The History of the Federal Reserve 514
Michael J. Ross writes "Money plays a key role in modern life; in fact, for some people, nothing is more important than acquiring more of it. Yet most people do not know what money really is, how it is created, how its supply is expanded and contracted, and who benefits from those changes. In the United States, the central figure in this ongoing drama, is our central bank, the Federal Reserve, whose history, power, and effects are explored in G. Edward Griffin's fascinating book The Creature from Jekyll Island: A Second Look at the Federal Reserve." Read on for the rest of Michael's review.
For the citizens of the United States and several Latin American countries, the "coin of the realm" is the US dollar, which is, in simple terms, created by the Federal Reserve, a.k.a., the Fed. But who created the Federal Reserve, and why? The subjects of banking in general, and the Federal Reserve in particular, would be considered by most Americans to be dry, boring, and of little importance to their day-to-day life. But those same people are endlessly fascinated by how to make more money (with minimal effort, such as the lottery), how to spend as little of it as possible (coupons never go out of style), and how to maximize one's investment returns. Why this disconnect? Why do Americans care so little about the origins of that which they spend a third of their time pursuing, and seemingly another third spending?
| The Creature from Jekyll Island | |
| author | G. Edward Griffin |
| pages | 624 |
| publisher | American Media |
| rating | 9 |
| reviewer | Michael J. Ross |
| ISBN | 0912986212 |
| summary | A compelling history and indictment of the Federal Reserve system |
Some of these "salary slaves" may understand that their money serves as a store of wealth and a medium of commercial exchange, which makes possible their daily financial transactions without the need for bartering. But, for the most part, they do not understand the critical importance of what is backing that money, if anything; how that money comes into existence, and what debt offsets it; what entities control the supply and distribution of that money; and how those changes can be used to legally steal purchasing power from victims who may not be entirely unsuspecting, but do not truly comprehend how they are getting ripped off.
The typical American, if he or she has given any thought to the matter, would consider the following statements to be true: The Federal Reserve is federal, i.e., a part of the US government. The Federal Reserve is a reserve, i.e., it has monetary savings of real value. The Federal Reserve serves the public, and is not a cartel of private banks serving itself. The US dollar has real value, i.e., it represents tangible wealth, such as gold securely stored at Fort Knox. Inflation is an increase in prices. Inflation is caused by greedy companies, not the US government or the Federal Reserve.
As G. Edward Griffin makes clear in his book, none of these beliefs are true — regardless of how well entrenched they are in our conventional "wisdom." He also explains why the US government and the Federal Reserve have their own reasons for being in no hurry to eliminate this ignorance. Yet these topics are just a small portion of what is covered in his far-ranging discussion of the theory and history of money and banking, particularly within the United States.
Spanning 624 pages, the material is organized into 26 chapters, which are grouped into six sections: "What Creature Is This?" (the Federal Reserve's shameful birth, and the shenanigans of the Fed, S&Ls, the IMF, and the World Bank), "A Crash Course on Money" (money, gold, debasement, fiat money, fractional-reserve banking, and money creation), "The New Alchemy" (the Rothschilds, J.P. Morgan, and banker financing of wars and revolutions), "A Tale of Three Banks" (America's failed experiments with central banking, and the American Civil War), "The Harvest" (the unconstitutional creation of the Federal Reserve, and its dreadful effects, including the Crash of 1929), "Time Travel into the Future" (current crises caused by central banking, how they can be reversed, future scenarios, and what the individual can do regardless). Every one of the six sections begins with a brief summary, as does every chapter, with every chapter wrapped up with a more extensive summary.
The section summaries also appear in the table of contents, which precedes a preface and the author's acknowledgments. These are followed by a delightful introduction — a piece from the British humor magazine Punch, comprising a rather telling exchange between an unusually honest banker and a soon-to-be-disillusioned bank customer. The book contains three appendices: a summary of the structure and function of the Federal Reserve system; natural laws of human behavior in economics; and whether the M-1 measure of money is subtractive or accumulative. The author also provides an index, as well as an impressive bibliography, reflecting his extensive research on the topics. In addition, the author invites readers to join Freedom Force, an organization dedicated to increasing liberty in the United States, curbing federal totalitarianism, and abolishing the Federal Reserve — all through peaceful participation in government, and the shaping of public policy starting at the grassroots level.
The Creature from Jekyll Island is published by American Media, under the ISBNs 0912986212 and 978-0912986210. It first came out in July 1994, and is now in its fourth edition, and its 19th printing. It also has Japanese and German editions, published in February 2005 and August 2006, respectively. On the book's Web page, visitors will find testimonials and comments from readers, updates to the book, a review of the book by Jane H. Ingraham of The New American, and G. Edward Griffin's response to a critique of his book by Edward Flaherty, who holds a Ph.D. in Economics. On that Web page, interested readers can order audio cassettes or CDs of the author's lecture, based upon this book, and produced in 1998.
