In November 1910, six men – Nelson Aldrich, A. Piatt Andrew, Henry Davison, Arthur Shelton, Frank Vanderlip and Paul Warburg – met at the Jekyll Island Club, off the coast of Georgia, to write a plan to reform the nation’s banking system. The meeting and its purpose were closely guarded secrets, and participants did not admit that the meeting occurred until the 1930s. But the plan written on Jekyll Island laid a foundation for what would eventually be the Federal Reserve System.
The Federal Reserve System. Created in 1910, codified by Congress in 1913 (along with the personal income tax), this "system" facilitated the US government's ability to inflame the nation's citizens for the purpose of supporting the European war of 1914-1918 (World War I). Warfare provides a source of immense borrowing and provides banking corporations with huge profits in the form of interest income. Several of these same Wall Street banks financed Adolph Hitler two decades later.
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." They owned the island and it was where their families came to spend the winter months.
That clubhouse is still there, by-the-way. The island has since been purchased by the state of Georgia, converted into a state park and the clubhouse has been restored and you can visit it. I think you'd be very impressed by it. As you walk through the downstairs corridors you'll come to a door and on the door there is a brass plaque and it says: "In this room the Federal Reserve System was created." This is not a secret anymore; it's a matter of public record.
Let's retell that story in detail and see how it came about. The year was 1910, 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 example, they were told to arrive one at a time and not to dine with each other on the night of their departure. They were told that should they arrive at the station at the same time they should pretend like they didn't even know each other. They were instructed to avoid newspaper reporters at all cost because they were well-known people and had they been seen by a reporter they would've asked questions. Especially if two or three of them had been spotted together, this would've raised eyebrows and they would've asked a lot of questions. One of the men carried a shotgun in a big black case so that if he had been stopped and asked where he was going he was prepared to say that he was going on a duck hunting trip. The interesting thing about that part of the story is that we find out later from his biographer that this man never fired a gun in his life, in fact he borrowed that shotgun just to carry with him on this trip as part of the deception.
Once they got on board the private railroad car this pattern continued. They were told to use first names only, not to use their last names at all. A couple of the men even adopted code-names. The reason for that is so that the servants on board the train would not know who these people were. They were afraid that if the servants would talk about it then the word would leak out and it might get into the press. They travelled for two nights and a day on board this car and they arrived after a 1,000 mile journey to Brunswick, Georgia. From there they took a ferry across the inland straits and they ended up on Jekyll Island in the clubhouse where for the next nine days they sat around the table and hammered out all the important details of what eventually became the Federal Reserve System. When they were done they went back to New York.
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.
Who were these seven men? The first one I have already mentioned, Senator Nelson Aldrich was the Republican whip in the Senate, he was the chairman of the National Monetary Commission which was the special committee of Congress created for the purpose of making a recommendation to Congress for proposed legislation to reform banking. The public was quite concerned in those days over what was going on in the banking industry; a lot of banks were folding, people were losing their investments in banks, they had broken their promise to guard the depositors assets, there were runs on the bank, banks couldn't give the people their money back. In particular they were concerned over the concentration of wealth in the hands of a few large banks in New York on Wall Street. This is what they called the "money trust" in those days. The money trust was a common phrase. Quite a few politicians had been elected to office on their campaign promise to break the grip of the money trust. President Wilson was one of those politicians that campaigned on that even though Wilson was himself hand-picked by the money trust and financed by the money trust and surrounded by the money trust--all of his advisors and politic cronies. The public didn't know that at the time and it was a popular issue. If you campaigned against the money trust you were quite apt to be elected and that was what I call "the people you love to hate" money trust.
That was one of the purposes of the National Monetary Commission which was to propose legislation to break the grip of the money trust and Aldrich was chairman of that committee. He was also the very important business associate of J. P. Morgan. He was the father-in-law of John D. Rockefeller, Jr. which means that eventually he became the grandfather of Nelson Rockefeller, our former vice-president. You remember his full name was Nelson Aldrich Rockefeller; his middle name being derived from his famous grandfather.
Finally, there was Paul Warburg who was probably the most important at the meeting because of his knowledge of banking as it was practiced in Europe. Paul Warburg was born in Germany and eventually became a naturalized American citizen. He was a partner in Kuhn, Loeb & Company and was a representative of the Rothschild banking dynasty in England and France where he maintained very close working relationships throughout his entire career with his brother, Max Warburg, who was the head of the Warburg banking consortium in Germany and the Netherlands. Paul Warburg was one of the wealthiest men in the world.
The second important person there was Abraham Andrew who was Assistant Secretary of the Treasury. He later became a Congressman and he was very important in banking circles.
Frank Vanderlip was there. He was the President of the National City Bank of New York which was the largest of all of the banks in America representing the financial interests of William Rockefeller and the international investment firm of Kuhn, Loeb & Company.
Henry Davison was there, the senior partner of the J. P. Morgan Company. Charles Norton was there; he was the President of the First National Bank of New York which was another one of the giants. Benjamin Strong was at the meeting; he was the head of J. P. Morgan's Banker's Trust Company and Benjamin Strong three years later would become the first head of the Federal Reserve System.
Why not? why the secrecy? what's the big deal about a group of bankers getting together in private and talking about banking or even banking legislation. And the answer is provided by Vanderlip himself in the same article. He said: "If it were to be exposed publicly that our particular group had gotten together and written a banking bill, that bill would have no chance whatever of passage by Congress." Why not? Because the purpose of the bill was to break the grip of the money trust and it was written by the money trust. And had that fact been known at the get-go, we would never have had a Federal Reserve System because as Vanderlip said it would have had no chance of passage at all by Congress. So it was essential to keep that whole thing a secret as it has remained a secret even to this day. Not exactly a secret that you couldn't discover because anybody can go to the library and dig this out, but it is certainly not taught in textbooks. We don't know any of this in the official literature from the Federal Reserve System because that was like asking the fox to build the henhouse and install the security system.
