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Can it be true? The US Federal Reserve – a private banking system?
The powers of the US Federal Reserve to issue the American currency and set interest rates make this institution – and its chairmen – part of the US government. Recent revelations about the history and structure of the Federal Reserve suggest, however, that it is formed by a group of private banks, whose shareholders are some of Wall Street’s leading financial operators with links abroad. If this is true, it contravenes the generally accepted understanding that central banks, or reserve banks, are government institutions and, therefore, promote policies in the national interest. Private banks operate in the interests of their shareholders.
The Fed’s private status would explain numerous puzzling aspects of post-war US monetary policy which debauched the US dollar’s purchasing power and exchange value – the issuance of excessive monetary quantities diluted their quality in terms of value-stability and trustworthiness. The policy disregarded America’s national interest in a stable and trustworthy currency.
However, certain private interests benefitted. Is it coincidental that the Fed’s liberal provision of ‘liquidity’ at low interest rates enabled Wall Street’s bankers and financiers to go on a global investment spree, acquiring values for less-than-value? They operated under false pretence, similar to swindlers using fake coin and dud cheques, and they were not concerned if they created havoc and mass unemployment, as during the Asian crisis of 19997-98, or in Mexico and Argentina. Their goal was maximal profit, regardless.
Today, trillions of these ‘greenbacks’ are accumulating with the world’s leading trading nations who now expect them to be redeemed, either by way of price increases for their commodities such as oil, or investment opportunities in profitable assets, through their sovereign wealth funds. Hence the Fed has abused its powers over monetary policy and created debt which, ultimately, has to be redeemed by consumers and taxpayers.
Yet the world-at-large trusted the probity of the US government, in whose name these pieces of coloured paper were tendered. It is Fed’s reckless disregard of such trust which is now precipitating the world into the abyss of hyper-inflation.
According to Paul Volker, former Chairman of the Fed (1979-87), today the Fed is considered a more appropriate body for printing money than politicians (i.e., Congress), because of its independence. But how real is this claim? Although the Fed might not be influenced by politicians or their parties, as a private bank it is clearly under obligation to its shareholders, even if they might be hard to trace.
Who own the US Federal Reserve?
At the end of the 19th century a campaign was initiated by Rothschild-owned banks to penetrate and control the rich American economy. The European Rothschilds financed J.P. Morgan & Co. Bank, the Kuhn Loeb & Co. Bank, John Rockefeller’s Standard Oil Co., Edward Harriman’s railways and Andrew Carnegie’s steelworks.
Around 1900 the Rothschilds dispatched Paul Warburg as their agent to America, in order to establish cooperation with Kuhn Loeb & Co. Together with Jacob Schiff of Hanover Bank, Paul Warburg sought to establish a Federal Reserve Bank (Fed) as a private central bank in America.
The US Federal Reserve was established in 1913, and Paul Warburg became its first chairman. This privately owned central bank had acquired the right to the note issuance which became legal tender and which, initially, was still guaranteed by the American government.
The decision of Congress to hand over this right contravened the provisions of the American Constitution’s Article 1, Section 8, which states that “Congress shall have the power to coin (create) money and regulate the value thereof.” In fact, the Congressional decision was illegal. In 1935 the Supreme Court was to rule that Congress could not constitutionally delegate its powers to another group.
Because the US government had ceded its right to issue its own currency, the 16th Amendment to the Constitution of the United States was introduced, stipulating the Administration’s right to tax the personal incomes of its citizens. This was now a necessary source of government income. The Fed was lending its printed notes to the US government and collecting hefty interest in return. Right from the inception of the Fed, American taxpayers had to bear the cost of its operations.
Thomas D. Schauf (1993) cites Mr. Alexander’s comments at the time: “...the whole scheme of a Federal Reserve Bank with its commercial paper basis is impractical, cumbersome machinery, is simply a cover, to find a way to secure the privilege of issuing money and to evade payment of as much tax upon circulation as possible, and then control the issue and maintain, instead of reduce, interest rates. It is a system that, if inaugurated, will prove to the advantage of the few and the detriment of the people of the United States. It will mean continued shortage of actual money and further extension of credits: for when there is a lack of money people have to borrow credit to their cost.”
How did it come about?
After a number of failures to push the Federal Reserve Act through Congress, a group of bankers funded and staffed Woodrow Wilson’s campaign for President. He had promised to sign this act, once elected. In late 1913 a senator, Nelson Aldrich, maternal grandfather to the Rockefellers, pushed the Federal Reserve Act through Congress just before Christmas, when many of its members were already on vacation. Later Wilson said remorsefully, “I have unwittingly ruined my country!”
The chief shareholders of the newly-established Federal Reserve system were: The Rothschild Banks in Paris and London, Lazard Brothers Bank, Paris, Israel Moses Seif Bank, Italy, Warburg Banks in Amsterdam and Hamburg, Lehmann Bank, New York, Kuhn, Loeb & Co. Bank, New York, Rockefeller’s Chase Manhattan Bank, New York, Goldman Sachs Bank, New York.
New York bankers were strongly represented.
