Is the Federal Reserve friend or foe?
Recent events have drawn attention to the role and influence of this strange institution—some 103 years after its inception—more so than at any other time in the modern era.
But who owns the Federal Reserve? It is a story that author G. Edward Griffin tried to tell back in 1994, but at the time, very few were prepared to listen. Is it possible things have somehow changed…?
FACT: 62 People Own Half the World’s Wealth
Really smart people seem to “get it.”
In a recent comment, Stephen Hawking said that mankind will not advance and the economic crises will not stop, until the ruling class stops making decisions based entirely on short-term profit. (Source: “Stephen Hawking Warns Humanity: Leave Earth Before The Ruling Class Destroys It,” Zerohedge, January 21, 2016.)
This came as a shock to many who were not even aware the planet had a “ruling class” in the first place and that, by exerting an iron-like control over “all things banking” (such as those infamous central banks, most notably, of course, the controversial U.S. Federal Reserve), they allegedly have been steering the ship of humanity for centuries with a silent rudder.
In mid-January 2016, Oxfam released a shocking report pointing out that 62 identifiable people had more wealth than half the planet. The article was easy to overlook, but once you actually read it, it’s hard to forget. It expounded the obvious logic that since wealth is concentrated in the modern industrialized economies, those economies are centrally planned.
This has been the case for a considerable time and this result cannot be accidental or random.
It must be deliberate.
The report pointedly asked the question, “Surely humanity can do better than this?” (Source: “62 People Have More Wealth Than Half The World, Top 1% Have More Than Everyone Else,” Zerohedge, January 16, 2016.)
The problem, however, is that it was not clear to whom the question was being directed? An argument can be made, that if the question were directed to the common people, the masses, they would likely agree.
However—and this perspective is important—if the question were addressed to the top tier, the fraction of the upper one percent, perhaps they would opine that steps should more appropriately be taken to increase their own share…as they themselves feel they can, and indeed should, do better?
This editorial is more interested in the second possibility than the first. What if the governments, banks, corporations, and organizations that run our planet feel they should have still more of the pie…not less? And what if our system is already skewed in such a way that, regardless of the pretty trappings of democracy, whatever these groups want, they eventually get anyway?
In the well-loved Star Trek series, the enterprise merrily traversed the galaxy under a system where everyone was looked after, money as such did not exist, and everyone found a useful place. At the risk of understatement, that is not exactly how our current regime works. Someone once suggested that if scouts from another planet came to Earth to discover the religious predilections of our inhabitants, their final report would likely sound something like this:
“While the inhabitants of Earth insist that their worship practices are diverse, spread out among many belief systems, in fact we were able to identify one that stood out among the rest, that some 99.9% revered.
“It was called ‘MON-HEY’ and its priest class was composed of ‘BAN-KERS’ who had the ability to multiply or diminish the munificence of this deity virtually at will. The High Priests were known as the ‘SENT-RAL BAN-KERS’ and, like most of their ilk seen on other planets, tended to practice their most powerful rituals under cover of darkness.”
1994: The “Most Despised Economic Text Ever” Is Published
In 1994 an investigative reporter named G. Edward Griffin published a work entitled “The Creature from Jekyll Island,” a purported in-depth look at the founding of the Federal Reserve in 1913.
Its core thesis is that the infamous body was essentially conceived as a private or third-party group that had gone to a great deal of trouble to give the impression that they were part and parcel of the U.S. government. They are, in fact, according to Griffin, merely the latest in a long line of so-called central banks that follow a tradition begun originally in Europe in the 16th century.
In that period, it was believed that Johnny-come-lately politicians as a group lacked the skill, experience, and credibility with which to manage the money supply of their respective countries.
The solution was to “sub-contract” that management to the third-party central banks—basically really old families representing really old money—on the understanding that the latter entities would seek, above all else, to keep the governments of their client-states functioning and the politicians thereof supplied with a constant supply of ready cash to do with what they will.
According to Griffin’s analysis, in 1913, the Fed and their new government partners thought the deal to be a bargain made in heaven. For the common people, suggests the author, an entirely different point of origin may perhaps spring to mind.
Imagine that you are running what the accountants call a “hobby farm” and each year, you have crops to plant and grow. Under some circumstances, you might make a deal with a professional grower to manage your farm on the condition that you and your family always have food to eat, plus a degree of access to the cash flow from the sale of the produce. Beyond that, you really do not care.