Here we had the Morgans, the Rockefellers, Kuhn, Loeb & Company, the Rothschilds and the Warburgs. Anything strange about that mixture? These were competitors. These were the major competitors in the field of investment and banking in those days; these were the giants. Prior to this period they were beating their heads against each other, blood all over the battlefield fighting for dominance in the financial markets of the world. Not only in New York but London, Paris and everywhere. And here they are sitting around a table coming to an agreement of some kind. What's going on here? We need to ask a few questions.
For the fifteen year period prior to the meeting on Jekyll Island, the very investment groups about which we are speaking were coming together more and more and engaging in joint ventures rather than competing with each other. The meeting on Jekyll Island was merely the culmination of that trend where they came together completely and decided not to compete--they formed a cartel.
I need to define that word so that you will know what I mean when I use the word cartel. It is a group of independently owned businesses which come together for the purpose of reducing or eliminating competition between themselves to enhance their profit margin or to secure their positions in the market. They do this by various means one of which is price fixing--no competition on price. There are other means. If we were forming a cartel here I might insist that I get the north and you can have the south and we won't compete. Or I would say I'll produce the gizmo and you can have the widget and we won't compete or we'll share patents and processes and whatever we do we agree to eliminate competition between ourselves. The more layers of agreement that we put one on top of the other, the more we become encased in this cartel structure and we become as one insofar as the market is concerned even though within that grouping we are separately owned.
We come to the conclusion when we analyze the nature of the Federal Reserve System how it operates, read the Federal Reserve Act, place it against the context of the historical background and we come smack to the realization that the Federal Reserve System although it parades around looking as though it's a government operation of some kind, is merely a cartel of banks right under our noses and it is protected by law.
Conclusion number 2 about the Federal Reserve System, a very important thing that we didn't know is the cartel. There's even more to it than that. Perhaps the third ingredient is the most important of all and that is the realization that this cartel went into partnership with the government. Now we have hold of something extremely significant. Cartels often go into partnership with governments because they need the force of law to enforce their cartel agreement but in this case they did it in spades.
Whenever a partnership is formed there has to be a benefit to the partners otherwise they don't form it. So we need to ask the question what is the benefit, the payoff, for these two partners? Why did they go into it?
Here's how it works. It starts with the government side of the partnership, it starts in Congress which is spending money like crazy. It spends far more money than it takes in. It is spending way beyond its income. How can it do that? Basically this is what happens. Let's say Congress needs an extra billion dollars today so it goes to the treasury and says "we want a billion dollars" and the treasury official says "you guys have got to be kidding, we don't have any money here, you spent it all a long time ago, everything that we've taken in taxes you fellows have spent by March." Congress says "we thought that was true but we thought we'd stop by just in case somebody sent some more in." They get together and they go down the street and they get the idea that we'll borrow the money. So they stop at the printing office and they don't print money at the printing office, they print certificates and they're very fancy things with borders on the edge with an eagle across the top and a seal at the bottom and it says "US Government Bond" or "Note" or "Bill" depending on the length of the maturity of it. If you hold it up to the light it really says "IOU" because that's what it is. They print these things up and it looks very impressive and then they offer them to the private sector; they're hoping that people will come up and loan money to the federal government and a lot of people do and are anxious to lend money to their government. Why? Because they've been told by their investment advisors that that's the most sound investment that you can make. Why? We've all heard that these loans are backed by the full faith and credit of the US government. They're not quite sure what that means but it sure sounds good. I'd like to explain for you who are in doubt what that means. The full faith and credit of the US government means that the government solemnly promises to pay back that loan plus interest if it has to take everything you and I have in the form of taxes in order to do it, it's going to do it. It will take everything we have if necessary to hold its pledge. People don't realize that they're putting themselves on the line, they're going to get their own money back minus a substantial handling fee.
Plenty of money is loaned to the government but never enough. Congress needs more money than that. They say not to worry. They go further down the street to the Federal Reserve building. The Fed has been waiting for them, that's one of the reasons it was created. By the time they get inside the Federal Reserve building the officer of the Fed is opening his desk drawer. He knows they're going to be there and he's ready and he pulls out his checkbook and he writes a check to the US Treasury for one billion dollars or whatever the amount is that they need. He signs the check and gives it to the treasury official.
We need to stop here for a minute and ask a question. Where did they get a billion dollars to give to the treasury? who put that money into the account at the Federal Reserve System? The amazing answer is there is no money in the account at the Federal Reserve System. In fact, technically, there isn't even an account, there is only a checkbook. That's all. That billion dollars springs into being at precisely the instant the officer signs that check and that is called "monetizing the debt," that's the phrase they throw at you. That means they just wrote a check, a big rubber check. If you and I were to do that we would go to jail but they can do it because Congress wants them to do it. In fact, this is the payoff, this is the benefit to the government side of this partnership, this is how the government gets its instant access to any amount of money at any time without having to go to the taxpayer directly and justify it or ask for it. Otherwise, they would have to come to the taxpayer and say we're going to raise your taxes another $3,000 this year and of course if they did that, they would be voted out of office real fast. They like the Mandrake Mechanism because it's a no questions asked source of money. You may have noticed that it's been many years since Congress has even discussed what anything costs, it's not an issue. It doesn't make any difference what the cost is because regardless of the overrun they know they can go down the street to the Federal Reserve and by law the officer has to write that big check and give it to them and they're off and running.
