these banks for loans to pay for the war. The Constitution forbade the Congress from printing its own
money.
These
state banks created enough paper money out of thin air to increase the national
debt from $45 million to $127 million, a large sum for a fledgling nation. Tripling the amount of dollars in
circulation, the value of the dollar dropped to about 1/3 of its former
value. So even though there was no
central bank, the banking interests made money by creating a war.
By
1814, it was clear to the government that many of the state banks could not
back up their paper money with enough gold. They were insolvent because they had practiced fractional
reserve banking. This means that
they issued paper money far in excess of their reserves of gold and silver.
THE FIRST BIG BAILOUT OF BANKS
Yet
the government allowed them to continue to operate. This meant a bank that they knew was operating fraudulently
was allowed to stay open. These
banks were technically insolvent.
That is, they most likely could not pay their depositors back when they
asked for their gold and silver coins they had deposited in good faith, because
all the gold was all lent out to the government.
In
other words, the state and federal governments, charged with enforcing basic
laws, just ignored this flagrant violation of the law. When depositors would demand more gold
than the bank had to give them, the bank would just close its doors and go out
of business. The depositors would
lose their money in most cases, and many lost their businesses as well. The bankers might or might not go on
trial depending on how well they could evade the sheriff.
This
was the early way the federal government bailed out banks. Later, another type
of bailout was instituted. It is
similar but worse because more people are hurt and the bankers often go
free. It is the kind of bailouts
we have today.
In
this bailout, the government simply asks the central bank to print more cash
and then gives it to insolvent bank or banks. The depositors are saved, at least in part, but the general
public loses greatly: 1) Printing loads of paper money inflates the money,
causing its value to decline. 2)
The dishonest bankers still stay in business, and 3) bailing out bad banks
sends a message that no bank needs to be careful with the loans it makes. In other words, the word gets out that
banks can flaunt the law. This is
the case today in many circles.
Bailout is a game that
bankers love, and it leads them to take enormous risks with other peopleÕs
money because they know they will be protected. It is pattern that would be repeated many times in the
nationÕs history.
THE THIRD CENTRAL BANK
There
was monetary chaos in the United States at the end of the War of 1812. Congress could have stopped it by
bringing those to trial who had acted fraudulently, and allowed the losses to
be taken. Sadly, however, the
American Congress, filled with many of the banking group, had neither the
wisdom nor the courage to do this.
Instead, in 1816 they approved a charter for another central bank to be
called The Second Bank of the United States.
In
most every respect, this bank was a carbon copy of the previous Bank of the
United States. The only difference
was Congress basically extracted a bribe from the private investors of $1.5 million
Òin consideration of the exclusive privileges and benefits conferred by this
act.Ó
The
bankers were glad to pay the fee, not only because it was a modest price for
such a profitable business, but also because the government agreed to deposit
one-fifth the total capitalization, which would then be used to manufacture
most of the remaining startup capital out of thin air.
The
charter required the bank to raise $7 million in gold and silver, but even
after its second year, the amount never reached more than 2.5 million. Once again, the central bankers had
carved out a profitable niche while the gullible taxpayers paid for it in the
name of Òbanking reformÓ.
Another
similarity to the previous banks was the concentration of foreign
investment. The third central bank
was as rooted in Great Britain as the first.
Immediately,
problems began. The central bank
was not supposed to accept banknotes of state banks that were not solvent. However, when the state banks
retaliated by demanding gold of the central bank for their depositors, the
central bank often caved in and relaxed their policy. The banks major historian, Ralph Catterall, in The Second Bank
of the United States, wrote:
ÒSo
many influential people were interested (in the state banks) as stockholders
that it was not advisable to give offense by demanding payment in specie, and
borrowers were anxious to keep the banks in the humor to lend.Ó
INFLATION AGAIN
So
the old problem of inflation began to occur almost immediately again as soon as
the new central bank got started.
A free market would have weeded out the bad banks. The central bank kept them alive. Galbraith writes:
ÒIn
1816, the postwar boom was full on; there was especially active speculation in
Western lands. The new (central)
Bank joyously participated.Ó
Also,
they did not stop the state banks from participating as well. In 1817, Pennsylvania charted 37 new
banks. Kentucky chartered 40 new
banks. The number of new banks
increased 46% in just the first two years following the charter of the third
central bank.