Sound simple? That’s more or less how the central banks got to handle the money supply in your country. Doesn’t matter what country you live in. Generally speaking (there are a few exceptions), if you are reading this right now, this minute, your money supply is managed by a central bank.
To say Griffin’s book is flattering neither to the central banks themselves nor to the U.S. politicians who opted to go down this strange road is easily the understatement of both this millennium and the previous one. At the very least, it raises serious issues about the motives of the true owners of the banking system and about what, if anything, they are doing with all that loose cash, while seemingly fulfilling their mandate to keep their client-governments solvent and “in the chips.”
To take just one example, in 2011 when Ron Paul’s “Audit the Fed” initiative was successful in getting only a very small audit done of the U.S. Federal Reserve—just a tiny piece of what he originally asked for—it was found that the Fed had just recently dispensed some $16.0 trillion to its associates and “special friends” without reporting it.
Hey, what is a few trillion dollars among pals? Makes you wonder what else was missed in the 103 years of its highly opaque operations? (Source: “The Fed’s $16 Trillion Bailouts Under-Reported – Forbes,” Forbes, September 20, 2011.)
Glenn Beck Spotlights Griffin’s Book…and Is Promptly Fired
Griffin’s book has been praised on some web sites and vilified on others.
Generally, the praise tends to focus on what the book actually says, based on the hard research that Griffin actually did. The vilification, on the other hand, tends to focus on the fact that Griffin is not recognized as a “peer” within the professional economic hierarchy and, therefore, should never have written the book in the first place. Tsk, tsk!
Even stranger, it has even been suggested that the book brings with it some form of curse. More than one writer has pointed out that popular TV personality Glenn Beck was mysteriously fired just after devoting an entire show to the book and its implications.
Beck himself was in an especially playful mood during that infamous interview. Aside from his interview of Griffin—which arguably, was risky all by itself—he indulged in numerous “asides” directed to the camera. (Source: “Glenn Beck And The Federal Reserve,” End of the American Dream, March 28, 2011.)
At one point, for example, he quoted directly from Griffin’s work to make the point that the Fed was not merely a “cartel” on its own, but “a cartel that that had chosen to partner with the government.”
“Just like in Mexico,” he added ominously. And then, with a sheepish grin, looking right into the camera lens, “Did I just say that aloud?”
He made many more such asides during the program, all equally inflammatory.
What is in the book, you ask, that is so controversial and distressing both to those who have actually read it and those who have scrupulously avoided it based entirely on reviews from its detractors?
Griffin has repeatedly covered the key tenets of his work in the many lectures he has given in both public and private forums:
“[…] The Federal Reserve was sold to the American public as the ‘solution’ to the Money Trust which was dominating Wall Street at the time. The irony is that the founders of the Federal Reserve who first met on Jekyll Island in Georgia in 1910—under strict secrecy protocols that forbade them to use their last names even when traveling on the train to the island—were in fact the same men who owned the infamous Money Trust…these men, the founders, between themselves, represented 1/4 of all the wealth in the world at that time.
“[…] The payoff is that government is able to tax the people by a hidden tax called inflation, a tax they do not even know they are paying. The more the made-up money from the Fed travels through the system, on its way to the ultimate consumer, the more the original value of the dollar depreciates as it is cheapened by the creation of all that new money.
“Since 1913, the value of the dollar has declined over 98%—yet its worth was stable in the period just prior. And the bankers benefit because each dollar of the new made-up money from the Fed is immediately loaned out for interest due, leveraged many times under banking’s Fractional Reserve system.
“So the banks are making money on made-up money, money that did not exist yesterday. Money created by the Fed by the push of a button, today. What is the clue that this money has no real value?
“When the bankers offer you a loan, they want it secured by hard assets, real collateral, not something you printed yesterday on your inkjet printer. Like they just did.
“[…] The reason for the 12 regional banks in the so-called Fed ‘system’ was to assist in presenting the Fed as the solution to the problem (in 1910) of bank concentration in New York. So the dozen regional banks were created merely to give the impression that the power was not concentrated but ‘diffused’ through the country. They built twelve buildings here and there, while making sure that, by their own Rules, actual power remained in the national board and not the regions, and the deception was complete.
“[…] The original bill contained provisions which actually limited the power of the Fed to create money out of nothing. These provisions helped win the support of the Populist movement of the day, lead by men like William Jennings Bryan, who personally had been opposing the initiative.