The amazing answer is there is no money in the account at the Federal Reserve System. In fact, technically, there isn't even an account, there is only a checkbook. That's all. That billion dollars springs into being at precisely the instant the officer signs that check and that is called "monetizing the debt," that's the phrase they throw at you. That means they just wrote a check, a big rubber check. If you and I were to do that we would go to jail but they can do it because Congress wants them to do it. In fact, this is the payoff, this is the benefit to the government side of this partnership, this is how the government gets its instant access to any amount of money at any time without having to go to the taxpayer directly and justify it or ask for it. Otherwise, they would have to come to the taxpayer and say we're going to raise your taxes another $3,000 this year and of course if they did that, they would be voted out of office real fast. They like the Mandrake Mechanism because it's a no questions asked source of money. You may have noticed that it's been many years since Congress has even discussed what anything costs, it's not an issue. It doesn't make any difference what the cost is because regardless of the overrun they know they can go down the street to the Federal Reserve and by law the officer has to write that big check and give it to them and they're off and running.
There in a nutshell is the reason the government likes the Mandrake Mechanism--easy instant access to any amount of money of any kind without the taxpayer being involved directly in the loop. But what about the banking side? This is where it really gets interesting. Let's go back to that billion dollar check. The treasury official deposits the check into the government's checking account and all of a sudden the computers start to click and it shows that the government has a billion dollar deposit meaning that it can now write a billion dollars in checks against that deposit which it starts to do real fast. For the sake of our analysis, let's just follow $100 out of that billion in a check that for some reason they write to the fellow that delivers the mail to our door. The postal worker gets a check for $100 and he looks at this thing and he can't imagine in his wildest dreams that that money didn't exist two days ago anywhere in the universe. It's spendable so he wouldn't even care if you told him. He deposits it now into his personal checking account. Now we're finally out of the Federal Reserve and out of the government's check and we're into the private banking system. We're in finally to that part of the partnership which is involved in the cartel. A $100 deposit has now been made in the local bank and the banker sees that and runs over to the loan window and opens it up and says "attention, everybody, we have money to loan, someone just deposited $100." Everyone is overjoyed at that because that's one of the reasons they come to the bank, they come to borrow money. That's a sign of national health if you're in debt so they're anxious to know that the bank has money to loan, they line up for these loans. They heard the banker and they say $100 that's not very much and he says not to worry we can loan up to $900 based on that $100 deposit. How can that be done? It gets complicated the way they do it and I'll tell you in very simple terms. The Federal Reserve System requires that the banks hold no less than 10% of their deposits in reserve. The bank holds 10% of that $100 in reserve, $10, and it loans this first fellow in line $90. What does he do with it? He wants to spend it so he puts it into his checking account. In fact it probably goes directly into his checking account. Let's assume that they gave it to him and he puts it back, when he puts it back it's a deposit isn't it?
Only a $100 deposit but $900 in loans and that deposit is still there. Where did the $900 come from and the answer is the same--there was no money. This springs into existence precisely at the point at which the loan is made. Notice the difference, an important distinction is when the money is created out of nothing for the government it is spent by the government. On the banking side, however, when it's created out of nothing it's not spent by the banks it is loaned by the banks to you and to me and we spend it. Notice that when they loan it to us we have to pay them interest on it. Think about this for a minute. This money was created out of nothing and yet they collect interest on it which means that they collect interest on nothing. Not too shabby! What a concept, why didn't I think of that! I wish I had a magic checkbook like that where I could just write checks all day long and didn't have to have any money any place just checks, loan it to you folks and you're silly enough to pay me interest on it. That's how it works.
Now you see what the benefit is to the banking cartel for being involved in this Federal Reserve System, interest on nothing. The process doesn't end there, however. It has consequences to you and to me. I've heard some people say "isn't that interesting, these fellows are sure smart, I guess they deserve to be rich." It's as though we're out of the loop, it doesn't affect us any, they got rich but we're ok. Well no, they got rich alright but they got it by taking it from us. How does that work? Let's follow this.
This newly created money goes out into the economy and it dilutes down the value of the dollars that were already out there. It's like pouring water into a pot of soup, it dilutes the soup. So by throwing more and more money into the economic soup out there the money gets weaker and weaker and weaker and we have the phenomenon called inflation which is the appearance of rising prices. I emphasis the word "appearance" because in reality prices are not rising at all. What we're seeing is that the value of the dollar is going down, that's the real side of the equation. If we had real money based on gold or silver or anything tangible that couldn't just be created out of thin air, it could be based on microphones, that they couldn't just create with the stroke of a pen, you would see then that prices would remain stable over a long period of time.
called Federal Reserve notes which is not really money at all, fiat money anyway, the prices keep going up and up and up because the value of those units keeps going down and down and down because they keep making more and more and more of them and dumping them into the economic soup.
Another interesting thing about this is that when the bank loans you money which it created out of nothing, it costed nothing to make it, it wants something from you. It wants you to sign on the dotted line and pledge your house, your car, your inventory, your assets so that in case for any reason you cannot continue to make your payments they get your marbles, they get all of your assets. They're not going to lose anything on this. Whether it's expansion or contraction, inflation or deflation the banks are covered and we like sheep go right along with it because we haven't figured it out, we don't know that this is a scam. Of course we have no choice either right now because it's all enforced by law. We have no escape. We have no choice but it's even better that we don't understand it because we can't complain about it either. There you have it.
Let's summarize. What is the benefit to the members of the partnership? The government benefits because it is able to tax the American people any amount it wishes through a process which the people do not understand called inflation. They don't realize they're being taxed which makes it real handy when you're going for re-election. On the banking side they're able to earn perpetual interest on nothing. I emphasis the word "perpetual" because remember when the loan is paid back it's turned around and loaned out to somebody else. Once that money is created the object of the bank is to stay "loaned up" as they say. In reality the banks can never stay 100% loaned up and that ratio varies a lot but the objective is to stay loaned up to whatever extent is possible. Generally speaking once this money is created in the loan process it is out there in the economy forever, perpetually earning interest for one of the members of the banking cartel which created that money.
