The Federal Reserve by Craig Covello

In order to understand economics, one must understand the role of the Federal Reserve in the system.  I have been telling people to read the book which is outlined below in order to get such an understanding.  However, for those of you that don't have the time to read it, here is a synopsis as done by our regular contributor Craig Covello.  This is a faily detailed and long article, but I really recommend you reading it in short doses if you must.  Only then, will you know the amount of trouble we are in right now.  Whether this it time to solve the mess, who knows?  Frank

The Federal Reserve

by

Craig Covello

There is an intriguing book called "The Creature from Jekyll Island: A Second Look at the Federal Reserve" by G. Edward Griffin. It explains the somewhat mysterious birth of the Federal Reserve and offers an almost apocalyptic prediction concerning its effect on our sovereignty. Whether you agree with Griffin's conclusions, some of the concepts are fascinating, if not plausible. I must admit I was little dizzy trying to comprehend some of the financial mechanisms at play. There were, however, some fundamental "truths" that we should all be aware of.

• Adding currency to the US economy devalues the dollar.

• Excessive financial leverage makes both corporations and individuals "servants" to whoever holds the purse strings.

A case can be made both of these activities are not in the public interest. Inflation and borrowing rob us of wealth and make us more dependent upon someone else. That's undeniable. Our current situation shows that the second activity is at work. Consumer debt, corporate debt and particularly federal and state debt are at all-time highs. That's a bad thing. If the other shoe drops and we have massive inflation, as many of the talking heads are predicting, then our savings accounts will be devalued and there will be less incentive for any savings discipline it all. Translation, we will all be living on the edge. So what happens if we fall off the edge? That's when whoever holds the purse strings steps in and redefines our lives. Literally. And depending upon who steps in, whether foreign or domestic, that redefinition may not be such a good thing. It then becomes a small leap of faith to believe that the government's attempt to rescue the economy through TARP and bailouts may actually work in reverse to cause a greater loss of wealth and a greater loss of freedom. Go figure. I believe it was George Bush that said we must temporarily abandon free-market principles in order to save the free-market. That's inspiring. And I believe it was Obama who campaigned on a promise to redistribute "the wealth". That encourages me to wake up at 6 a.m. every day and go to work. Here's the problem. Neither our past or current president understands free-market principles or the meaning of "wealth". Either we put this country on the right track by removing government imposed barriers to productivity or we will find ourselves severely limited in what we can accomplish because we will have no money and someone else will own us.

I encourage you to read the book or buy the CD. Until then, here are my summary notes which reflect a personal understanding, but not necessarily an endorsement, of Griffin's position. I look forward to any comments posted to this blog regarding your perspective.

Griffin's Premise

Appearances can sometimes be deceiving. The Federal Reserve is not what it appears to be. It is one of the greatest scams in all of history, and therefore should be abolished for the following reasons.

• It is incapable of accomplishing its stated objectives.

• It is a cartel operating against the public interest.

• It is the supreme instrument of Usury.

• It generates our most unfair tax.

• It encourages war.

• It destabilizes the economy.

• It is an instrument of totalitarianism.

History

The Federal Reserve System was conceived in November 1910 during a secret meeting on Jekyll Island, off the coast of Georgia. Jekyll Island was privately owned by a group of New York billionaires (by today's standards) as a winter resort for their own families. Senator Nelson Aldridge organized the meeting by inviting six other financial players. He instructed them to travel on his private railroad car from New Jersey to Brunswick Georgia incognito. They used alias names and staggered travel times so that no one would recognize them. The meeting on Jekyll Island lasted nine days. The guest list was limited to:

• Senator Nelson Aldridge, the Republican whip and chairman of the National Monetary Commission. This commission was formed by Congress to reform the banking system, which was being controlled by a very small group of banks on Wall Street known as "the Money Trust".

• Abraham Andrew, assistant Secretary of the Treasury.

• Frank Vanderlip, the president of the National City Bank of New York. This was the largest and most powerful bank in the country.

• Henry Davidson, the senior partner of the J.P. Morgan Company.

• Charles Norton, president of the First National Bank of New York.

• Benjamin Strong, head of JP Morgan's Bankers Trust Company. He became the first head of the Federal Reserve System.