Any
spot along a road that had Òa church, a tavern or a blacksmith shop was deemed
a suitable place for setting up a bankÓ. (from Angell, N., The Story of Money, 1929, p. 279.) In that time period the money supply
expanded by an additional $27.4 million, which amounted to an inflation rate
and loss of value of money of about 40%.
THE FIRST ÒBOOM-BUST CYCLEÓ AND THE DEPRESSION OF
1819
I
will quote Murray Rothbard as to what happened next:
ÒStarting
in July 1818, the government and the É(third central bank) began to see what
dire straits they were in; the enormous inflation of money and credit,
aggravated by the massive (banking) fraud, had put the (central bank) in danger
of going under and illegally failing to maintain (gold) payments. Over the next year, the (central bank)
began a series of enormous contractions, forced curtailment of loans,
contraction of credit in the South and WestÉ
The
contraction of money and credit swiftly brought to the United States its first
widespread depression. The
first nationwide Òboom-bustÓ cycle had arrived in the United StatesÉ The result
of this contraction was a rash of defaults, bankruptcies of business and
manufacturers, and a liquidation of unsound investments (made) during the boom.Ó
In
The
Documentary History of Banking and Currency, Herman Krooss writes:
ÒThe
(central) Bank, as the largest creditor (to the state banks) had two
alternatives: it could write off its debts, which of course would have wiped out
the stockholdersÕ equity and resulted in (its) bankruptcy, or it could force
the state banks to meet their obligations, which would mean wholesale
bankruptcy among the state banks.
There was no doubt about the choiceÉ The pressure placed upon the state banks deflated the
economy drastically, and as the money supply wilted, the country sank into
severe depression.Ó
Historian
William Gouge observed: ÒThe (central) bank was saved, and the people were
ruined.Ó
THE SUPREME COURT UPHOLDS THE BANK
In
a landmark decision that determined the fate of the new nation, the Supreme
Court in McCulloch
v. Maryland upheld the right of the central bank to destroy the state
banks.
The
question before the court was the constitutionality of a central bank. Although the Constitution forbade the
government from printing money, the judges ruled that the central bank was
necessary Òto carry out the functions of the governmentÓ. This was nothing more than an end run
around the Constitution that has never yet been reversed. We hope one day it will be.
Meanwhile,
it laid the foundation for all future central banking and effectively rendered
null and void the provision of the Constitution prohibiting the government from
issuing inflated paper money.
THE PUBLIC HAD ENOUGH OF THE BANK
America
recovered from the depression of 1819.
However, the American people were angry at the central banking concept
that the high court had upheld.
Completely unlike today, most high schoolers knew that only gold and
silver are legal money.
Most
adults understood that paper money is subject to massive fraud by manipulating
its supply. Inflation, most knew,
is due to bankers and government officials, and is not due to chance. They also understood that inflation
destroys the value of their paper money.
Finally, they understood that recessions and depressions that can
destroy their homes and their businesses, are directly due to bankers and
government policies, not chance.
To restore this basic knowledge is the purpose of this article.
The
state banks sided with people on this issue. They hated the fact that the central bank was bailed out by
the government during the Depression of 1819, while they were not.
ANDREW JACKSON AND THE END OF THE THIRD BANK
A
breath of fresh air arrived when Andrew Jackson was elected president in
1828. His new Democratic Party was
founded in part with the goal of ending the central bank.
Once
in office, Andrew Jackson wasted no time building support in the Congress to
abolish the central bank. He was
opposed by one of the most powerful men in American history, Nicholas
Biddle. He was president of the
central Bank. He was brilliant and
arrogant, and had loads of support of the British banking community.
Mr.
Biddle understood the secret science of banking very well. He had no intention of losing his bank
to the people of America. However,
he would not win this fight.
At
first, Andrew Jackson was thwarted at every turn. For practical purposes, Mr. Biddle owned the
Congress. Following an old bankers
formula, Mr. Biddle had been careful to reward politicians who voted his
wishes. Galbraith also writes:
ÒÉHe
(Biddle) had regularly advanced funds to members of Congress when delay on
appropriation bills held up their payÉ Numerous men of distinction had been accommodated,
including members of the press.Ó
In
1832, the bank had another four years to go on its charter. Mr. Biddle, however, decided not to
wait until the charter ran out before introducing a bill for its continuation. It was an election year and he reasoned
that Andrew Jackson would not veto such a bill as it would cost him votes and
money.
