G Edward Griffin

Conspiracy surrounding the Federal Reserve is a subject of much debate. A controversial topic, yes;  one which stirs the imagination of some, fires the suspicion of others, and provokes the declamation of not too few detractors. 

From G. Edward Griffin/The Creature From Jekyll Island…

“Back in 1910, Jekyll Island was completely privately owned by a small group of millionaires from New York. We’re talking about people such as J. P. Morgan, William Rockefeller and their associates. This was a social club and it was called “The Jekyll Island Club.”

That was three years before the Federal Reserve Act was finally passed into law. It was November of that year when Senator Nelson Aldrich sent his private railroad car to the railroad station in New Jersey and there it was in readiness for the arrival of himself and six other men who were told to come under conditions of great secrecy.

For quite a few years thereafter these men denied that any such meeting took place. It wasn’t until after the Federal Reserve System was firmly established that they then began to talk openly about their journey and what they accomplished. Several of them wrote books on the topic, one of them wrote a magazine article and they gave interviews to newspaper reporters so now it’s possible to go into the public record and document quite clearly and in detail what happened there.” 

The author does a good job of providing details to support the conspiratorial theme. The details include names of prominent historical figures in banking and politics, as well as dates and places. There is also a lengthy section on fundamental monetary and economic theory. The book totals more than 600 pages. It should not be dismissed as a light thing. 

In addition to possible conspiracy, another concern in the origin of the Federal Reserve, is whether there is a Constitutional basis for its existence. 

Ron Paul, former U.S. Representative…

“First reason is, it’s not authorized in the Constitution, it’s an illegal institution. The second reason, it’s an immoral institution, because we have delivered to a secretive body the privilege of creating money out of thin air; if you or I did it, we’d be called counterfeiters, so why have we legalized counterfeiting? But the economic reasons are overwhelming: the Federal Reserve is the creature that destroys value.” (source)

There are those who see the Fed in a different light; critical of them, but not for the reasons above. Danielle DiMartino Booth, author of the book Fed Up, seems to think the Fed is worth saving, but that a reformation is necessary. She also tends to see the Fed as an institution which is supposed to have the people’s interest in mind – a public institution, if you will. 

If the Federal Reserve is a conspiratorial organization, has it done anything  to redeem itself? In other words, is its continued existence justified when looking back at its past accomplishments? Or its potential contributions going forward; if it were to be reformed? 

Regardless of whether or not the Fed is a conspiratorial enclave, and regardless of whatever ‘need’ for its services might be posited, would a lack of constitutional authorization be sufficient justification for abolishing the Federal Reserve? 

For the moment, lets set aside the conspiracy and constitutional arguments. And lets suppose that any reformation needed can be accomplished effectively and efficiently. 

What sort of track record does the Federal Reserve have? What have they done to merit our confidence? 

One of their self-proclaimed objectives is to manage the economic cycle. What they really meant in proclaiming their ability to do this, is that they could ‘manage’ to avoid recessions and depressions and extend the prosperity phase of the cycle. How well have they done?

The word horrible comes to mind. Abysmal failure is another. 

In their initial attempt at managing the economic cycle, the Fed ushered in the most severe depression in our country’s history beginning with the stock market crash in 1929. Even former Fed chairman, Ben S. Bernanke agrees:

“Let me end my talk by abusing slightly my status as an official representative of the Federal  Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”…Remarks by Governor Ben S. Bernanke (At the Conference to Honor Milton Friedman, University of Chicago -Chicago, Illinois November 8, 2002) 

But they did do it again.

Six years after his speech, Governor Bernanke presided over another catastrophe in the financial markets. Cheap credit and ‘monopoly’ money had blown bubbles in the debt markets that popped. 

Alan Greenspan was Chairman of the Federal Reserve at the time Bernanke made the above statement. When testifying before Congress after the credit implosion of 2007-08 and after he had been replaced by Mr. Bernanke, Greenspan had this to say: 

“I discovered a flaw in the model that I perceived is the critical functioning structure that defines how the world works. I had been going for 40 years with considerable evidence that it was working exceptionally well.”

And lets not forget the Fed induced bubble surrounding stocks in the late nineties which was pricked in early 2000. Greenspan was at the helm then, too. 

But is this really any wonder? What can you expect after reading what Danielle DiMartino Booth says…

“The economists were satisfied parsing backward-looking data to predict future events using their mathematical models. Financial data in real time were useless to them until it had been “seasonally adjusted,” codified, and extruded into charts.  Fed employees had no interest in financial news.” 

In addition to not-so-stellar management of the stages of the economic cycle, the Fed has managed to destroy the value of the U.S. dollar, too. 

Since 1913, purchasing power of the U.S. dollar has declined by more than 98 percent. Another way of saying this is that $50,000. 00 today is the equivalent of $1000.00 one hundred years ago. 

The U.S. dollar’s loss of purchasing power is the result of inflation created by the Fed. The Fed creates inflation by expanding the supply of money and credit. 

The  expansion of the supply of money and credit cheapens the value of all money in circulation. The inflation is intentional. And since the inflation is ongoing and cumulative, its effects are unpredictable and volatile. 

Both the Fed and the U.S. Government act complicitly in the creation of money…

“The U.S. Treasury, in conjunction with the Federal Reserve, continually expands the supply of money and credit by issuing Treasury Bonds, Notes, and Bills. The Federal Reserve receives the newly certified Treasury securities and then issues a credit to the U.S. Treasury reflecting the corresponding dollar amount. But where does the Federal Reserve get the money that it  gives to the U.S. government? It is created out of nothing.” 

Does any of this support the view of the Federal Reserve as an institution that is capable of providing value added services? Do you think they care what the media thinks? Or the President? 

After a century of irresponsibility and complete abdication of fundamental economics, we have probably passed the point of no return. Current weakness and volatility in the financial markets are telling us that. 

The US dollar is in a state of perpetual decline (by intention) which will ultimately end in complete repudiation.  Whether or not the Federal Reserve continues to raise interest rates is not the real issue.  They will do – or not do – whatever they think will keep the charade going for a while longer. 

Which is exactly what they did ten years ago. And they succeeded temporarily…  But we don’t really know how much systemic damage was done (i.e. exactly how much money and credit were created, how big is the Fed’s balance sheet and how badly inflated are the numbers, how under-capitalized are the banks). I assure you, it is much worse than anything we have been told.

Similar events today would bring about a price collapse in all markets as well as usher in deflation and a full-scale depression. All of this would be resisted on every front by government and the Federal Reserve. They would literally launch an all-out financial war (and maybe another real war, too) by opening the money and credit spigots full force in a futile attempt to reverse the credit implosion and negative price action of critical assets.

In effect, their efforts and intentions would be similar to those observed during the Great Depression of the thirties. The results would be similar – not productive and inefficient.  The depression would also last much longer than needed. And the price declines which are necessary to correct the excesses of the past and cleanse the system would be countered every step of the way by regulations and programs of dubious value. The efforts of government would actually worsen things and prolong the suffering.

It is more likely, though, that the results would be much worse than anything we could imagine. Even a relatively strong U.S. dollar would be unable to survive the onslaught. In their efforts to stave off the natural effects of their own harmful ways, the government would ‘kill’ the dollar. We would likely find ourselves awash in money and credit created without regard to potential damage. All in order to stave off the inevitable results while ignoring their cleansing effects on a very ill economy.

Federal Reserve conspiracy or not, we are in for quite a ride.

(also see The Federal Reserve And Long Term Debt – Warning!)

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED