The Story of the Fed Is a Story of a Crime

by George F. Smith

“The magnitude by which [the reality of the Federal Reserve] deviates from the accepted myth,” writes G. Edward Griffin, “is so great that, for most people, it simply is beyond credibility.”  But as he makes abundantly clear in his landmark book, The Creature From Jekyll Island, now in its fourth edition, the case against the Fed is overwhelming.  [1]

Creature, as Griffin explains, is four books in one: a crash-course in money and banking; a history of central banking in America; a discussion of the Fed itself and its role in American and world affairs; and finally, a detailed look at how the Fed and other central banks become “catalysts for war.” 

Without central banking, much of the carnage of the past 90 years would not have been possible. 

In November 1910, seven men representing roughly one-fourth of the world’s wealth took a clandestine train ride from New Jersey to a resort on Jekyll Island, Georgia, ostensibly to hunt ducks.  But instead of shooting birds, they shot us the bird and drew up plans for a cartel, which served as the blueprint for the Federal Reserve Act of 1913.

For years, most people left the Jekyll Island tale for the fringe that loves conspiracy theories.  But gradually the story leaked out, beginning with an article by B. C. Forbes, the future founder of Forbes magazine, in Leslie’s Weekly in 1916. Following discussions with Paul Warburg, the Fed’s chief architect and one of the Jekyll attendees, Forbes confirmed the trip in his opening paragraphs. [9] Later writers, including some of those in attendance at Jekyll Island, corroborated Forbes’ story.

Why did they want a cartel?  So they could practice fractional reserve banking with impunity, while shifting the negative consequences to the public. [2]

The American people, of course, have been handed a thoroughly scrubbed version of the Fed: It exists to stabilize the economy and protect the public.  Never mind the crashes in ’21 and ’29, the Great Depression from ’29 to ’39, recessions in ’53, ’57, ’69, ’75 and ’81, another crash in ’87, a bear market in 2000 that wiped out $7 trillion in stock market wealth by 2003, and constant inflation eating away 95% of the buying power of the dollar.

As economist Antony Sutton noted, “Warburg’s revolutionary plan to get American society to go to work for Wall Street was astonishingly simple . . . . The Federal Reserve System is a legal private monopoly of the money supply operated for the benefit of the few under the guise of protecting and promoting the public interest.”

Griffin is detailed and clear about how the Fed works.  In the old days, when governments wanted more money but were afraid to increase taxes, they printed it and forced citizens to accept it by making it legal tender.  It was too crude a scheme to fool most people, but now, with modern central banking, the theft is virtually imperceptible.

First, government doesn’t create money directly; its central bank does.  Second, the bank rarely needs to turn to the printing presses. Instead, it often buys government debt, such as bonds, by writing a check.   “There is no money to back up this check,” Griffin explains. “By calling those bonds ‘reserves,’ the Fed then uses them as the base for creating nine additional dollars for every dollar created for the bonds themselves.  The money created for the bonds is spent by the government, whereas the money created on top of those bonds is the source of all the bank loans made to the nation’s businesses and individuals . . . .

“The bottom line is that Congress and the banking cartel have entered into a partnership in which the cartel has the privilege of collecting interest on money which it creates out of nothing . . . . Congress, on the other hand, has access to unlimited funding without having to tell the voters their taxes are being raised through the process of inflation.”

What might government do with such “unlimited funding”?

As Murray Rothbard has noted, the country had been in recession during 1913 and 1914 – high unemployment, with many factories operating at only 60% capacity.   The Morgan empire in particular had been losing money in railroads and had lost out to Kuhn-Loeb in the market for industrial finance.  [3]

The Morgans had always been closely connected to the Rothschild financial empire in Europe.  When war in Europe broke out, the House of Morgan, in partnership with the Rothschilds, became the American sales agent for English and French war bonds.  When the money came back to the States to acquire war-related materials, it was funneled through Morgan as the U.S. purchase agent.  From 1915 to 1917, J. P. Morgan arranged for $3 billion in exports to France and England, earning a commission of $30 million. [4]  As historian Thomas Fleming has dryly noted, the U.S. became a branch of the British armament industry during the first 32 months of its neutrality. [5]

But it was a precarious feast.  If the Allies should lose, American investors would sustain huge losses and Morgan’s business would nosedive.  Getting the U.S. into the war would extend the financial windfall, but the American public opposed involvement by ten to one.

In May 1915, the British passenger ship Lusitania gave war hopefuls a much-needed boost.  Nearly 1,200 passengers, including 128 Americans, lost their lives when a German U-boat torpedoed it off the coast of Ireland.  With its hold stuffed with U.S. munitions contraband, the Lusitania exploded a second time and sank in less than 18 minutes.  As Griffin documents meticulously, British and American officials did everything in their power to make Lusitania a sitting duck.

With Morgan-controlled newspapers beating the drums for American participation, Wilson finally got his war on April 16, 1917.  Eight days later, Congress extended $1 billion in credit to the Allies.  The British took their initial advance of $200 million and paid it to Morgan.  When they ran up an overdraft of $400 million three months later, Morgan turned to the U.S. Treasury for help. Treasury Secretary William McAdoo stalled until Benjamin Strong, the Fed’s main man, came to his rescue and paid Morgan piecemeal during 1917 - 1918.  Where did Strong get the money?  He simply created it.

The income tax, also enacted in 1913, raised $1 billion during World War I. [6]  But 70% of the cost of the war came from inflation, through a doubling of the money supply.  As Rothbard understates, “For those who believe that U.S. entry into World War I was one of the most disastrous events . . . in the Twentieth Century, the facilitating of U.S. entry into the war is scarcely a major point in favor of the Federal Reserve.” [7]  In addition to grabbing wealth through direct taxes, government, in collusion with the Fed, took roughly one-half of the people’s savings from 1915 – 1920.  It also took the lives of nearly a half-million Americans for a war they never wanted. [8]

In his 1919 book, The Economic Consequences of the Peace, John Maynard Keynes wrote that by “a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens . . . and, while the process impoverishes many, it actually enriches some . . . . The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” [9]

Griffin lifts the curtain on the Fed’s operations and exposes it for what it is: a counterfeiting cartel in partnership with government soaking the blood and treasure of our country.

1 Griffin, G. Edward, The Creature From Jekyll Island: A Second Look at the Federal Reserve (4th edition), American Media, Westlake Village, California, 2002.  See here for ordering information.  Unless otherwise noted, all quotes are from Creature.

2 Murray Rothbard wrote extensively on money and banking.  See “Fractional Reserve Banking”

3 Rothbard, Murry N., Wall Street, Banks, and American Foreign Policy, Rothbard-Rockwell Report, The Center for Libertarian Studies, Inc., Burlingame, CA, 1995.  PP. 15, 16

4 To convert these amounts to current dollars, see the inflation calculator 

5 Dwyer, John J., “The United States and World War I,” 1/26/2004

6 Richman, Sheldon, Your Money or Your Life: Why We Must Abolish the Income Tax, The Future of Freedom Foundation, Fairfax, VA, 1999. P. 81

7 Rothbard, Murray N., The Case Against the Fed, Ludwig von Mises Institute, Auburn, AL, 1994.  P. 120

8 Dwyer, John J., “The United States and World War I,” 1/26/2004

9 Keynes, John Maynard, The Economic Consequences of the Peace, 1919, Chapter 6.