Many of us are probably familiar with the term “Quantitative Easing” by now but what about the institution behind it? Before I dive into the system of the Federal Reserve, I would like to discuss about the history behind the Federal Reserve Act. The Federal Reserve Act was supposedly signed into law to prevent financial panics similar to the panic of 1907 also known as the 1907 Bankers’ Panic. Over the years, its sole objective has deviated which complicated matters in the monetary policies of the 21st century.
On November 22, 1910, a group of the richest and most influential men in America met just off the coast of Georgie, at the secluded Jekyll Island. These men were told to arrive separately to attract minimal attention. These men included John D. Rockefeller Jr of the Rockefeller dynasty, Senator Nelson Aldrich, Frank Vanderlip President of the National City Bank of New York, Henry P. Davison senior partner of J.P Morgan, A. Piatt Andrew Assistant Treasury Secretary, Benjamin Strong Jr associate of J.P Morgan and President of Bankers Trust Co, Paul Warburg from the Warburg banking family and Solomon Loeb from investment firm, Kuhn, Loeb & Company. Since there was going to be a legislation to control their industry, these men decided to take the lead and be the ones calling for regulations and reform. So basically what they were doing was to self-regulate the industry to their advantage and call it “The Federal Reserve Act”.
What initially was a plan turned into a dream when they got more than what they asked for. Congress gave them the green light to issue the nation’s money supply. Thus, not only were they able to regulate their own industry, they had the power to issue the nation’s money supply to private banks. What conceived out from the authority to issue money supply was the erection of 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. In other words, to print the public’s money out of thin air and loan it out. The propaganda deemed to stabilize the banking industry and prevent bank runs turned into a profiting machine for the influential. The Federal Reserve (Fed) Act was signed into law by President Woodrow Wilson on December 23, 1913.
The idea behind the Federal Reserve Act began in the late 17th century Europe when the Nine Years’ War was raging across the continent. King William III of England, devastated by an incredible naval defeat, decided to rebuild the English navy. There was but a problem: money. A Scottish banker by the name of William Paterson has a banker’s solution. He proposed to form a company to lend a million pounds to the government at 6% with the right of note issue. By the late 1694, the prestigious Bank of England was created. It would seem that the bank was government’s entity but in actual fact it is not. It is a private bank owned by private shareholders for their private profit with a charter from the king that allowed them to print money out of thin air and lend it to the crown. Who would have thought that the birth of the Bank of England in 1694 led to the creation of a template that will be repeated around the world up till today.
“Whatever interest or influence, whether public or private, has given birth to this act, it cannot be found either in the wishes or necessities of the executive department, by which present action is deemed premature, and the powers conferred upon its agent not only unnecessary, but dangerous to the government and the country. It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes. If we cannot at once, in justice to interests vested under improvident legislation, make our government what it ought to be, we can at least take a stand against all new grants of monopolies and exclusive privileges, against any prostitution of our government to the advancement of the few at the expense of the many, and in favor of compromise and gradual reform in our code of laws and system of political economy.
– Andrew Jackson, 7th President of the United States
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