At this point in the story we have gotten to the Federal Reserve, the bankers bank. But first, perhaps, we should take a step back. You may be asking yourself this doesn’t sound right? This sounds like a made up story. I assure you it’s not, I did leave out some details and focused more on the main points. I didn’t want to bog you down with to much “boring” detail. If anyone has further questions feel free to ask in the comments.
The Federal Reserve is a bank, a cartel. It’s story is fascinating and complex. The things that happened to birth this creature and the people behind it may shock you or at least surprise you.
As I stated earlier people in this country did not want a central bank for many reason, mainly they couldn’t trust banks. Because of fractional reserve banking it was difficult to trust an institution that would take your money and then lend it out. For every ten dollars someone would give the bank, it would lend out nine dollars. This of course would work most of the time until someone wanted their ten dollars back, once the public knew that they couldn’t get their money back it could result in a “run on the bank”. A run on the bank or a currency drain were the two things that could happen to a bank leading to insolvency, causing the bank to close it’s doors, and therefore lose trust with the public.
Their were several “panics” in history that led to banks insolvency 1873, 1884, 1893, 1907. These “panics” were caused because of fractional reserve banking and the bank had to close its doors because they didn’t have enough money in reserve to give back to the public that in trusted the bank to keep it safe, or to give to other banks. Trying to pass off a bad economy for a bank closing can be difficult during the biggest boom that has ever happened in the history of the United States. All though they tried and mostly succeeded history will remember that during the industrial revolution the United States was more prosperous than ever.
What is a “run on a bank”? Most people probably know or at least have an idea. If you have ever seen the movie “It’s a Wonderful Life”. A currency drain is a little different and all though it can lead to a run on the bank it usually happens without the public knowing why. A currency drain is when a bank owes another bank money and doesn’t have the funds to pay. Lets say there are two banks in a town the first state bank and the mid state bank, if you have your money in the first state bank and write a check to someone that has an account at the mid state bank, that person then goes to the mid state bank and deposits the check. The mid state bank calls the first state bank and tells them the just deposited a check from them and they need the money. This all works well especially if the same thing happened in reverse and its just a simple book keeping entry, no money needs to change hands, but if that is not the case and the mid state bank has to fork over money to the first state bank that it doesn’t have in reserve this is called a currency drain.
In the three decades between 1870 and 1907 several banks went under 1,748 banks, as you can see this would cause distrust with anyone. This also allowed a lot of new banks to pop up all over the United States with the promise of taking care of the people and not losing their money. The thing is no business likes competition and if you own a bank and thousands of new banks are popping up all over you would want to put a stop to it, you might even encourage these banks to close its doors. What was needed was a lender of last resort. There were a few big bankers that wanted to get all banks on the same page and encourage the same ratios of fractional reserve banking with everyone this would prevent distrust and also come with an insurance plan called bailout.
What needed to be done was to create a cartel, a central bank, that would unionize all banks and protect one another, but convince the public it was protecting them and their money. With all the trouble in the past few years it could be easy to convince people that something needed to be done to save them. What was needed was the federal government but the bank would have nothing to do with the federal government. So if an institution could be created that acted like a central bank, sounded like it was part of the federal government, and at the same time did not have the word bank in its title people might buy it.
In 1910 a secret meeting was held by six men five of them represented big banks including ones in the United States, like the bank of New York, and banks in Europe, through ties with the Rockefellers. One of them was a U.S. senator a republican “whip” Chairman of the National Monetary Commission. Their idea was brilliant and they carried it out in one of the best displays of slide of hand and illusion one could ever expect to see during the greatest magicians show on earth.
The Federal Reserve was born and now it just needed to be excepted. All they had to do was convince the people that a lender of last resort was needed to protect them. Most people wanted a guarantee and were willing to listen especially since the wealthiest men on the planet were pitching it. The banks would be on board because they needed a guarantee too, they wanted to be able to lend out as much money as possible with little reserve, and when the time comes that they have no reserves they could receive a bailout. This bailout could come from the tax payers, but at the time there was no such thing. Interestingly enough the same year the Federal Reserve was signed into law, 1913, a federal income tax was also signed into law through the 16th Amendment. This would also allow a single currency, one that was backed by the government that could be used, no more would banks or states create their own currency.
With all this being done gold was still the standard and the money that was created by the Federal Reserve was backed by gold or so they said. What needed to be done now is get rid of the gold, maybe even make it illegal to own gold all together.
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