President
Jackson decided to place his entire career on this issue and vetoed the
bill. He also delivered several speeches
on the subject that are among the most compelling Constitutional arguments
against a central bank. He
basically flaunted the McCulloch vs. Maryland Supreme Court decision, pointing out 1) the
injustice of a government-granted monopoly to the Bank, 2) the
unconstitutionality of the Bank, even if it were just, and 3) the danger to the
country in having the bank heavily dominated by foreigners. The following quote of JacksonÕs
is from a book by Krooss, pp. 22-23:
ÒIt
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. By this act the American Republic
proposes virtually to make them a present of some millions of dollarsÉ
It
appears that more than a fourth part of the stock is held by foreigners and the
residue is held by a few hundred of our own citizens, chiefly of the richest
class. For their benefit does this
act exclude the whole American people from competition in the purchase of this
monopoly and dispose of it for many millions less than it is worth.Ó
President
Jackson also noted that the president and the Congress may override a Supreme
Court decision, according to the Constitution. This is most important to consider in this day and age as
well. Jackson also mentioned in
his speeches that the balance of power concept is designed to make the
government run inefficiently
- that is, to consider many viewpoints, and not to bow to one branch or the
other branch of government. Andrew
Jackson took his case to the people and overwhelmingly won re-election. He received 55% of the popular vote,
with only 35% going to Henry Clay and 8% for Mr. Wirt.
However,
Mr. Biddle was just beginning to fight.
He worked tirelessly with every manipulative method possible to overcome
JacksonÕs position and popular appeal.
John Randolph, a fiery old Congressman, noted jokingly:
ÒEvery
man you meet in this House or out of it, with some rare exceptionsÉis either a
stockholder, president, cashier, clerk or doorkeeper, runner, engraver,
paper-maker, or mechanic in some other way to a bankÓ
JacksonÕs
biographer describes the JacksonÕs method of fighting back as follows:
ÒOn
his homeward journey, he reportedly paid all his expenses in gold. ÒNo more paper money, you see, fellow
citizensÓ, he remarked with each gold payment, Òif I can only put down Mr.
Biddle and his monster bankÓ.
Gold, hardly the popular medium of exchange, was held up to the people
as the safe and sound currency which Jackson and his administration hoped to
restore to regular use. Unlike
paper money, gold represented real value and true worth. It was the coin of honest men. Rag money, on the other hand, was the
instrument of banks and swindler to corrupt and cheat an innocent and virtuous
publicÓ. (Our paper money, even
today, is made out of old rags.)
Here is another quote from a speech by Andrew Jackson:
"If Congress has the
right under the Constitution to issue paper money, it was given them to be used
by themselves, not to be delegated to individuals or corporations."
The
Bank still had four years to go on it s charter, which Mr. Biddle would use to
strengthen his position. Jackson
countered by ordering the Secretary of the Treasury to place all new deposits
in state banks and pay bills out of funds in the central bank until the
governmentÕs balance in the central bank was down to zero. When the Secretary did not comply,
Jackson quickly fired him, going against a gentler tradition.
Mr.
Biddle counterattacked by canceling loans and contracting the money supply to
cause monetary chaos. This, he
hoped, would be blamed on JacksonÕs withdrawal of funds from the bank and would
turn public opinion against him.
Mr. Remni wrote:
ÒIt
marked the beginning of a bone-crushing struggleÉHe (Biddle) knew that if he
brought enough pressure and agony to the money market, only then could he force
the President to restore the deposits.Ó
Biddle
declared:
ÒNothing
but widespread suffering will produce any effect on CongressÉ All other banks and all the merchants
may break, but the Second Bank of the United States shall not break.Ó
For
a while it looked like this plan would work. Jackson was ridiculed daily in the Congress for 100
days. A resolution of Censure was
introduced into the Senate, and passed on March 28, 1834. The president, however, also had plenty
of supporters in Congress. Once he
was reported to have said to a group of Bank supporters: ÒYou are a den of
vipers. I intend to rout you out
and by the Eternal God I will rout you out.Ó
An
investigation of the bank was launched by the House of Representatives, which
largely supported the President.