President John F. Kennedy with his Executive Order 11.110.1963 sought to abolish the Fed and print real US dollars. In that year he was assassinated, and the first thing successor Lyndon Johnson did whilst still on the plane from Dallas to Washington, was to revoke this Order.
US government dependence on the Fed is evident from the nexus between deficits and currency creation. If the US government runs a deficit, the Fed buys the debt, prints dollars through the US Treasury, and these new quantities of dollars are channelled into the economy via the banking system. The Fed ‘creates’ money out of nothing else than the cost of coloured paper.
In 1992 taxpayers paid the Fed banking system US$286 billion in interest on debt which the Fed had purchased by printing money virtually cost-free. 40 percent of the personal income taxes of Americans go to pay this interest. The Fed’s books are not open to audit. Congress has yet to audit them.
According to Thomas Schauf, the following individuals owned banks, which, in turn, owned shares in the Fed. These banks are partly foreign-owned and have significant control over the New York Fed District which in turn controls the other 11 Fed Districts. They are listed as: First National Bank of New York, James Stillman National City Bank, New York Mary W. Harnman, National Bank of Commerce, New York A.D. Jiullard, Hanover National Bank, New York Jacob Schiff, Chase National Bank, New York, Thomas F. Ryan, Paul Warburg, William Rockefeller, Levi P., Morton M.T., Pyne George, F. Baker, Percy Pyne, Mrs. G.F., St. George J.W., Sterling Katherine, St. George H.P., Davidson J.P., Morgan (Equitable Life Mutual Life), Edith Brevour, T. Baker.
Congressman Wright Patman, Chairman of the House of Representatives Committee on Banking and Currency for 40 years, tried over 20 years to introduce legislation to repeal the Federal Reserve Banking Act of 1913, without success. Congressman Henry Gonzales, Chairman of a banking committee, every year introduces legislation to repeal the 1913 Act; it is always defeated, and the media remain silent. Hence the public does not know the truth. Since the 1930s financial interests started buying up the media – big and small – and now command considerable influence over this vital sector of civil society.
Congressman Louis T. McFadden (R. Pa), former President of the First National Bank in Canton, Ohio, served for 12 years as Chairman of the Committee on Banking and Currency and fought continuously for fiscal integrity and constitutional government. McFadden said: “The Federal Reserve Board, a government board, has cheated the government of the United States and the people of the United States of enough money to pay for the national debt...several times over.”
Referring to the Federal Reserve Banks, McFadden continued, “They are private credit monopolies which prey upon the people of the United States for the benefit of themselves and their foreign customers; foreign and domestic speculators and swindlers; the rich and predatory money lenders. This is era of economic misery and for the reason that caused that misery, the Federal Reserve Board and the Federal Reserve banks are fully liable. "Every effort has been made by the Federal Reserve Board to conceal its power, but the truth is that the Federal Reserve Board has usurped the government of the United States. It controls everything here and it controls all our foreign relations. It makes and breaks governments at will. “No man and no body of men is more entrenched in power than the arrogant credit monopoly which operates the Federal Reserve Board and the Federal Reserve banks. These evil-doers have robbed this country of more than enough money to pay the national debt.”
What are these bodies, and who are its nefarious, powerful members?
According to Dr Edward Flaherty of the University of Charleston, the Federal Reserve system is controlled by the Board of Governors (the Board) and the Federal Open Market Committee (FOMC).
The Board is a seven-member panel appointed by the President and approved by the Senate. It determines the interest rate (discount rate) for loans to commercial banks and thrifts, selects the required reserve ratio which determines how much of customer deposits a bank must keep on hand, and also decides how much new currency Federal Reserve banks may issue each year.
The FOMC consists of members of the Board, the president of the New York Fed, and four presidents from other Fed banks. The FOMC formulates open market policy, which determines how much in government bonds the Fed Bank may trade, and is the most effective and commonly used of the Fed’s monetary policy tools (UCA 263).
Without the explicit approval of either the Board or the FOMC, the Federal Reserve Bank is not supposed to change its discount rate or required reserve ratio, issue additional currency or purchase government bonds. In practice, however, these components of the Federal Reserve supported a loose – “liberal” – direction of monetary policy, which consistently provided ample monetary quantities (liquidity) at low interest rates, to stimulate speculative financial activities on a large scale, or ignore the phenomenal gearing levels of leading investment banks and financiers. Flaherty may not have been aware how Federal Reserve policies operated in practice, leading to the share market ‘bubble’ of 1996 -2001, and the sub-prime mortgage scam from 2007 onwards.
The Federal Reserve Bank of New York is one of twelve. Mullins and Kah both argued that its control is tantamount to controlling the entire system, including the fostering of foreign interests and the pursuit of such global political goals as the establishment of a New World Order.
However, Flaherty pointed out that each of the Federal Reserve Banks is organised into a corporation whose shares are sold to the commercial banks and thrifts operating within the Bank’s district. Shareholders elect six of the nine on the board of directors, as well as its president. Yet Mullins reported that the top eight stockbrokers of the New York Fed were, as of 1983: Citibank, Chase Manhattan, Morgan Guaranty Trust, Chemical Bank, Manufacturers Hanover Trust, Bankers’ Trust company, National Bank of North America, Bank of New York.