Let's go back to Jekyll Island. They had an interesting problem there which was what to call their creature. This partnership between government and banks which we've been discussing was not new with the Federal Reserve System. In fact, it was a concept that was created in Europe in the 16th century. It was perfected with the formation of the Bank of England in 1694 and from that point forward all of the governments of Europe had used this Mandrake Mechanism. They didn't call it the Mandrake Mechanism, of course, they called it a "central bank," that's the technical phrase for this partnership. If you want to look it up in a textbook or encyclopedia you'll find it under the heading "Central Bank."
From the Bank of England forward all the governments of Europe had central banks for a very good reason. The kings and princes of Europe had learned from hard experience that they could raise the taxes of their subjects only so high and then they had a revolt on their hands and they tended to lose their jobs (and heads). It appears that that natural level was about 40-43%; people will tolerate taxes up to about 40-43% and then they start digging in their heels and they just won't allow it to go any further. But with the central bank mechanism in place the lid was off. Now these governments could tax their people 50%, 60%, 70% and in some cases 80% of everything they produced and they did not have a revolt on their hands. They did not have resentment because the people didn't know that they were paying a tax. They knew that prices were going up, but they didn't understand why, they didn't know who was getting their lost purchasing power.
So when it came time to transplant this concept to America these seven men on Jekyll Island knew very well that they were creating a central bank; that was the reason that Paul Warburg was so valuable because he was the man with the intense knowledge, the detailed technical knowledge of how central banks operate. But they had a problem. How could they conceal that from the American people because Congress was already on record as saying they did not want a central bank in America. I don't think they knew what that phrase really meant, but they knew that Europe had them, whatever they were, and we didn't want any. They said in America if we're going to have banking reform we don't want what they do over in Europe, we want something that is unique for America and its principles and economy.
The problem before these men on Jekyll Island is what to call the central bank so that nobody would know it was a central bank. And they theorized over this and this was their strategy: they said first let's give it a name and we'll add the word "Federal" to it to make it sound like it's government. Then we'll add the word "Reserve" to make it seem like there are reserves somewhere, like it was a banking concept. We'll add the word "System," a very important word even though it may seem obscure now because remember in those days the concern was the concentration of financial power in New York so they had to sell the idea of a system of regional banks which would diffuse that power all over the nation. First they talked about ten regions and then they said that wasn't enough, twelve regions, we'll have twelve banks. And we'll build big buildings out there in all of those regions so the local yokels can go and look at the building and say "golly we've got one of those out here." Diffusion of power away from New York; you can go and touch the building. The word "System" was very important.
When you look at it you realize that what they created there was not federal, there are no reserves, it's not a system at all in the sense of diffusion of power and these Federal Reserve banks aren't even banks. On all four words we're dealing with appearances of the fourth kind. It was brilliant strategy.
The next thing was to sell this creature to the public. The first draft of the Federal Reserve Act as it was presented to Congress was called the Aldrich Bill named after the sponsor, Senator Nelson Aldrich. This was against the good advice of Paul Warburg. He said: "Nelson, don't put your name on that bill because you are so identified with big business interests that Congress will vote it down; the people will not accept it." And apparently Aldrich's ego was too big. He must've said: "Well no, after all I'm highly respected in the Senate and I am the Chairman of the National Monetary Commission" and for whatever reason he insisted that his name be on the bill. It appears that he wanted to go down in history as the originator of the Federal Reserve System. Warburg was right. When the bill was introduced Congress put thumbs-down on it. "The Bill of Big Business."
They took the bill back for it was just a minor setback, they scrambled the paragraphs around a little bit, took Aldrich's name off real fast and they found a couple of Democrats to sponsor the bill. This was different. Everybody knew that the Republicans represented big business but they also knew that Democrats represented the common man, the little guy, the fellow on the assembly line (like Ted Kennedy). They found a couple of millionaire Democrats to sponsor the bill. They found Carter Glass in the House and Senator Robert Owen who himself was a banker. Now it was the Glass-Owen bill and it was totally different and acceptable.
The next thing, Aldrich and Vanderlip began to give speeches and interviews to newspaper reporters condemning the bill. They said: "This bill will be ruinous to banking. It will be terrible for the country." By the time the common man read that in his newspaper he said: "Oh golly, I guess these big bankers don't like the bill very much so it must be pretty good."
These fellows were not stupid. You have to give them credit. They didn't get to be where they were by being country bumpkins. They understood politics, they understood mass psychology and they played their cards exceedingly well. Meanwhile these same individuals out of their own pockets were paying the price for the costs of bringing up what they called grassroots study clubs all over the country. They sponsored these clubs and they held public meetings and printed brochures and pamphlets extolling the virtues of the Federal Reserve System. They gave large amounts of money to some of the better known universities in America; they created newly formed departments of economics with that money; they hand picked their own people to be the professors to head up those departments and then those professors with all of their academic credentials gave speeches and wrote scholarly essays extolling the virtues of the Federal Reserve System. And then at the insistence of Paul Warburg who was forever the master strategist, they added several very sound provisions to the Federal Reserve Bill. By that I mean they added some provisions which seriously restricted the ability of the Federal Reserve to create money out of nothing. Warburg's associates said, "Paul, what are you doing? We don't want those in there this is our bill." And his response was this, he said, "Relax fellas, don't you get it? Our object is to get the bill passed. We can fix it up later." Those were his exact words. "We can fix it up later." He was so right. It was because of those provisions that they won over the support of William Jennings Bryan the head of the Populist Movement, the last hold-out against the bill. Bryan was concerned that this would be an instrument for ruining the nation's money supply but when he saw those provisions he said, "Oh well, those are good provisions, I guess I can support the bill now" never dreaming that this was temporary. Everything is temporary in politics. When people go to sleep things can get changed.
Warburg was right and they fixed it up later. The Federal Reserve Act since it was passed has been amended over 100 times. Every one of those provisions were long ago removed and many more have been added which greatly expand the power and reach of the Federal Reserve System to create money out of nothing. With this kind of professional strategy and deception these people were real professionals and the public didn't stand a chance. It is no surprise that popular support was finally gained for the bill and on December 22, 1913 the bill was passed by Congress and the following day was signed into law by President Wilson and the creature from Jekyll Island finally moved into Washington, DC.