Mr. Biddle refused to comply with subpoenas to examine the books of the
bank and correspondence with Congressman he had paid off. He also refused to testify in Congress.
For
any other mortal, this would have meant a stiff fine or imprisonment, but
Biddle was so powerful that Congressional Democrats, many of whom were on the
take, refused to grant a citation of contempt of Congress. However, the action further condemned
Biddle in the eyes of the public.
Mr. Biddle went even further, sad to
say. On January 30, 1835 an
assassination attempt was made on the President, the first in American history. Miraculously, both pistols misfired. The would-be assassin, Richard
Lawrence, was caught but was found not guilty due to insanity. According to Robert Donovan, in
his book, The
Assassins, Lawrence boasted to friends that he had been in touch with
powerful people in Europe who had promised to protect him from punishment
should he be caught.
Andrew
Jackson, meanwhile, was wise in other ways. By this time he had completely paid off the national debt
from the War of 1812 and ran a budget surplus. He ordered the Treasury to give back to the states more than
$35 million, which was used for a variety of public works projects.
Finally,
in 1836, the charter of the Second Bank of the United States expired and was
not renewed. Biddle was soon
arrested, charged with fraud and died soon after. It was to be just a temporary defeat for the bankers,
however.
THE CIVIL WAR
Most
people believe the American Civil War was fought over the issue of
slavery. This is true to some
extent. However, much more was at
stake. The war was about
individual property rights, states rights and the right to secede from the
Union of the states, and it was about fractional reserve banking as well.
The
European bankers had just suffered what they felt was a grave defeat in
America. They were not about to
stand by and allow the new nation of America, with its democratically elected
government, to take over the world, which they feared.
The
London Times printed the following quote by Otto von Bismark, the emperor of
Germany, around the time of the Civil War:
ÒIf that mischievous
financial policy, which had its origin in the North American Republic, should
become indurated down to a fixture, then the government will furnish its own
money without cost. It will pay
off its debts and without a debt, it will have all the money necessary to carry
on its commerce. It will become prosperous beyond precedent in the history of
the civilized governments of the world. The brains and the wealth of all
countries will go to North America. That Government must be destroyed or it
will destroy every monarchy on the globe.
They will not hesitate to plunge the whole of Christendom into wars and
chaos in order that the earth should become their inheritance."
The
monarchs and their controllers, the bankers, decided that America would have to
be broken up into two small nations that would fight with each other, keeping
both weak and, of course, in debt to them. This was a general plan of events. If this sounds preposterous, it is not. Here is another quote attributed to
Otto von Bismark, the ruling monarch of Germany and Austria at the time:
ÒThe
division of the United States into federations of equal force was decided long
before the civil War by the high financial powers of Europe. These bankers were afraid that the
United States, if they remained in one block and as one nation, would attain
economic and financial independence, which would upset their financial
domination over Europe and the world.
Of course, in the Òinner circleÓ of finance, the voice of the
Rothschilds prevailed. They saw an
opportunity for prodigious booty if they could substitute two feeble
democracies, burdened with debt to the financiers,É in place of a vigorous
Republic sufficient unto herself.
Therefore, they sent their emissaries into the field to exploit the question
of slavery and to drive a wedge between the two parts of the UnionÉ The rupture between the North and the
South became inevitable; the masters of European finance employed all their
forces to bring it about and to turn it to their advantage.Ó
This quote sounds like conspiracy
theory. However, this is exactly
how the banking interests operate, even today. They know what they want and they make it happen as best
they can.
The
European financiers set to work to divide the new American nation and destroy
it in this way. Their main ally in
this was the fact tthat the North was industrial while the South was more rural
and agricultural, though by no means was this an exclusive difference, as there
was plenty of agriculture in the North and some industry in the South. However, the South grew cotton, which
was heavily labor intensive and thus the slavery system had been brought in to
help the farmers.
In
fact, however, slavery was on its way out as a way of life in the Southern
United States. The invention of
the cotton milling equipment had rendered slaves more trouble than they were
worth in many instances. Many
Southern plantation owners also were disgusted with the practice themselves. Many were decent people who inherited
the system from their parents and forefathers.