“Since its passage, however, the Federal Reserve Act has been amended over 100 times, and all such restrictions were removed long ago. If anything, the power of the U.S. Fed has been increased. It can now do its business in other countries, something never before possible until recently.
“[…] There are two additional issues most people do not understand. The banks make their money from the interest due on the loan, not the repayment of the loan. Just as Visa only wants you to carry your debt, not settle it. The banks also correctly anticipated the ‘too big to fail’ doctrine.
“In fact, this has been the reaction of the U.S. government to any banking crisis for well over 100 years. Therefore, if you consider these two facts together, we have created a system where the banks will actively seek out borrowers unlikely to ever repay the loan—i.e., the source of their highest profits—knowing that, in case of a problem, the government bails them out with public money! Does this sound like a formula for stability?” (Source: “Griffin Lecture on the Fed 1994,” YouTube, last accessed January 20, 2016.)
Getting to Know Mr. Fed
Regardless of whether the origins and motives of the Fed are as ignoble as Griffin alleges, for those interested in plain facts, the results are not especially flattering. The Fed has failed to quell every crash and recession in U.S. history since its inception.
Worse, its penchant for sticking its nose where it does not belong was the basis for the popular Internet riddle, “How many times does the 3-letter combination ‘F+E+D’ appear in the 12-letter word ‘MANIPULATION’? Correct Answer: Too often!”
Most humor, of course, is based in reality—just weeks ago, none other than former Dallas Fed President Richard Fisher admitted that, post-2007, the Fed propped up and “front-ran” the entire U.S. equity market to enrich the large trading houses and their clients in the hope that some prosperity might spill over onto the common folk, the hoi polloi. (Source: “Richard Fisher Fed comments,” Business Insider, January 6, 2016.)
To be clear, front-running is illegal if you or I do it. The Fed, as with all groups that work with Washington, can do whatever it likes.
Conspicuously absent from Fisher’s astonishing “mea culpa” was any apology for “quantitative easing,” or QE. Never mind the admitted market manipulation. Austrian or “hard money” economics tells us that QE, even for a short period, creates pervasive mal-investment and misallocation of capital. Over an extended period, the damage it can do to a sovereign economy is so insidious it can take decades to repair. (Source: “Financial Repression Authority,” Gordon Long, last accessed January 22, 2016.)
An argument can be made that the only reason more outrage over “QE” did not materialize is that most of those who would’ve complained did not understand it—and most of those who understood it were enjoying it too much to complain.
QE, I would suggest, could be perceived as an arrangement between an entity that is supposed to be able to borrow in good faith to fund its spending (the U.S. government) and a highly opaque quasi-government body (the Fed) blessed with the ability to create cash out of thin air at the mere push of a button. Allegedly (we are back to 1913 again!) for the public good.
OK, let’s take a closer look behind the curtain:
The interest rate paid by a borrower is an indication of credit risk. You and I, for example, pay Visa some 20% or so per annum because, while Visa trusts us, they do not trust us quite enough to give us lower rates. Yet, although the U.S. has increased its debt burden in recent years to a degree that staggers the imagination, it is somehow able to borrow at near-zero rates.
This is because the right hand (government) issues the debt and the left hand (the Fed, acting as if it is a third party) snaps it up so quickly and hungrily that Mr. Market is forced to conclude that this paper is the safest and most desirable debt on the planet.
Because this paper is manifesting such outrageously high “instant” demand, Mr. Market is fooled into believing the yield should be virtually zero to reflect that remarkable safety and marketability.
Oops, I did not mean to give the impression that the above “sleight of hand” fooled everyone on the planet. China and Russia, formerly huge holders of U.S. debt, have obviously taken the time to dissect what QE really means and have responded by unloading U.S. Treasuries in record-breaking numbers. (Source: “Foreigners Dump US Treasuries,” Zerohedge, December 15, 2015.)
Not Exactly 100% Transparency
Editorialist Jim Willie does not even feel the need to look at the origins of the Fed in order to see possible deception and shadow-dealing.
His focus is on the present day. One of Willie’s favorite examples is the foreign dumping of U.S. Treasuries in late 2015, mentioned just above. He underscores how, during a 90-day period when China was confirmed to have dumped at least $250 billion of U.S. Treasuries onto the market, the yield on U.S. Treasuries moved not a whisker.