The Federal Reserve System. Created in 1910, codified by Congress in 1913 (along with the personal income tax), this "system" facilitated the US government's ability to inflame the nation's citizens for the purpose of supporting the European war of 1914-1918 (World War I). Warfare provides a source of immense borrowing and provides banking corporations with huge profits in the form of interest income. Several of these same Wall Street banks financed Adolph Hitler two decades later.
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." They owned the island and it was where their families came to spend the winter months.
That clubhouse is still there, by-the-way. The island has since been purchased by the state of Georgia, converted into a state park and the clubhouse has been restored and you can visit it. I think you'd be very impressed by it. As you walk through the downstairs corridors you'll come to a door and on the door there is a brass plaque and it says: "In this room the Federal Reserve System was created." This is not a secret anymore; it's a matter of public record.
Let's retell that story in detail and see how it came about. The year was 1910, 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 example, they were told to arrive one at a time and not to dine with each other on the night of their departure. They were told that should they arrive at the station at the same time they should pretend like they didn't even know each other. They were instructed to avoid newspaper reporters at all cost because they were well-known people and had they been seen by a reporter they would've asked questions. Especially if two or three of them had been spotted together, this would've raised eyebrows and they would've asked a lot of questions. One of the men carried a shotgun in a big black case so that if he had been stopped and asked where he was going he was prepared to say that he was going on a duck hunting trip. The interesting thing about that part of the story is that we find out later from his biographer that this man never fired a gun in his life, in fact he borrowed that shotgun just to carry with him on this trip as part of the deception.
Once they got on board the private railroad car this pattern continued. They were told to use first names only, not to use their last names at all. A couple of the men even adopted code-names. The reason for that is so that the servants on board the train would not know who these people were. They were afraid that if the servants would talk about it then the word would leak out and it might get into the press. They travelled for two nights and a day on board this car and they arrived after a 1,000 mile journey to Brunswick, Georgia. From there they took a ferry across the inland straits and they ended up on Jekyll Island in the clubhouse where for the next nine days they sat around the table and hammered out all the important details of what eventually became the Federal Reserve System. When they were done they went back to New York.
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.
Who were these seven men? The first one I have already mentioned, Senator Nelson Aldrich was the Republican whip in the Senate, he was the chairman of the National Monetary Commission which was the special committee of Congress created for the purpose of making a recommendation to Congress for proposed legislation to reform banking. The public was quite concerned in those days over what was going on in the banking industry; a lot of banks were folding, people were losing their investments in banks, they had broken their promise to guard the depositors assets, there were runs on the bank, banks couldn't give the people their money back. In particular they were concerned over the concentration of wealth in the hands of a few large banks in New York on Wall Street. This is what they called the "money trust" in those days. The money trust was a common phrase. Quite a few politicians had been elected to office on their campaign promise to break the grip of the money trust. President Wilson was one of those politicians that campaigned on that even though Wilson was himself hand-picked by the money trust and financed by the money trust and surrounded by the money trust--all of his advisors and politic cronies. The public didn't know that at the time and it was a popular issue. If you campaigned against the money trust you were quite apt to be elected and that was what I call "the people you love to hate" money trust.
That was one of the purposes of the National Monetary Commission which was to propose legislation to break the grip of the money trust and Aldrich was chairman of that committee. He was also the very important business associate of J. P. Morgan. He was the father-in-law of John D. Rockefeller, Jr. which means that eventually he became the grandfather of Nelson Rockefeller, our former vice-president. You remember his full name was Nelson Aldrich Rockefeller; his middle name being derived from his famous grandfather.
Finally, there was Paul Warburg who was probably the most important at the meeting because of his knowledge of banking as it was practiced in Europe. Paul Warburg was born in Germany and eventually became a naturalized American citizen. He was a partner in Kuhn, Loeb & Company and was a representative of the Rothschild banking dynasty in England and France where he maintained very close working relationships throughout his entire career with his brother, Max Warburg, who was the head of the Warburg banking consortium in Germany and the Netherlands. Paul Warburg was one of the wealthiest men in the world.
The second important person there was Abraham Andrew who was Assistant Secretary of the Treasury. He later became a Congressman and he was very important in banking circles.
Frank Vanderlip was there. He was the President of the National City Bank of New York which was the largest of all of the banks in America representing the financial interests of William Rockefeller and the international investment firm of Kuhn, Loeb & Company.
Henry Davison was there, the senior partner of the J. P. Morgan Company. Charles Norton was there; he was the President of the First National Bank of New York which was another one of the giants. Benjamin Strong was at the meeting; he was the head of J. P. Morgan's Banker's Trust Company and Benjamin Strong three years later would become the first head of the Federal Reserve System.
Why not? why the secrecy? what's the big deal about a group of bankers getting together in private and talking about banking or even banking legislation. And the answer is provided by Vanderlip himself in the same article. He said: "If it were to be exposed publicly that our particular group had gotten together and written a banking bill, that bill would have no chance whatever of passage by Congress." Why not? Because the purpose of the bill was to break the grip of the money trust and it was written by the money trust. And had that fact been known at the get-go, we would never have had a Federal Reserve System because as Vanderlip said it would have had no chance of passage at all by Congress. So it was essential to keep that whole thing a secret as it has remained a secret even to this day. Not exactly a secret that you couldn't discover because anybody can go to the library and dig this out, but it is certainly not taught in textbooks. We don't know any of this in the official literature from the Federal Reserve System because that was like asking the fox to build the henhouse and install the security system.