However,
converting over to the new manufactured equipment would take some years, and
even Lincoln knew this. He wrote
his famous words:
ÒMy
paramount object in this struggle is to save the Union, and it is not either to
save or destroy slavery.Ó
However,
Lincoln was a Republican and was elected on a platform in part that he would
abolish slavery. This made the
South very nervous, so his words rang hollow to many people in the South and
even in the North.
Lincoln,
however, was well aware of the designs of the European banking class. He took steps a best he could to oppose
them, which is why he violated the Constitution. Lincoln did two things, primarily, that trampled the
provisions of the Constitution, but kept the Union in one piece.
The
two steps he took that were unconstitutional were 1) the forced drafting of men into the army, done in both
the North and South because neither side really wanted a war, and 2) the forced
funding of the war with paper money.
This was needed to bribe men to sign up for military service and to pay
the enormous expenses of a war.
THE RUSSIAN CONNECTION
Another
fact that rarely makes it into the history books is that the Union was saved,
perhaps, not by guns and bullets on one side or the other, as much as by the
intervention of the Czarist empire
of Russia. The motive for the
intervention was that Britain, France and Germany were ganging up on Russia in
an attempt to destabilize that empire.
And why, because they did not have a central bank run by the British and
French banking establishment. This
made them sworn enemies.
The
Russian Czar, meanwhile, understood that the American Civil War was about
banking. In September, 1863, the
Czar sent his Baltic fleet of ships to Alexandria, Virginia and his Asiatic
fleet to San Francisco.
Russian-born historian Carl Wrangell-Rakassowsky wrote:
ÒNo
treaty was signed between Russian and the United States, but their mutual
interest, and the threat of war to both, unifed these two nations at this
critical moment. Paragraph 3 of
the instructions given to Admiral Lessovsky by Admiral Krabbe, at that time
Russian Secretary of the Navy, dated July 14, 1863, ordered the Russian fleet,
in case of war, to attack the enemyÕs commercial shipping and their colonies as
to cause them the greatest possible damage. The same instructions were given to Admiral Popov, Commander
of the Russian Asiatic Fleet (then off the coast of San Francisco).Ó
The
Russian Czar sided with the North, while the British, French and Germans tended
to side with the South. The
presence of the Russian fleet made possible a devastating naval blockade of the
South by the North. The war might
have turned out very differently had it not been for the Russian intervention
on the side of the North.
THE BANKERS FOILED
LincolnÕs
bravery and contempt for the Constitution, and the Russian intervention, foiled
the grand scheme of the European bankers in America - for a while. The Union was saved, although at a
tremendous cost in lives and funds.
It
also left the United States government with huge debts that needed to be paid
somehow. Lincoln did this by
printing United States banknotes, another technical violation of the
Constitution, which states that the government shall coin the money and fix its
value. However, it does not
authorize the printing of paper money.
In
fact, many methods, not all perfectly legal, were used to finance the Civil
War. Most important, however,
Lincoln did not use debt money to do it.
He understood that this would enslave the nation to the European banking
class. They had to wait in the
wings, as it were, because Americans were too wary of foreign intervention in
their financial system. Instead, Lincoln decided the government should issue
money. He said of this:
"The
Government should create, issue, and circulate all the currency and credits
needed to satisfy the spending power of the Government and the buying power of
consumers. By the adoption of
these principles, the taxpayers will be saved sums of interest. "
"The
people can and will be furnished with a currency as safe as their own
Government. Money will cease to be
master and become the servant of humanity. Democracy will rise superior to the money power."
LincolnÕs
ÒgreenbacksÓ, as they were called due to their color, were not to succeed. Too many were printed, in part out of
dire necessity, in part due to greed and in part influenced by the bankers, who
of course wanted them to fail. As
the greenbacks multiplied, their value decreased until they were worth very
little. This delighted the
European bankers, of course.
After
several years, Lincoln was forced to turn to American bankers, or so he
thought, to pay the Civil War debts of the nation. In return for their loan, the bankers insisted upon the
creation of another Bank of The United States, which issued a debt currency of
the type used throughout Europe.
THE BANKING ACT OF 1863
In
1863, Congress, now only the Northern states, passed the Banking Act of
1863. It was a landmark piece of compromise
legislation in that it allowed the federal government to set up a central
banking system, supposedly without the European bankers. It essentially set up not one central
bank, but a system of national banks that were equally funded by the federal
government with government bonds.
These were then exchanged by the banks for US government currency. The banks had to keep a certain amount
of reserves, but it was low, about 12%.
The
result of this system was somewhat predictable. Inflation, booms and busts and what were called panics, in
which money contractions forced many bankruptcies of businesses in debt. In fact, however, it was an attempt at
central banking that worked fairly well, although plagued by inflation and
panics at times. It did allow
great prosperity in the United States in the later half of the 19th
century.
However,
many people knew this was not true Ôfree bankingÕ, as it was sometimes
called. Horace Greeley, a famous
orator of the day, wrote:
"We have stricken the (slave)
shackles from four million human beings and brought all laborers to a common
level, not so much by the elevation of former slaves as by practically reducing
the whole working population, white and black, to a condition of serfdom. While
boasting of our noble deeds, we are careful to conceal the ugly fact that by
our iniquitous money system we have nationalized a system of oppression which
though more refined, is no less cruel than the old system of chattel
slavery."
THE FEDERAL RESERVE ACT OF 1913
The
story of the passage of the Federal Reserve Act of 1913 is too long to tell in
detail in this article. It was
passed in the middle of the night, after numerous Representative and Senators
had been paid to take vacations or otherwise not be present at the vote. It involved significant intrigue that
amounts to sabotage of major proportions.
It
was signed by President Woodrow Wilson, who was falsely informed that it would
stop the boom-bust cycle that plagued America and most other nations.
The
Federal Reserve Act gave complete control of America's money to a private
corporation called the Federal Reserve.
The name is a complete fraud, as it is not federal and there is no
reserve. A few years later
President Wilson reflected:
"I
am a most unhappy man. I have
unwittingly ruined my country. A
great industrial nation is controlled by its system of credit. Our system of credit is now
concentrated (in the hands of a few men).
The growth of the nation, therefore, and all our activities are in the
hands of a few men.
We
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 duress of a small group of
dominant men."
Senator
Louis McFadden, for 22 years Chairman of the U.S. Banking & Currency
Commission, wrote:
ÒThe
Federal Reserve (a privately owned corporation) is one of most corrupt institutions
the world has ever seen."
THE CARTEL SYSTEM AND ITS CORRECTION
The
central bankers worked together, although they were technically competitors, to
set up what is basically a banking cartel in America. This was always their aim. It is very similar in theory to the AMA, which set up a
medical cartel in America. Other
nations, of course, have their own cartel system, often even more deeply
entrenched than those in America.
In
the case of medicine, the cartel group shuts out the competition mainly through
licensing laws. Other laws help as
well, such as laboratory licensing, hospital licensing, drug prescription laws,
and more. In the case of banking,
the cartel makers shut out the competition by setting up the federal Reserve
System with a monopoly on the issuance of currency in America.
It
is important to see that the goal was essentially the same. It was to set up a government-enforced
monopoly that gives power only to a small group and shuts out the rest of the
competition, regardless of whether the competition offers a better service to
the public.
The
methodology was different in these two cases, although what is and was the same
was the widespread use of deceit and cruel methods including assassination,
character defamation and all its cousins, when needed to achieve their
goals. They used the old communist
principle that the ends justified the means. In other words, any means were used to achieve their goal.
This state
of affairs needs to be remedied, not by more government monopoly, whether it be
in the healing field or finances.
It can only be removed by undoing the government principle of giving
monopoly privileges to one group over the others. This is what must change for the United States to be free
and prosperous and healthy once again.
Thus it is with dismay that we watch the nation slipping into socialized
medicine, for example. For this is
a total government monopoly in the healing field. This ÒfightÓ is led by the Democrats, unfortunately, as they
have a large power base, which includes, oddly enough, the big corporations who
now cannot afford private health care insurance for their workers. We would contend that they never should
have been forced to provide insurance, but that is the law, thanks again to the
insurance industry, which is part of the medical cartel.
INFLATION IS THE RESULT
These
two aspects of modern banking: 1) creating paper money out of nothing and 2)
the fractional reserve system, lead inevitably to inflation. Inflation is just an increase in the supply
of money. In the case of the
central bank, they create money out of thin air. In the case of the local bank, they also essentially create
money out of thin air because they can lend up to 5 or 6 times the amount that
they take in in the form of deposits.