• Paul Warburg, a German immigrant who was an expert in European banking systems. Among other duties, he was a representative of the Rothschild’s banking dynasty in England and France.

These seven men represented approximately 25% of the wealth of the entire world.

The result of this meeting was to create a congressional bill introducing the Federal Reserve System. The meeting was kept in secret since the stated intent of the bill was to break the grip of "the Money trust". If Congress had known that the bill had been crafted by the Money Trust group, it would never have passed. Prior to this point, America had surpassed Europe economically due to the concept of free-market principles and open competition. Although these seven individuals were fiercely competitive with each other, they joined forces in order to introduce European-style cartels and monopolies into the American economic system with the purpose of eliminating competition. For several years after the meeting, all participants denied that it ever took place. Eventually, details were made public by the newspapers.

Purpose

The Federal Reserve System is not a government entity. It is a banking cartel in partnership with the federal government. Both entities benefit from this partnership. It enables the government to "borrow" money from the Federal Reserve Bank without directly raising our taxes. In turn, this enables Congress to spend money far and beyond what it takes in taxes every year.

Ironically, this "borrowed" money does not really exist in any bank account. The transaction is functionally equivalent to printing money. The problem is compounded when the federal government issues checks based upon this "money" which ended up in the private sector. Since the private banking sector only needs to keep 10% on reserve, it can issue private banking loans up to 90%. The net result is a nine fold increase in money being introduced into the system. For example, the treasury borrows $100 from the Federal Reserve and gives it to Congress. Congress spends the $100 in the private sector. The banks take the hundred dollars as a deposit an issue $900 in loans as the money propagates through the system. Since this money is not backed by any tangible asset, the net result is inflation year after year.

The banking cartel, also known as the Federal Reserve, benefits from this partnership with the federal government as well. The Fed can generate loans using money that did not previously exist. It further allows the Fed a tremendous perpetual income stream by charging interest on the debt. The key point here is that as the money moves through the system, the purchasing power is diluted through inflation. Anyone who gets to spend the money first, has the benefit of the full purchasing power. Those who get the money further down the food chain, lose purchasing power. And who is at the head of the line? The federal government and the Federal Reserve get to spend the money first.

Hidden Taxes

The public is paying two additional forms of hidden "taxes"

• Inflation, which benefits the federal government.

• Interest, which benefits the Federal Reserve.

Central banks were created in Europe in the 16th century when royalty realized that they can only raise taxes to a certain point before there was a revolt by the taxpayers. This natural limit was around 40%. Using a central banking system, they were able to double revenues by collecting up to 80% of everything produced by their subjects using an additional hidden tax called inflation.

What's in a Name?

The "Federal Reserve Banking System" is a name invented by the cartel which is disingenuous.

• It is not a federal entity.

• There are no reserves.

• It really isn't a bank in the form of keeping deposits placed by the public.

• It isn't really a decentralized "system". Although there are 12 member banks, the power is still held by a cartel.

Unlimited Power

Some of the original provisions passed by Congress to limit the power of the Federal Reserve have been eroded over time. There have been over 100 amendments silently introduced over the years which have expanded the Federal Reserve's power. For example, the Federal Reserve has expanded its power to accept foreign debt in addition to domestic debt.

So what did we get with this bill that was passed into law in 1913 by President Wilson?

• We got a corporation, chartered by Congress, which was given an exclusive franchise to create the nation's money.

• We received a mechanism in which Congress can now raise unlimited amounts of taxes in the form of inflation.

• We have a mechanism where the banks can earn perpetual interest on "nothing" (money which is not backed by any tangible asset).

 The perception of the diffusion of power set up by the 12 regional banks is really an illusion. These regional banks are controlled by the national board, which has total veto authority over all the regional banks. The national board members are selected by the president of the United States. There is no decentralized power structure.

Regardless of who controls the central bank, the real problem is the legislated authority to create money out of nothing.

Track Record

We are told that the purpose of the Federal Reserve Board is to stabilize the economy. So how have they done over the last 80 years?

