Published : December 12th, 2011
When a major fractional-reserve breakdown occurred in 1907, Thomas Woodrow Wilson, then president of Princeton, endeared himself to the banking movement by declaring that "all this trouble could be averted if we appointed a committee of six or seven public-spirited men like J. P. Morgan to handle the affairs of our country." [Griffin, p. 448] Colonel Edward Mandell House, a close Morgan associate who served as shadow president when Wilson was elected to the White House, became the "unseen guardian angel of the [banking] bill" that emerged in 1913. [Griffin, p. 459]
Originally drafted at a secret meeting of banking elites at Morgan's hunting lodge on Jekyll Island, Georgia in November, 1910, the Glass-Owen Bill, as it was finally called, overwhelmingly passed the House and Senate on December 22, 1913 and was signed into law by Wilson the following day. [Griffin, p. 468]
The Fed began operations in November, 1914, with Morgan men occupying key positions. The new law gave the bankers what they wanted: a monopoly of the note issue. Commercial banks could only issue demand deposits redeemable in Fed notes or nominally in gold. National banks were compelled to join the System but had the legal option of becoming state banks, which were not required to join though many state banks chose to do so in 1917 when federal regulations were relaxed. [Rothbard. p. 112]
Critically, gold coin and bullion were moved further away from the public when member banks shipped their gold to the Fed in exchange for reserves. [Rothbard
, p. 119]
The inflationary potential of the system is revealed by its structure: The Fed inflated by pyramiding on its gold, member banks by pyramiding on its reserves at the Fed, and nonmembers by pyramiding on its deposits at member banks. Furthermore, after a few years the Fed began withdrawing fully-backed U.S. Treasury gold certificates from circulation and substituting Federal Reserve Notes instead. With Fed notes requiring only 40 percent backing of gold certificates, more gold was available on which to pyramid reserves.
Also, with the advent of the Fed, reserve requirements for demand deposits were cut approximately in half, moving from a 21.1 percent average under the National Banking System to 11.6 percent, then lower still to 9.8 percent in June, 1917, after the U.S. had joined the war. Reserve requirements for time deposits dropped from the same 21.1 percent average to 5 percent, then 3 percent in 1917. Commercial banks developed a policy of shifting borrowers into time deposits to inflate even further. [Rothbard, pp. 238-239]
Thus, the country now had a government-privileged central bank called the Federal Reserve. By hoarding gold as its pyramidal base, the Fed was weaning the public from the use of gold coins, which would make them easier to confiscate later on. Through the Fed, member banks would be inflating at a uniform rate to avoid trouble with redemption demands.
Did this new system bring the big bankers in line, as it was supposed to? Did the Federal Reserve Act provide "a circulating medium absolutely safe," as the Report of the Comptroller of the Currency of 1914 stated?
Did the people running the banking cartel, almost all of whom were Morgan men, create a better world for most Americans?
Drawing on data from the National Bureau of Economic Research, [Ron] Paul shows that at least 18 "mathematically impossible" recessions have occurred since the Fed's creation.
The "Great" War
The ones who profited from World War I had little in common with the men who fought it. The fighting was left mostly to young conscripts, many millions of whom were killed or wounded. The ones who profited knew their way around Washington.
If monetary control had resided with the market instead of government, the war would not have been fought. Or if it had started, it would've ended much sooner. Sound money had to die before men could die in such large numbers.
When war got underway in August, 1914 the European belligerents immediately stopped redeeming their currencies in gold and started issuing debt. Needing a lucrative market for their bonds, England and France selected the House of Morgan in the U.S. to act as their sales agent. The money acquired from bond sales reverted back to Morgan to purchase war materials, rewarding him with commissions on both the sales and the acquisitions. Furthermore, many of the companies with which Morgan did business were part of the vast Morgan domain. The pacifist Morgan, who said, "Nobody could hate war more than I do," was raking in huge profits keeping the Allied war machines cranking out death and destruction overseas.
As G. Edward Griffin writes, referencing Ron Chernow's work on the House of Morgan,
Morgan offices at 23 Wall Street were mobbed by brokers and manufacturers seeking to cut a deal. The bank had to post guards at every door and at the partners' homes as well. Each month, Morgan presided over purchases which were equal to the gross national product of the entire world just one generation before. [Griffin, p. 236]
"The United States became the arsenal of the Entente [Ralph Raico writes]. Bound now by financial as well as sentimental ties to England, much of American big business worked in one way or another for the Allied cause. . . The Wall Street Journal and other organs of the business elite were noisily pro-British at every turn . . . ." finish @Source