As
a result of their wealth and ability to issue money, the bankers effectively
controlled and continue to control the British and often the American
government. One of the most famous
banking families in Europe is the Rothschild family. (They are not Jewish but took a Jewish name, according to my
guides.) In 1796, Mayer Anselm
Rothschild wrote:
"Permit
me to issue and control the money of a nation, and I care not who makes the
laws..."
A PICTURE OF NON-CARTEL HEALING AND BANKING
Banking. Banks should be places people
can safely store their valuables and cash. Computers have changed the way banks to business, and can
make banking much more transparent.
Here are the basic tenets of the new banking system:
1) Banks must not be permitted to engage in fractional
reserve banking. This means
that all money placed in the bank remains there, unless the depositor agrees to
take a risk by allowing the bank to lend out their cash.
Also, the
depositor could keep other valuables such as diamond rings or a gold coin or
bracelets and could instruct the bank, if the depositor wishes it, that the
bank may use these as collateral for a loan to another person. The depositor would receive interest on
the loan, in return for the risk involved in allowing the bank to either lend
out some of the depositorÕs cash or use the depositorÕs valuables as
collateral, say for a real estate or auto loan.
By this
means, banks would be prohibited from coining money, as it were, through the
fractional reserve system. There would
need to be very stiff penalties and complete recording of deposits in order to
enforce this system, as it is very easy for banks to succumb to the temptation
to lend out cash on hand when it should remain in the bank.
2.) Banks may make loans only to the extent that the
depositorÕs agree to take the risk. For example, one may be given a choice as a depositor as
follows:
a) Your
funds can all stay in the bank.
There will be no interest on this money.
b) You may
place some of your funds in a low-risk money market type of interest-bearing
account.
c) You may
make your money available for loans to others. Different loan categories might offer different interest
rates depending on the risk level.
For instance, home mortgages might pay one rate and auto loans might pay
a different rate.
d) The same
would be true of your valuables.
They can stay put in the safety deposit box and earn no interest. Or one could earn interest on them by
allowing the bank to use them as collateral for loans or other business
activities. This would also
involve some risk to the depositor or owner of the valuables.
3) Banks would charge fees as needed to cover the cost of
their services. Today these
fees are often hidden because the bank uses your money for loans and other
purposes, so it does not need to charge fees on all accounts.
4) Bank loans would fall into different categories depending
on the risk involved. That risk
would be passed on to the depositor. This has been stated differently above, and is repeated just
for emphasis. The risk level,
therefore, would be up to the depositor, not up to the bank or government
regulators who tend to bail out bad loads by banks.
ABOLITION OF THE FEDERAL RESERVE SYSTEM
In addition to
these ideas, the Federal Reserve would be abolished in favor of the above
system. Also, government would get
their funding by issuing its own currency in amounts needed for trade. However, the key to this is that each
citizen would receive this money equally.
In other words, the government would not have this money to spend. The people would be given the money to
spend. This would be very hard on
politicians, who love to spend other peopleÕs money. It is, however, the only fair way to distribute credit
money. There would be no interest
to pay on the money, as there would be no central banks.
GOVERNMENT SOURCES OF REVENUE
Government
revenues are best obtained through taxes that are transparent and clear to
everyone. These would include but
not be limited to taxes or duties on imports, a savings tax, a savings tax on
all bank deposits of say 1% annually, and possibly even a sales tax, as has
been suggested and which is used by states and localities now. These taxes are obvious and transparent
and easy to calculate, unlike the income tax and the VAT tax used in Europe and
elsewhere. These are best avoided
as they are too subject to political manipulation and control by special
interest groups.
The rich
would still pay the lionÕs share of the taxes through the savings tax. This is not ideal, since we would like
to reward savings. However, it is
fairer than an income tax and much easier to calculate without having accounts
and tax lawyers swarming over everything one owns and earns.
BANK EVALUATIONS
Banks would
be private companies and would be rated just like automobile companies or
dishwasher manufacturers. In other
words, consumer groups would be allowed to rate banks for safety, customer
service, interest rates and so forth.
Private ratings would be far better than a centralized bank regulatory
commission as we have today. This
is too easily infiltrated by the large banking cartels.
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