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  • Hi, I'm Buck, your personal tour guide to the Federal Reserve. I'm here to introduce

  • you to one of the most complex but effective institutions in the United States. But don't

  • worry, I'll explain it all in plain English. Just beside me is a roadmap of where we're

  • going. Together we'll walk through the Federal Reserve system. Literally. And along the way

  • I'll show you just what goes on around here and why it's important. By the end of this

  • tour, you, too will be able to explain the Federal Reserve in plain English.

  • All our lives we've been told that economics is boring. It's dull. It's not worth the time

  • it takes to understand it. And all our lives, we've been lied to.

  • War. Poverty. Revolution. They all hinge on economics. And economics all rests on one

  • key concept: money.

  • Money. It is the economic water in which we live our lives. We even call it 'currency';

  • it flows around us, carries us in its wake. Drowns those who are not careful.

  • We use it every day in nearly every transaction we conduct. We spend our lives working for

  • it, worrying about it, saving it, spending it, pinching it. It defines our social status.

  • It compromises our morals. People are willing to fight, die and kill for it.

  • But what is it? Where does it come from? How is it created? Who controls it? It is a remarkable

  • fact that, given its central importance in our lives, not one person in a hundred could

  • answer such basic questions about money as these.

  • So if you were planning a family, you'd want to know where babies come from. And this is

  • a lot about banking. So let me ask you: where does money come from?

  • Where does the money come from? The government prints it. It's printed off.

  • How is new money created?

  • By labor. People work and produce wealth, and the money is supposed to match that wealth.

  • Where does money come from?

  • Well I have a pretty different outlook on money. It actually comes from, like, trees,

  • right?

  • But why is this? How could we be so ignorant about a topic of such importance? "Where does

  • money come from?" is a basic, childlike question. So why is our only response the childlike

  • answer, meant as a joke: "It grows on trees"?

  • Such a profound state of ignorance could not come about naturally. From the time we are

  • children, we are curious about the world and eager to learn about the way it works. And

  • what could lead to a better understanding of the way the world works than a knowledge

  • of money, its creation and destruction? Yet discussion of this topic is fastidiously avoided

  • in our school years and ignored in our daily life. Our monetary ignorance is artificial,

  • a smokescreen that has been erected on purpose and perpetrated with the help of complicated

  • systems and insufferable economic jargon.

  • But it doesn't take an economist to understand the importance of money. Deep down we all

  • know that the wars, the poverty, the violence we see around us hinges on this question of

  • money. It seems like a thousand piece jigsaw puzzle just waiting to be solved. And it is.

  • The puzzle pieces, taken together, create an image of the Federal Reserve, America's

  • central bank and the heart of the country's banking system. Despite its central importance

  • to the economy, relatively few have heard of it, and fewer still know what it is, despite

  • the bank's attempts at self-description:

  • Our economy runs on a complex system of exchange of goods and services in which money plays

  • a key part. Coin, currency, savings, and checking accounts; the overall supply of money is managed

  • by the Federal Reserve. Money is the medium through which economic exchanges take place,

  • and money as a standard of value helps us to set prices for goods and services. The

  • job of managing money--monetary policy--is to preserve the purchasing power of the dollar

  • while ensuring that a sufficient amount of money is available to promote economic growth.

  • The Federal Reserve also promotes the safety and soundness of the institutions where we

  • do our banking. It ensures that the mechanisms by which we make payments, whether by cash,

  • cheque, or electronic means, operates smoothly and efficiently.

  • And in its fiscal role acts as the banker for the United States government.

  • Now these duties comprise the major responsibilities of our central bank.

  • But in order to understand the Federal Reserve, we must first understand its origins and context.

  • We must deconstruct the puzzle.

  • The first piece of that puzzle lies here, in the White House. This is where the Federal

  • Reserve Act, then known as the Currency Bill, was signed into law after passing the House

  • and Senate in late December, 1913.

  • The New York Times of Christmas Eve, 1913, described the festive scene:

  • "The Christmas spirit pervaded the gathering. While the ceremony was a little less impressive

  • than that of the signing of the Tarriff act on Oct. 3 last in the same room, the spectators

  • were much more enthusiastic and seized every occasion to applaud."

  • There in the White House that fateful December evening, President Wilson signed away the

  • last veneer of control over the American money supply to a cartel; a well-organized gang

  • of crooks so successful, so cunning, so well-hidden that even now, a century later, few know of

  • its existence, let alone the details of its operations. But those details have been openly

  • admitted for decades.

  • Of course, just as we have been taught to find economics boring, we have been taught

  • that this story is boring. This is the way the Federal Reserve itself tells it:

  • The United States was facing severe financial problems. At the turn of the century, most

  • banks were issuing their own currency called "bank notes." The trouble was, currency that

  • was good in one state was sometimes worthless in another. People began to lose confidence

  • in their money, since it was only as sound as the bank that issued it. Fearful that their

  • bank might go out of business, they rushed to exchange their bank notes for gold or silver.

  • By attempting to do so, they created the panic of 1907.