Here we had the Morgans, the Rockefellers, Kuhn, Loeb & Company, the Rothschilds and the Warburgs. Anything strange about that mixture? These were competitors. These were the major competitors in the field of investment and banking in those days; these were the giants. Prior to this period they were beating their heads against each other, blood all over the battlefield fighting for dominance in the financial markets of the world. Not only in New York but London, Paris and everywhere. And here they are sitting around a table coming to an agreement of some kind. What's going on here? We need to ask a few questions.
For the fifteen year period prior to the meeting on Jekyll Island, the very investment groups about which we are speaking were coming together more and more and engaging in joint ventures rather than competing with each other. The meeting on Jekyll Island was merely the culmination of that trend where they came together completely and decided not to compete--they formed a cartel.
I need to define that word so that you will know what I mean when I use the word cartel. It is a group of independently owned businesses which come together for the purpose of reducing or eliminating competition between themselves to enhance their profit margin or to secure their positions in the market. They do this by various means one of which is price fixing--no competition on price. There are other means. If we were forming a cartel here I might insist that I get the north and you can have the south and we won't compete. Or I would say I'll produce the gizmo and you can have the widget and we won't compete or we'll share patents and processes and whatever we do we agree to eliminate competition between ourselves. The more layers of agreement that we put one on top of the other, the more we become encased in this cartel structure and we become as one insofar as the market is concerned even though within that grouping we are separately owned.
We come to the conclusion when we analyze the nature of the Federal Reserve System how it operates, read the Federal Reserve Act, place it against the context of the historical background and we come smack to the realization that the Federal Reserve System although it parades around looking as though it's a government operation of some kind, is merely a cartel of banks right under our noses and it is protected by law.
Conclusion number 2 about the Federal Reserve System, a very important thing that we didn't know is the cartel. There's even more to it than that. Perhaps the third ingredient is the most important of all and that is the realization that this cartel went into partnership with the government. Now we have hold of something extremely significant. Cartels often go into partnership with governments because they need the force of law to enforce their cartel agreement but in this case they did it in spades.
Whenever a partnership is formed there has to be a benefit to the partners otherwise they don't form it. So we need to ask the question what is the benefit, the payoff, for these two partners? Why did they go into it?
Here's how it works. It starts with the government side of the partnership, it starts in Congress which is spending money like crazy. It spends far more money than it takes in. It is spending way beyond its income. How can it do that? Basically this is what happens. Let's say Congress needs an extra billion dollars today so it goes to the treasury and says "we want a billion dollars" and the treasury official says "you guys have got to be kidding, we don't have any money here, you spent it all a long time ago, everything that we've taken in taxes you fellows have spent by March." Congress says "we thought that was true but we thought we'd stop by just in case somebody sent some more in." They get together and they go down the street and they get the idea that we'll borrow the money. So they stop at the printing office and they don't print money at the printing office, they print certificates and they're very fancy things with borders on the edge with an eagle across the top and a seal at the bottom and it says "US Government Bond" or "Note" or "Bill" depending on the length of the maturity of it. If you hold it up to the light it really says "IOU" because that's what it is. They print these things up and it looks very impressive and then they offer them to the private sector; they're hoping that people will come up and loan money to the federal government and a lot of people do and are anxious to lend money to their government. Why? Because they've been told by their investment advisors that that's the most sound investment that you can make. Why? We've all heard that these loans are backed by the full faith and credit of the US government. They're not quite sure what that means but it sure sounds good. I'd like to explain for you who are in doubt what that means. The full faith and credit of the US government means that the government solemnly promises to pay back that loan plus interest if it has to take everything you and I have in the form of taxes in order to do it, it's going to do it. It will take everything we have if necessary to hold its pledge. People don't realize that they're putting themselves on the line, they're going to get their own money back minus a substantial handling fee.
Plenty of money is loaned to the government but never enough. Congress needs more money than that. They say not to worry. They go further down the street to the Federal Reserve building. The Fed has been waiting for them, that's one of the reasons it was created. By the time they get inside the Federal Reserve building the officer of the Fed is opening his desk drawer. He knows they're going to be there and he's ready and he pulls out his checkbook and he writes a check to the US Treasury for one billion dollars or whatever the amount is that they need. He signs the check and gives it to the treasury official.
We need to stop here for a minute and ask a question. Where did they get a billion dollars to give to the treasury? who put that money into the account at the Federal Reserve System? The amazing answer is there is no money in the account at the Federal Reserve System. In fact, technically, there isn't even an account, there is only a checkbook. That's all. That billion dollars springs into being at precisely the instant the officer signs that check and that is called "monetizing the debt," that's the phrase they throw at you. That means they just wrote a check, a big rubber check. If you and I were to do that we would go to jail but they can do it because Congress wants them to do it. In fact, this is the payoff, this is the benefit to the government side of this partnership, this is how the government gets its instant access to any amount of money at any time without having to go to the taxpayer directly and justify it or ask for it. Otherwise, they would have to come to the taxpayer and say we're going to raise your taxes another $3,000 this year and of course if they did that, they would be voted out of office real fast. They like the Mandrake Mechanism because it's a no questions asked source of money. You may have noticed that it's been many years since Congress has even discussed what anything costs, it's not an issue. It doesn't make any difference what the cost is because regardless of the overrun they know they can go down the street to the Federal Reserve and by law the officer has to write that big check and give it to them and they're off and running.
The amazing answer is there is no money in the account at the Federal Reserve System. In fact, technically, there isn't even an account, there is only a checkbook. That's all. That billion dollars springs into being at precisely the instant the officer signs that check and that is called "monetizing the debt," that's the phrase they throw at you. That means they just wrote a check, a big rubber check. If you and I were to do that we would go to jail but they can do it because Congress wants them to do it. In fact, this is the payoff, this is the benefit to the government side of this partnership, this is how the government gets its instant access to any amount of money at any time without having to go to the taxpayer directly and justify it or ask for it. Otherwise, they would have to come to the taxpayer and say we're going to raise your taxes another $3,000 this year and of course if they did that, they would be voted out of office real fast. They like the Mandrake Mechanism because it's a no questions asked source of money. You may have noticed that it's been many years since Congress has even discussed what anything costs, it's not an issue. It doesn't make any difference what the cost is because regardless of the overrun they know they can go down the street to the Federal Reserve and by law the officer has to write that big check and give it to them and they're off and running.