If there had been even a semblance or facsimile of a free market, Willie argues, the yield would have moved up at least a little in response to the giant glut of dumped paper that the market had to quickly absorb.
The fact that yields barely budged indicates to him that, aside from the “public” or open QE programs that the Fed admits to, it is maintaining many more “shadow” debt monetization programs deep in the background.
Willie further insists that, if you tally it all up, the Fed is actually closer to a QE5 or QE6 than the two or three QEs they actually admit to—and that they have never, for even a moment, stopped monetizing U.S. debt.
He suggests that the hidden and covert methods they deploy include the secret intervention of the U.S. Treasury under the auspices of the Exchange Stabilization Fund (ESF); sovereign “fake agents” or “beards” for secret buying programs (like Belgium or Luxemburg or Ireland); as well as their highly opaque “reverse repo” program where they indirectly provide banks with the collateral (T-bills) to generate instant cash—in the billions, allowing for leverage—to cover a variety of sins the public is never told about.
“[…] Mission Accomplished with no detectable rise in the TNX 10-year bond yield (during the foreign dumping). Otherwise the U.S. Govt. debt market would resemble Greece, since the fundamentals are just as wretched.
“The strong hand doing the purchases on massive volume is the U.S. Dept. of Treasury itself, using the Exchange Stabilization Fund. The ESF was created in 1934 for the express purpose of protecting the U.S. dollar. They buy the U.S. Govt. debt securities that foreigners discard, thus fulfilling their mandate.
“Their purchases are being made with cash off the books, hence bearded as private accounts, and not official reserves.
“[…] The big banks cannot leverage cash but they can leverage U.S. T-Bonds several times over. The Fed feeds the banker cabal/ESF with collateral (U.S. T-Bonds) which are leveraged multiple times in order to support risk assets. This in effect is a gigantic pseudo-QE. When one factors in that $200.0 billion (for example) in collateral can be safely leveraged 3x to 10x, the Fed via the cabal/ESF has created liquidity of $600.0 billion to $2.0 trillion in a blink of an eye. The clue of excessive leverage is seen in volatility for the TNX 10-year bond yield.
While there is no argument that Griffin’s original work on the Fed (penned in 1994, now in its fifth printing) has detractors, it also has proponents.
Mark Calabria, from the Cato Institute (an independent Libertarian think-tank based in Washington, D.C.), in reference to the 2007 crisis that shocked the entire planet, said flat-out that the Fed “played a key role in creating the housing bubble to begin with.”
When asked on that infamous episode of the Glenn Beck show about how “connected” one central bank is to another, Calabria replied, “It is clear their first priority is making each other look good. The public comes in second on their list of priorities, if at all.” (Source: “Edward Griffin, Mark Calabria, on Glenn Beck Show,” YouTube, last accessed January 21, 2016.)
In other words, like Griffin, Calabria is saying that we not only have a bunch of third-party banks in cahoots with our governments, able to do as they wish with no transparency or accountability, but—hey don’t forget!—their first loyalty is to each other, not to the countries they are supposed to act for.
Calabria also underscored how gold actually acted as a “tether” on the power of the Fed when it was first created, but this is no longer the case today: “When the Fed started out in 1913,” he said, “there was $0.40 of gold backing every dollar printed. Today there is not even $0.01 of gold backing the money out there.”
Sitting on the same panel as Calabria, author Edward Griffin added this point:
“The entire U.S. financial system is a Ponzi Scheme. It works only as long as you are constantly adding new debt to the system. Stop adding debt and it implodes. Keep adding debt and you only create bigger bubbles which must then create recessions or contractions when they ultimately pop. Booms and busts are therefore ingrained in the Federal Reserve system and inevitable…in a society that addicted to debt, the only two classes that prosper during both good times and bad are the ultra-rich and the banks.” (Source: Ibid.)
So, Are We in Good Hands…or Not?
It is axiomatic to assume that if you were to poll the citizens of any democratic country, they would indicate that they do, in fact, live in a democratic country.
But would they be correct?
One of the most controversial aspects of the opinions put forward from those critical of the Fed—like Griffin, Willie, and Calabria—is that this core premise is patently false.
If at some point in the past, a professed democratic country knowingly transferred power over its banking system to a third-party, along with near-absolute power, minimal accountability, a total lack of transparency—and also tossed into the mixing bowl blanket immunity from prosecution—isn’t the issue of whether or not democracy still reigns in that country very much an open question…?