My only criticisms of the book concern not the material itself, but its production — more specifically, the printing and layout, presumably chosen and thus fixable in the future by the publisher. The generous font size used throughout the volume, makes it easy to read; but the bold text, such as the subheads found in every chapter, is a bit rough-edged — on some pages worse than others. The subheads, already bolded, do not need to be in all uppercase; the publisher should choose one or the other. In addition, the inside margin length is a bit too small, forcing the reader to crack open the book more than should be needed, in order to comfortably read the text closest to the binding. In future editions, some of the space in the outer margin could be used to solve the problem, without any change to the words on each page, and thus the length of the book.
But aside from these minor flaws, this book is to be highly recommended. The Creature from Jekyll Island is a remarkably thorough, detailed, and challenging critique of central banking and America's latest incarnation of it, the Federal Reserve. G. Edward Griffin's precision of language, and his interweaving of the major players and their motives, makes for a most compelling historical study.
Michael J. Ross is a Web developer, freelance writer, and the editor of PristinePlanet.com's free newsletter.
You can purchase The Creature from Jekyll Island from amazon.com. Slashdot welcomes readers' book reviews -- to see your own review here, read the book review guidelines, then visit the submission page.
Re:Another good read... (Score:2, Interesting)
The animation is cheap, but the meat of it is in the audio, which puts in pretty clear terms where money comes from.
- RG>
Tag suggestion (Score:1, Interesting)
Tag rootofallevil
Re:real value? (Score:3, Interesting)
The difference is that fiat currency can be arbitrarily increased by politicians with ease whereas increasing the available gold supply requires more time and effort and thus tempers the ability of politicians to pull the inflation ripcord whenever it is politically expedient to do so. The essential qualities of a commodity that serves as a store of value are rarity, durability, easy divisibility, and the general ease of identification and gold meets all of these requirements. Are other forms of commodity backed money possible? Yes, but gold is eminently practical for this purpose and that is why it has historically been used as a primary store of value.
The problem with inflation is that, generally speaking, inflation causes expectation of further inflation in a self fulfilling prophecy that, if left unchecked and allowed to accelerate, will ultimately destroy the monetary system and force all back into barter and other more inefficient forms of exchange. If you don't believe that inflation hurts the poor or the middle class then why not ask the people of Argentina or Zimbabwe or Bolivia if they have been hurt by inflation? In fact inflation is among the most regressive of all taxes since it can effectively limit social mobility and reinforce existing disparities while not allowing for a reasonable chance of promotion beyond one's present economic circumstances.
Re:My review (Score:3, Interesting)
It's not an asset that the bank can keep in its vault (how would you fit it in there, exactly?), but it's a bank asset nonetheless. If the borrower fails to repay the loan, the bank gets the house.
As long as the government is around and is willing to enforce liens, those are all very real assets, and I don't see a problem in using them as a basis for a currency.
The only reason you need a precious-metal currency is when you don't have a functional government that enforces contracts. If you have doubts in the government's ability or willingness to enforce the lien and throw a defaulting borrower out so that the bank can take their house, then you have a problem, and the bank ought not to consider that loan as an asset anymore. (But without a functional government you have some other fairly serious problems, to the point where I'd suggest that the best currency is probably 5.56mm rifle rounds, not silver certificates.)
Isn't this a setup for a conversation of Ron Paul? (Score:3, Interesting)
I said all of that to say this: when I saw this review go up, I thought for sure it was an attempt to discuss Ron Paul simply because I am willing to bet that the one of the main reasons someone on Slashdot might read this book is because it is one of the issues behind the candidacy of Ron Paul. If you are asking the question, "who the hell is Ron Paul?" you are not alone. Among Paul's goals is the elimination of the Federal Reserve and the return to the gold standard, the elimination of the IRS, Federal Taxes and the Department of Education, the return to a constitutional government and the removal of our country's nose from the rest of the world's business. I know that sounds crazy, but when you scratch the surface and see what is behind all of this stuff, your interest might be peaked as mine was.
While I am not stumping for Ron Paul, I find it strange that his name hasn't come up in this conversation.
Just my $0.02,
Re:Another good read... (Score:3, Interesting)
Oh, I definitely agree that some of the assets you listed have value to SOME individuals, but there is generally NO asset that is valuable to all individuals -- except for gold, which I can not believe that another individual would not covet or desire if offered in trade for a profitable outcome (for both parties). Tools, to me, are not positive-income assets for all. Houses can be tools (for landlords), tractors can be tools (for farmers), but they're not universal.