There in a nutshell is the reason the government likes the Mandrake Mechanism--easy instant access to any amount of money of any kind without the taxpayer being involved directly in the loop. But what about the banking side? This is where it really gets interesting. Let's go back to that billion dollar check. The treasury official deposits the check into the government's checking account and all of a sudden the computers start to click and it shows that the government has a billion dollar deposit meaning that it can now write a billion dollars in checks against that deposit which it starts to do real fast. For the sake of our analysis, let's just follow $100 out of that billion in a check that for some reason they write to the fellow that delivers the mail to our door. The postal worker gets a check for $100 and he looks at this thing and he can't imagine in his wildest dreams that that money didn't exist two days ago anywhere in the universe. It's spendable so he wouldn't even care if you told him. He deposits it now into his personal checking account. Now we're finally out of the Federal Reserve and out of the government's check and we're into the private banking system. We're in finally to that part of the partnership which is involved in the cartel. A $100 deposit has now been made in the local bank and the banker sees that and runs over to the loan window and opens it up and says "attention, everybody, we have money to loan, someone just deposited $100." Everyone is overjoyed at that because that's one of the reasons they come to the bank, they come to borrow money. That's a sign of national health if you're in debt so they're anxious to know that the bank has money to loan, they line up for these loans. They heard the banker and they say $100 that's not very much and he says not to worry we can loan up to $900 based on that $100 deposit. How can that be done? It gets complicated the way they do it and I'll tell you in very simple terms. The Federal Reserve System requires that the banks hold no less than 10% of their deposits in reserve. The bank holds 10% of that $100 in reserve, $10, and it loans this first fellow in line $90. What does he do with it? He wants to spend it so he puts it into his checking account. In fact it probably goes directly into his checking account. Let's assume that they gave it to him and he puts it back, when he puts it back it's a deposit isn't it?
Only a $100 deposit but $900 in loans and that deposit is still there. Where did the $900 come from and the answer is the same--there was no money. This springs into existence precisely at the point at which the loan is made. Notice the difference, an important distinction is when the money is created out of nothing for the government it is spent by the government. On the banking side, however, when it's created out of nothing it's not spent by the banks it is loaned by the banks to you and to me and we spend it. Notice that when they loan it to us we have to pay them interest on it. Think about this for a minute. This money was created out of nothing and yet they collect interest on it which means that they collect interest on nothing. Not too shabby! What a concept, why didn't I think of that! I wish I had a magic checkbook like that where I could just write checks all day long and didn't have to have any money any place just checks, loan it to you folks and you're silly enough to pay me interest on it. That's how it works.
Now you see what the benefit is to the banking cartel for being involved in this Federal Reserve System, interest on nothing. The process doesn't end there, however. It has consequences to you and to me. I've heard some people say "isn't that interesting, these fellows are sure smart, I guess they deserve to be rich." It's as though we're out of the loop, it doesn't affect us any, they got rich but we're ok. Well no, they got rich alright but they got it by taking it from us. How does that work? Let's follow this.
This newly created money goes out into the economy and it dilutes down the value of the dollars that were already out there. It's like pouring water into a pot of soup, it dilutes the soup. So by throwing more and more money into the economic soup out there the money gets weaker and weaker and weaker and we have the phenomenon called inflation which is the appearance of rising prices. I emphasis the word "appearance" because in reality prices are not rising at all. What we're seeing is that the value of the dollar is going down, that's the real side of the equation. If we had real money based on gold or silver or anything tangible that couldn't just be created out of thin air, it could be based on microphones, that they couldn't just create with the stroke of a pen, you would see then that prices would remain stable over a long period of time.
called Federal Reserve notes which is not really money at all, fiat money anyway, the prices keep going up and up and up because the value of those units keeps going down and down and down because they keep making more and more and more of them and dumping them into the economic soup.
Another interesting thing about this is that when the bank loans you money which it created out of nothing, it costed nothing to make it, it wants something from you. It wants you to sign on the dotted line and pledge your house, your car, your inventory, your assets so that in case for any reason you cannot continue to make your payments they get your marbles, they get all of your assets. They're not going to lose anything on this. Whether it's expansion or contraction, inflation or deflation the banks are covered and we like sheep go right along with it because we haven't figured it out, we don't know that this is a scam. Of course we have no choice either right now because it's all enforced by law. We have no escape. We have no choice but it's even better that we don't understand it because we can't complain about it either. There you have it.
Let's summarize. What is the benefit to the members of the partnership? The government benefits because it is able to tax the American people any amount it wishes through a process which the people do not understand called inflation. They don't realize they're being taxed which makes it real handy when you're going for re-election. On the banking side they're able to earn perpetual interest on nothing. I emphasis the word "perpetual" because remember when the loan is paid back it's turned around and loaned out to somebody else. Once that money is created the object of the bank is to stay "loaned up" as they say. In reality the banks can never stay 100% loaned up and that ratio varies a lot but the objective is to stay loaned up to whatever extent is possible. Generally speaking once this money is created in the loan process it is out there in the economy forever, perpetually earning interest for one of the members of the banking cartel which created that money.
Let's go back to Jekyll Island. They had an interesting problem there which was what to call their creature. This partnership between government and banks which we've been discussing was not new with the Federal Reserve System. In fact, it was a concept that was created in Europe in the 16th century. It was perfected with the formation of the Bank of England in 1694 and from that point forward all of the governments of Europe had used this Mandrake Mechanism. They didn't call it the Mandrake Mechanism, of course, they called it a "central bank," that's the technical phrase for this partnership. If you want to look it up in a textbook or encyclopedia you'll find it under the heading "Central Bank."