  • During the panic, people streamed to the banks and demanded their deposits. The banks could

  • not meet the demand; they simply did not have enough gold and silver coin available. Many

  • banks went under. People lost millions of dollars, businesses suffered, unemployment

  • rose, and the stability of our economic system was again threatened.

  • Well, this couldn't go on. If the country was going to grow and prosper, some means

  • would have to be found to achieve financial and economic stability.

  • To prevent financial panics like the one in 1907, President Woodrow Wilson signed The

  • Federal Reserve Act into law in 1913.

  • But this is history as told by the victors: a revisionist vision in which the creation

  • of a central bank to control the nation's money supply is merely a boring historical

  • footnote, about as important as the invention of the zipper or an early 20th century hoola-hoop

  • craze. The truth is that the story of the secret banking conclave that gave birth to

  • that Federal Reserve Act is as exciting and dramatic as any Hollywood screenplay or detective

  • novel yarn, and all the more remarkable for the fact that it is all true.

  • We pick up the story, appropriately enough, under cover of darkness. It was the night

  • of November 22, 1910, and a group of the richest and most powerful men in America were boarding

  • a private rail car at an unassuming railroad station in Hoboken, New Jersey. The car, waiting

  • with shades drawn to keep onlookers from seeing inside, belonged to Senator Nelson Aldrich,

  • the father-in-law of billionaire heir to the Rockefeller dynasty, John D. Rockefeller,

  • Jr. A central figure on the influential Senate Finance Committee where he oversaw the nation's

  • monetary policy, Aldrich was referred to in the press as the "General Manager of the Nation."

  • Joining him that evening was his private secretary, Shelton, and a who's who of the nation's banking

  • and financial elite: A. Piatt Andrew, the Assistant Treasury Secretary; Frank Vanderlip,

  • President of the National City Bank of New York; Henry P. Davison, a senior partner of

  • J.P. Morgan Company; Benjamin Strong, Jr., an associate of J.P. Morgan and President

  • of Bankers Trust Co., and Paul Warburg, heir of the Warburg banking family and son-in-law

  • of Solomon Loeb of the famed New York investment firm, Kuhn, Loeb & Company.

  • The men had been told to arrive one by one after sunset to attract as little attention

  • as possible. Indeed, secrecy was so important to their mission that the group did not use

  • anything but their first names throughout the journey so as to keep their true identities

  • secret even from their own servants and wait staff. The movements of any one of them would

  • have been reason enough to attract the attention of New York's voracious press, especially

  • in an era where banking and monetary reform was seen as a key issue for the future of

  • the nation; a meeting of all of them, now that would surely have been the story of the

  • century. And it was.

  • Their destination? The secluded Jekyll Island off the coast of Georgia, home to the prestigious

  • Jekyll Island Club whose members included the Morgans, Rockefellers, Warburgs and Rothschilds.

  • Their purpose? Davison told intrepid local newspaper reporters who had caught wind of

  • the meeting that they were going duck hunting. But in reality, they were going to draft a

  • reform of the nation's banking industry in complete secrecy.

  • G. Edward Griffin, the author of the bestselling The Creature from Jekyll Island and a long-time

  • Federal Reserve researcher, explains:

  • What happened is the banks decided that since there was going to be legislation anyway to

  • control their industry, that they wouldn't just sit back and wait and see what happened

  • and cross their fingers that it would be OK. They decided to do what so many cartels do

  • today: they decided to take the lead. And they would be the ones calling for regulations

  • and reform.

  • They like the word "reform." The American people are suckers for the word "reform."

  • You just put that into any corrupt piece of legislation, call it "reform" and people say

  • "Oh, I'm all for 'reform'," and so they vote for it or accept it.

  • So that's what they were doing. They decided, "We will 'reform' our own industry." In other

  • words, "We will create a cartel and we will give the cartel the power of government. We'll

  • take our cartel agreement so we can self-regulate to our advantage and we'll call it 'The Federal

  • Reserve Act.' And then we'll take this cartel agreement to Washington and convince those

  • idiots there to pass it into law."

  • And that basically was the strategy. It was a brilliant strategy. Of course we see it

  • happening all the time, certainly in our own day today we see the same thing happened in

  • other cartelized industries. Right now we're watching it unfold in the field of healthcare,

  • but at that time it was banking, alright?

  • And so the banking cartel wrote their own rules and regulations, called it "The Federal

  • Reserve Act," got it passed into law, and it was very much to their liking because they

  • wrote it. And in essence what they had created was a set of rules that made it possible for

  • themselves to regulate their industry, but they went even beyond that. In fact, it's

  • clear to me when I was reading their letters and their conversation at the time, and the

  • debates, that they never dreamed that Congress would go along and also give them the right

  • to issue the nation's money supply. Not only were they now going to regulate their own

  • industry, which is what they started out as wanting to do, but they got this incredible

  • gift that they didn't dream would be given to them (although they were negotiating for

  • it), and that was that Congress gave them the authority to issue the nation's money.

  • Congress gave away the sovereign right to issue the nation's money to the private banks.

  • And so all of this was in The Federal Reserve Act, and the American people were joyous because

  • they were told, and they were convinced, that this was finally a means of controlling this

  • big creature from Jekyll Island.