According to Mullins, many of these banks are owned by about a dozen European banking organisations, mostly British, and predominately by the Rothschild banking dynasty. Through their American agents these shareholders are able to select the board of directors for the New York Fed and hence, control US monetary policy.
Flaherty has pointed out that Mullin’s sources for stockholder information could not be verified, because a Federal Reserve Bank is not a publicly traded corporation and is, therefore, not required by the Securities and Exchange Commission’s regulations to publish a list of its major shareholders. However, he conceded that the eight banks listed are all within the New York Federal Reserve’s district, and as nationally chartered banks they are required to be shareholders of the New York Federal Reserve Bank. Flaherty also allowed for the “probability” that they are the major shareholders, as Mullins claimed.
Towards globalisation
In an interesting extension of the argument about foreign bank influence on American politics Thomas Schauf drew attention to Rockefeller’s control of the Council on Foreign Relations (CFR), to develop interest in a One World Government. The CFR controls many major newspapers, magazines and newscasters. David Rockefeller was also a known participant in the Trilateral Commission of the 1970s.
Wars create debt which creates profits to bankers. In his analysis of the Fed, Schauf cites particulars relating to World Wars I and II.
After 1945, the founding of the United Nations was a first step towards a supra-national world authority. The Fed announced publicly that its objective is to “get nationalism out of the American people’s heads”, because patriotism would not be of future value. Instead, it was important to “think globally”. Small wonder bankers are pushing for a “cashless society”.
Gold - the 'universal equivalent'
The new Fed was highly gold-conscious and was buying up gold reserves lingering in the vaults of impoverished countries. US military assistance to allies in two World Wars had to be redeemed in gold; the defeated Kaiser Germany was divested of its gold reserves by way of war reparations. The new German republic experienced massive hyper-inflation in the years 1922-23, and in 1926 the British Pound Sterling had to abandon the Gold Standard.
It has been claimed that US gold reserves amounted to more than 30,000 tonnes of fine gold. Whose gold was it? Who did the purchasing and who paid for it?
In 1934 President Roosevelt set the gold price at US$35 per fine troy ounce of the metal. This price was reaffirmed at the Bretton Woods Conference of 1944-45. Moreover, the US Gold Reserve Act of 1945 stipulated a 25 percent gold coverage for the US dollar. The Gold Exchange Standard had come into being. Foreign nations were now entitled to exchange their dollar holdings for gold, at the official price.
Since the 1950s the Fed had ‘covered’ US balance of payments deficits by churning out ever-more of its ‘Greenbacks’. This paid for such military exploits as the Suez crisis, the wars in Korea and Vietnam, as well as US AID programmes which supported American exports.
By 1968 US dollars in world circulation had reached such volumes that the US gold hoard was facing depletion, if all foreign dollar holders were to lay claim to their share of the gold. On the advice of monetary guru Professor Milton Friedman of the Chicago School, the Gold Reserve Act of 1945 was now unceremoniously repealed, and in August 1971 President Nixon declared the dollar inconvertible. The Gold Exchange Standard had come to an end, and dollar holders found themselves sitting on masses of paper notes of rapidly declining exchange value.
What are the conclusions?
If the Fed recently bailed out bankers Bear Stearns to the tune of US$29 billion to facilitate Chase Manhattan’s takeover, this was not government assistance to a near-bankrupt financial enterprise, as widely assumed, but help for a shareholder of the Fed.
As another one of Wall Street’s ‘greats’, Lehmann Bros. sees its shares dumped as its stock is down 70 percent in the first half of 2008, one wonders whether this is the next bail-out case among the Fed’s shareholders.
If Chairman Greenspan kept providing low-interest “liquidity” to Wall Street bankers and financiers, regardless of the damage this was inflicting to the US dollar’s international standing as the trade-and-reserve currency, his sole responsibility was to his Wall Street masters, not to the US government; and although he had to account for his policies at Congressional hearings, his warnings of potentially widespread negative effects on other banks and financiers, and his obfuscatory prose, invariably carried the day with non-experts of a friendly disposition, many of whom had benefitted from tacit financial support in their election campaigns.
Analysts of the Greenspan period at the Fed (1978-2006) have commented on the Chairman’s communication skills and ways to gain the sympathy and friendship of influential personalities. After all, bedside manners are important – especially if one deals with the not-so-bright.
Who invented a system where growth no longer depended on savings but on credit? Who promoted the “credit economy”?
Evidently the wealth of nations – be it raw materials or profit-yielding assets such as real estate, industries or instrumentalities – has been traded for nothing else than IOUs which may never be redeemed.
And to the last, systemic apologists try to present the inevitable economic crisis as an error of judgement rather than the outcome of greed bordering on the criminal. As the Annual Report of the Swiss-located Bank for International Settlements put it, the sub-prime mortgage securities merely magnified “an inherent tendency” for markets to become overly optimistic, and should not be blamed for the oncoming crisis. In fact, such an “inherent tendency” as greed is shared with speculators, gamblers and thieves. |