• Crash of 1921

• Crash of 1929

• Great Depression began in 1929 through 1939

• 1953 recession

• 1957 recession

• 1969 recession

• 1975 recession

• 1981 recession

• 1987 stock market Black Monday

• Today's corporate debt is soaring

• Today's personal debt is at an all-time high

• Today's business and personal bankruptcies are at an all-time high

• Today's banks and savings and loans have failed at the highest rate in our history

• Today's interest on the national debt consumes half of our taxes

• Heavy industry has been largely replaced by overseas competition

• We now have an international trade deficit for the first time in our history

• 75% of downtown Los Angeles and other large metropolitan areas are now owned by foreigners

• Half of our nation is officially in a state of recession (at the time of book authoring)

The reason why the Federal Reserve has failed to stabilize the economy, based upon the evidence above, is because stabilization of the economy is not its true objective. Its true objective is to enhance the profit margins of the members of the cartel and to stabilize the cartel's position in the marketplace by preventing competition. This premise is supported by papers found from the original meeting on Jekyll Island, which document the true objectives -

• To reverse the erosion of power experienced by the New York banks as the nation expanded westward

• To reverse the trend of private capital formation. This is defined as financing through the use of private savings accounts as opposed to borrowing money.

• To pass the inevitable losses of the banking system onto the public under the guise of protection of the people.

Based upon these objectives, the Federal Reserve was very successful.

• The giant international banks are still based in New York.

• Private individuals and corporations have been enticed to borrow instead of save due to artificially low interest rates which are introduced periodically by the Fed. This is a major reason for bankruptcies.

• Banking losses are passed on to the public in the form of government bailouts, which are given only to the largest banks. These bailouts are rationalized by the government as a way to keep companies solvent and to protect jobs. The real reason is to keep heavily leveraged companies artificially alive so that loans do not default and interest can continue to be collected.

Usury

For most of recorded history, "Usury" was defined as interest on the loan. It was redefined in modern times as "excessive" interest on the loan. It now requires a new definition of making interests on unearned money. Griffin contends that the Federal Reserve is similar to an "electrical short" in a generator. It is siphoning off money that could be used to increase productivity and everyone's standard of living. Griffin further contends that the unbelievable amount of wealth being siphoned into the cartel is then spent with the objective of acquiring power. This is evident by the influence exerted over all forms of media these days, including newspapers, television, motion pictures, labor unions, universities, churches and trade associations.

World Domination

Now it appears that the Federal Reserve has financed efforts of the International Monetary Fund Bank (the World Bank) in order to exert control over the governments of Third World nations. Very rarely does any of this money benefit the people of these Third World nations, but it greatly benefits the Third World politicians and government bureaucracy. The money is used to build totalitarian systems. In fact, these politicians are not really interested in ideology. It doesn't matter whether they are capitalist, socialist or communist systems. They're only interested in the money and how it benefits themselves as leaders of Third World nations.

Griffin further believes that the purchase of these Third World nations has been completed and now the plan is to dismantle the United States of America by creating such chaos and anarchy with our financial systems that Americans will welcome any stabilizing government, even if it is not our own.

Time is running out to Take Action to Reverse This Plan.

Griffin believes our only economic salvation at this point is to force Congress to abolish the Federal Reserve. We need an informed electorate that is paying attention to the voting records of Congress. If we continue down our current path, Griffin believes that a world government will eventually control the United States. He believes that world armies are being built, World Trade Organization's have been established and world taxing entities are being put in place. (Cap and trade comes to mind). The net result of this world order will be a loss of American freedom, including the right to speak freely, the right of association, the right of assembly, the right to vote and possibly the right to own property. Griffin believes that even though the hour is late, there is still enough time to reverse this plan.

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If you were able to work your way through all of these notes, here is your reward. This is a three minute video which underscores some of the fundamental truths regarding excessive debt and spending. Daniel Hannan spells it out for the British prime minister concerning this very topic.

http://www.youtube.com/watch?v=94lW6Y4tBXs

"Nick Gillespie of Reason TV discusses the Federal Reserve with Judge Napolitano on Freedom Watch."


http://www.youtube.com/watch?v=FrpoLfg_Qfw&feature=channel

© 2009 by Craig Covello. Used with permission. All Rights Reserved.