  • Amazingly enough, they were successful, not just in conspiring to write the legislation

  • that would eventually become the Federal Reserve Act, but in keeping that conspiracy a secret

  • from the public for decades. It was first reported on in 1916 by Bertie Charles Forbes,

  • the financial writer who would later go on to found Forbes magazine, but it was never

  • fully admitted until a full quarter century later when Frank Vanderlip wrote a casual

  • admission of the meeting in the February 9, 1935 edition of The Saturday Evening Post:

  • "I was as secretiveindeed, as furtiveas any conspirator.[...]I do not feel it is any

  • exaggeration to speak of our secret expedition to Jekyll Island as the occasion of the actual

  • conception of what eventually became the Federal Reserve System."

  • Over the course of their nine days of deliberation at the Jekyll Island club, they devised a

  • plan so overarching, so ambitious, that even they could scarcely imagine that it would

  • ever be passed by congress. As Vanderlip put it,

  • "Discovery [of our plan], we knew, simply must not happen, or else all our time and

  • effort would be wasted. If it were to be exposed publicly that our particular group had got

  • together and written a banking bill, that bill would have no chance whatever of passage

  • by Congress."

  • So what, precisely, did this conclave of conspirators devise at their Jekyll Island meeting? A plan

  • for a central banking system to be owned by the banks themselves, a system which would

  • organize the nation's banks into a private cartel that would have sole control over the

  • money supply itself. At the end of their nine day meeting, the bankers and financiers went

  • back to their respective offices content in what they had accomplished. The details of

  • the plan changed between its 1910 drafting and the eventual passage of the Federal Reserve

  • Act, but the essential ideas were there.

  • But ultimately, this scene on Jekyll Island, too, is just one piece of a larger puzzle.

  • And like any other puzzle piece, it has to be seen in its wider context for the bigger

  • picture to become visible. To understand the other pieces of the puzzle and their importance

  • in the creation of the Federal Reserve, we have to travel backward in time.

  • The story begins in late 17th century Europe. The Nine Years' War is raging across the continent

  • as Louis XIV of France finds himself pitted against much of the rest of the continent

  • over his territorial and dynastic claims. King William III of England, devastated by

  • a stunning naval defeat, commits his court to rebuilding the English navy. There's only

  • one problem: money. The government's coffers have been exhausted by the waging of the war

  • and William's credit is drying up.

  • A Scottish banker, William Paterson, has a banker's solution: a proposal "to form a company

  • to lend a million pounds to the Government at six percent (plus 5,000 "management fee")

  • with the right of note issue." By 1694 the idea has been slightly revised (a 1.2 million

  • pound loan at 8 percent plus 4000 for management expenses), but it goes ahead: the magnanimously

  • titled Bank of England is created.

  • The name is a carefully constructed lie, designed to make the bank appear to be a government

  • entity. But it is not. It is a private bank owned by private shareholders for their private

  • profit with a charter from the king that allows them to print the public's money out of thin

  • air and lend it to the crown. What happens here at the birth of the Bank of England in

  • 1694 is the creation of a template that will be repeated in country after country around

  • the world: a privately controlled central bank lending money to the government at interest,

  • money that it prints out of nothing. And the jewel in the crown for the international bankers

  • that creates this system is the future economic powerhouse of the world, the United States.

  • In many important respects, the history of the United States is the history of the struggle

  • of the American people against the bankers that wish to control their money. By the 1780s,

  • with colonies still fighting for independence from the crown, the bankers will get their

  • wish.

  • In 1781 the United States is in financial turmoil. The Continental, the paper currency

  • issued by the Continental Congress to pay for the war, has collapsed from overissue

  • and British counterfeiting. Desperate to find a way to finance the end stages of the war,

  • Congress turns to Robert Morris, a wealthy shipping merchant who was investigated for

  • war profiteering just two years earlier. Now as "Superintendent of Finance" of the United

  • States from 1781 to 1784 he is regarded as the most powerful man in America next to General

  • Washington.

  • In his capacity as Superintendent of Finance, Morris argues for the creation of a privately-owned

  • central bank deliberately modeled on the Bank of England that the colonies were supposedly

  • fighting against. Congress, backed into a corner by war obligations and forced to do

  • business with the bankers just like King William in the 1690s, acquiesces and charters the

  • Bank of North America as the nation's first central bank. And exactly as the Bank of England

  • came into existence loaning the British crown 1.2 million pounds, the B.N.A. started business

  • by loaning $1.2 million to Congress.

  • By the end of the war, Morris has fallen out of political favor and the Bank of North America's

  • currency has failed to win over a skeptical public. The B.N.A. is downgraded from a national

  • central bank to a private commercial bank chartered by the State of Pennsylvania.

  • But the bankers have not given up yet. Before the ink is even dry on the constitution, a

  • group led by Alexander Hamilton is already working on the next privately-owned central

  • bank for the newly formed United States of America.

  • So brazen is Hamilton in the forwarding of this agenda that he makes no attempt to hide

  • his aims or those of the banking interests he serves:

  • "A national debt, if it is not excessive, will be to us a national blessing," he wrote