"Authority has always attracted the lowest elements in the human race. All through history, mankind has been bullied by scum. Those who lord it over their fellows and toss commands in every direction and would boss the grass in the meadow about which way to bend in the wind are the most depraved kind of prostitutes. They will submit to any indignity, perform any vile act, do anything to achieve power. The worst off-sloughings of the planet are the ingredients of sovereignty. Every government is a parliament of whores." ~ P.J. O'Rourke
Who Does the Fed Serve?
Exclusive to STR
In testimony last week, Ben Bernanke told Ron Paul that the government created the Federal Reserve in 1913 to stop the "periodic financial crises" that erupted in the 19th Century and again in 1907. Bernanke, evidently, was counting on Paul holding the accepted view of the Fed's origins, the one untainted by Wall Street-government conspiracy -- not the view meticulously presented in the works of Kolko, Rothbard, and Griffin, among others.
Perhaps he was also hoping none of us saw the CNBC Squawk Box interview with author/investor Jim Rogers a few weeks earlier. Rogers , now living in Singapore , has done better-than-well under the Fed's reign of the markets. Given his success, one might expect him to say nice things about the Fed. Here's some of what he had to say:
Let's talk first about your reaction to yesterday's HUGE move in the market. We had the Federal Reserve adding about $230 billion in liquidity, a 400 point move on the Dow . . . What do you think?
CNBC : Why isn't it good, Jim? What's not good about 400 points on the DOW ?
Remember, that this is what the Federal Reserve did in the 1970s. They just printed money. We had huge recession. We had huge inflation. And then we had to bring in Paul Volcker and say, 'Solve the problem.' He had to take interest rates to over 20 percent to solve the problem. That's what's going to happen again . . . .
CNBC : How would this help the 300 million Americans that you say aren't being helped out by the Fed's activities yesterday?
The Fed itself was pushed as a 'real solution,' but apparently any talk of getting rid of it shouldn't be taken seriously.
Big Bankers Wanted the Fed
We did have banking crises before the Fed, and various concerned parties were pushing for a central bank as a way of dealing with them. They wanted to deal with them by making sure others paid and they profited. There was also widespread concern about Wall Street's concentration of power. A congressional investigation called the Pujo Committee conducted hearings on the 'Money Trust,' as it was called, for eight tedious months in 1912 and concluded that the banking system needed reforming because five banking firms were too big. Together, the firms 'held 341 directorships in 112 corporations with an aggregate capitalization of over $22 billion,' Kolko writes [Triumph, p. 220]. According to Griffin , 'the public was given the impression that Congress was really prying off the lid of scandal and corruption, but the reality was more like a fireside chat between old friends.' [Creature, p. 444] No one was curious about why the biggest advocate of banking reform was the Money Trust itself.
Thus, banking reform arrived as the big banker-designed Federal Reserve System.
But it's doubtful even the bankers saw the Fed's full potential. Shortly after its creation, it found itself in the war finance business. Then it roughly doubled the money supply so the U.S. could intervene in a European war that had already killed five million people. The government raised taxes as well but not enough to trigger a revolt. Inflation of the currency covered most of the expenses, and as Keynes wrote after the temporary peace, 'not one man in a million' could figure out the slick theft government had pulled off. Actually, it's likely that few of them even tried.
Obstacles to Entering the War
Before American entrance into the war, the Allies were about to default on the massive loans Morgan had made them with the help of his cherished Fed. Only an Allied victory could prevent default, but that meant sending American boys overseas to join the carnage. The warmongers faced two obstacles:
2. Paying for it.
Propaganda and government oppression of dissenters took care of the first; the Fed, aided by the income tax, overcame the second.
One of Morgan's partners expressed their goal starkly in the fall of 1914:
In America [at present] there are 50,000 people who understand the necessity of the United States entering the war on [ England 's] side. But there are 100,000,000 Americans who have not even thought of it. Our task is to see that those figures are reversed. [The Illusion of Victory: America in World War I, Thomas Fleming, p. 47; quoted from H.C. Peterson's Propaganda for War: The Campaign Against American Neutrality]
The Morgans attempted to reverse the figures by purchasing editorial control of 25 of the country's most influential newspapers. Griffin quotes from the Congressional Record:
The policy of the papers was bought, to be paid for by the month; an editor was furnished for each paper to properly supervise and edit information regarding the questions of preparedness, militarism, financial policies, and other things of national and international nature considered vital to the interests of the purchasers. [Creature, p. 244]
Morgan's enormous advertising expenditures supplemented their direct editorial control.
Funding the war had at least two aspects. There was the Allied debt to Morgan that had to be covered, along with direct American expenditures. Building and mobilizing an American Expeditionary Force requires money that for political reasons can only be partially provided through overt channels of appropriation. Conscripting kids and rushing them through boot camp, then packing them sardine-style into ships for the voyage overseas, then trucking them to rat-infested trenches, then hauling them out when they're dead, maimed, diseased, or finished killing -- all of that and much more requires funding that only a central bank, with its surreptitious form of theft, can provide without political repercussions.
War's Silent Partner
The war was a lucrative racket for those pulling the strings of government. On April 14, 1917 , eight days after its declaration of war on the Axis powers, Congress passed the War Loan Act, extending $1 billion in credit to the Allies. Of that amount, $200 million went to the British the next day, who immediately turned it over to Morgan in payment of debt. Three months later the British were in debt to Morgan for $400 million, but when Morgan tried to collect it from Treasury Secretary McAdoo, he initially refused to pay. At that point, the Fed stepped in. Morgan's appointee at the New York Fed, Benjamin Strong, who ran the Federal Reserve autocratically until his death in 1928, simply created money and slipped it to McAdoo, who paid Morgan piecemeal for the duration of the war. [Creature, p. 258]
The Fed, in other words, bailed out Morgan during World War I, which in turn kept the war going -- i.e., drove casualties and prices even higher. But Morgan was only one of the beneficiaries. At the recommendation of Cleveland Dodge, president of Rockefeller's National City Bank, the little-known Bernard Baruch became chairman of the dictatorial War Industries Board. Baruch and his Wall Street cronies who made up the board and its committees spent taxpayer money on war materials at a rate of $10 billion a year, fixing prices on a cost-plus basis. The costs, as it turned out under subsequent investigation, were grossly padded.
. . . the total wartime expenditure of the United States government from April 6, 1917 , to October 31, 1919 , when the last contingent of troops returned from Europe , was $35,413,000,000. Net corporation profits from the period January 1, 1916 , to July, 1921, when wartime industrial activity was finally liquidated, were $38,000,000,000, or approximately the amount of the wartime expenditures. More than two-thirds of these corporation profits were taken by precisely those enterprises which the Pujo Committee had found to be under control of the 'Money Trust.' [Creature, p. 259; quote from America's Sixty Families, Ferdinand Lundberg]
Thus, Wilson's intervention into the European war broke the stalemate, ended the possibility of a negotiated peace, and prolonged the killing until Germany surrendered unconditionally. (And even after the armistice, the British kept blockading German ports so that German citizens would continue to starve -- and never forget.)
A few rich men became much richer, while millions of others went through hell. And bankrolling much of it by debasing the currency was the Fed, the institution now under consideration for receiving even more power over our lives.
Getting rid of the Fed may not be a 'real solution,' as the CNBC wits proclaim, but it is the only solution if we're serious about ending inflation and its unforgivable consequences.