From the Bank of England forward all the governments of Europe had central banks for a very good reason. The kings and princes of Europe had learned from hard experience that they could raise the taxes of their subjects only so high and then they had a revolt on their hands and they tended to lose their jobs (and heads). It appears that that natural level was about 40-43%; people will tolerate taxes up to about 40-43% and then they start digging in their heels and they just won't allow it to go any further. But with the central bank mechanism in place the lid was off. Now these governments could tax their people 50%, 60%, 70% and in some cases 80% of everything they produced and they did not have a revolt on their hands. They did not have resentment because the people didn't know that they were paying a tax. They knew that prices were going up, but they didn't understand why, they didn't know who was getting their lost purchasing power.
So when it came time to transplant this concept to America these seven men on Jekyll Island knew very well that they were creating a central bank; that was the reason that Paul Warburg was so valuable because he was the man with the intense knowledge, the detailed technical knowledge of how central banks operate. But they had a problem. How could they conceal that from the American people because Congress was already on record as saying they did not want a central bank in America. I don't think they knew what that phrase really meant, but they knew that Europe had them, whatever they were, and we didn't want any. They said in America if we're going to have banking reform we don't want what they do over in Europe, we want something that is unique for America and its principles and economy.
The problem before these men on Jekyll Island is what to call the central bank so that nobody would know it was a central bank. And they theorized over this and this was their strategy: they said first let's give it a name and we'll add the word "Federal" to it to make it sound like it's government. Then we'll add the word "Reserve" to make it seem like there are reserves somewhere, like it was a banking concept. We'll add the word "System," a very important word even though it may seem obscure now because remember in those days the concern was the concentration of financial power in New York so they had to sell the idea of a system of regional banks which would diffuse that power all over the nation. First they talked about ten regions and then they said that wasn't enough, twelve regions, we'll have twelve banks. And we'll build big buildings out there in all of those regions so the local yokels can go and look at the building and say "golly we've got one of those out here." Diffusion of power away from New York; you can go and touch the building. The word "System" was very important.
When you look at it you realize that what they created there was not federal, there are no reserves, it's not a system at all in the sense of diffusion of power and these Federal Reserve banks aren't even banks. On all four words we're dealing with appearances of the fourth kind. It was brilliant strategy.
The next thing was to sell this creature to the public. The first draft of the Federal Reserve Act as it was presented to Congress was called the Aldrich Bill named after the sponsor, Senator Nelson Aldrich. This was against the good advice of Paul Warburg. He said: "Nelson, don't put your name on that bill because you are so identified with big business interests that Congress will vote it down; the people will not accept it." And apparently Aldrich's ego was too big. He must've said: "Well no, after all I'm highly respected in the Senate and I am the Chairman of the National Monetary Commission" and for whatever reason he insisted that his name be on the bill. It appears that he wanted to go down in history as the originator of the Federal Reserve System. Warburg was right. When the bill was introduced Congress put thumbs-down on it. "The Bill of Big Business."
They took the bill back for it was just a minor setback, they scrambled the paragraphs around a little bit, took Aldrich's name off real fast and they found a couple of Democrats to sponsor the bill. This was different. Everybody knew that the Republicans represented big business but they also knew that Democrats represented the common man, the little guy, the fellow on the assembly line (like Ted Kennedy). They found a couple of millionaire Democrats to sponsor the bill. They found Carter Glass in the House and Senator Robert Owen who himself was a banker. Now it was the Glass-Owen bill and it was totally different and acceptable.
The next thing, Aldrich and Vanderlip began to give speeches and interviews to newspaper reporters condemning the bill. They said: "This bill will be ruinous to banking. It will be terrible for the country." By the time the common man read that in his newspaper he said: "Oh golly, I guess these big bankers don't like the bill very much so it must be pretty good."
These fellows were not stupid. You have to give them credit. They didn't get to be where they were by being country bumpkins. They understood politics, they understood mass psychology and they played their cards exceedingly well. Meanwhile these same individuals out of their own pockets were paying the price for the costs of bringing up what they called grassroots study clubs all over the country. They sponsored these clubs and they held public meetings and printed brochures and pamphlets extolling the virtues of the Federal Reserve System. They gave large amounts of money to some of the better known universities in America; they created newly formed departments of economics with that money; they hand picked their own people to be the professors to head up those departments and then those professors with all of their academic credentials gave speeches and wrote scholarly essays extolling the virtues of the Federal Reserve System. And then at the insistence of Paul Warburg who was forever the master strategist, they added several very sound provisions to the Federal Reserve Bill. By that I mean they added some provisions which seriously restricted the ability of the Federal Reserve to create money out of nothing. Warburg's associates said, "Paul, what are you doing? We don't want those in there this is our bill." And his response was this, he said, "Relax fellas, don't you get it? Our object is to get the bill passed. We can fix it up later." Those were his exact words. "We can fix it up later." He was so right. It was because of those provisions that they won over the support of William Jennings Bryan the head of the Populist Movement, the last hold-out against the bill. Bryan was concerned that this would be an instrument for ruining the nation's money supply but when he saw those provisions he said, "Oh well, those are good provisions, I guess I can support the bill now" never dreaming that this was temporary. Everything is temporary in politics. When people go to sleep things can get changed.
Warburg was right and they fixed it up later. The Federal Reserve Act since it was passed has been amended over 100 times. Every one of those provisions were long ago removed and many more have been added which greatly expand the power and reach of the Federal Reserve System to create money out of nothing. With this kind of professional strategy and deception these people were real professionals and the public didn't stand a chance. It is no surprise that popular support was finally gained for the bill and on December 22, 1913 the bill was passed by Congress and the following day was signed into law by President Wilson and the creature from Jekyll Island finally moved into Washington, DC.