A tractor has substantial value not in the same way a pile of gold bricks does, but because it performs a function.
As does gold -- as a unique, and historically safe, store of wealth. I am not sure that you can pick any one generation (from beginning to end, lets say 40 years) and see gold as dropping in value from the beginning to the end of that generation. I also believe you could pick any half generation and get the same solidity, and this is over 6000 years, including multiple gold rushes.
It represents a potential income stream to a farmer, which is why a farmer might want to own one. Thus the farmer goes to a bank and takes out a loan against the tractor, in order to purchase it. For the bank to make this loan, they want to ensure that the farmer isn't an idiot, and that he'll pay back the value of the tractor either faster than it depreciates (or he has some other assets that won't depreciate as quickly, in order to secure the loan). If they think this is the case, they can then go and create a pile of 'tractor-dollars', dollars that are backed by that tractor. Those dollars only stay in the system until the farmer pays off the loan, and assuming the loan was intelligently made, there should never be more tractor-dollars sloshing around than the tractor is actually worth (either in literal terms or as an income stream).
So they loan these tractor-dollars out to the farmer, who buys said tractor from a manufacturer. Who does the manufacturer redeem said tractor-dollars to? Or are we just saying they're dollars that say "secured by a tractor" on them versus fiat?
The same holds true for a factory, or anything else that helps create an income stream. Just because it's not a stable asset doesn't mean it's valueless; as long as you can predict the depreciation, you can still use it as collateral, and if you can use it as collateral, you can use it as the basis for new money. (As long as you trust the government to enforce the lien and let the bank repossess it, of course -- the real basis for debt banking is the threat of force by people with guns.)
Sure, this is why you need to have skin in the game -- something of your own that you also put in, and not just future labor. To loan against future labor with no consequence to previous labor makes little sense if you want your investment protected.
I also agree that banks have been supremely irresponsible with their lending practices, but I don't think that full-reserve banking is really the best solution. There are rules that need substantial tightening, but there's nothing inherently wrong with letting a bank use mortgaged assets as part of its reserves, as long as the value of those assets over time is computed, the loans made accordingly, and there's a iron-hard willingness by the government to liquidate those assets in the event of a default by the borrower.
So we need MORE regulation, which will make the banking monopoly even more exclusive? I definitely don't agree.
Loaning massive funds in a full reserve banking system is quite simple, and safe, and malinvestment resistant. For example, if you wanted to buy a $150,000 house with a 30 year loan, in a full reserve banking system, not many banks would be interested in giving you money for 30 years -- this is why fractional reserve banking with the MBS/CDO investment market is so culpable in the housing bubble.
Instead, i
Re:Gold Standard == Bad (Score:3, Interesting)
That pretty strongly says to me that they can't accept anything as legal tender other than gold or silver, as this would be tantamount to making it legal tender, which is prohibited. The Federal Government can not legally coerce the States to accept fiat currency as legal tender.
Re:Gold Standard == Bad (Score:3, Interesting)
No, the federal government can't coerce the states into accepting dollars, but why would the states need to be coerced?
Re:Gold Standard == Bad (Score:3, Interesting)
Because right now the value of the TexasDollar (oil and military) would be skyrocketing as compared to the value of MichiganDollar (US Automotive Industry) and Detroit would be even more screwed than it already is. Add to this having to exchange money when you crossed state lines and well basically the States can't print there own currency (Federal currency is standard) for the same reasons the the EU adopted he Euro.
Re:Gold Standard == Bad (Score:3, Interesting)
Gold standard == continued slavery (Score:1, Interesting)
The problem with switching to a gold-backed currency is this: the US owns no gold. After FDR confiscated the gold from the American public in the 30s, over the next decades Fort Knox was illegally emptied. All the gold was stolen and is now in the hands of the same criminal element that operates the Fed. Since they control the gold, a gold standard would prove to be WORSE for the American people than operating on the Federal Reserve system. They'd still be able to freely manipulate the currency at will and continue to put the screws to us.
The solution is a fiat currency issued by the American people through their representatives. This is what the founding fathers, having witnessed firsthand the destruction caused by the Bank of England, had intended.
An FASCINATING movie detailing the history of the Fed and fractional reserve lending in general is the Money Masters [google.com].
Re:My review (Score:1, Interesting)
If a bank allows someone to borrow money without sufficient collateral (either in terms of real, liquidable assets, or in an income stream), they are creating money with nothing behind it. That is very bad.
No. Promises have value. Credit has value. That's why identity thieves target unsuspecting individuals' credit. Some promises are worth more than others; and some promises aren't worth anything. What you must never lose focus of though is that an exchange occurs when you use the term "borrow". The bank values the credit + interest, the bank values the promise + collateral (and uses many tools with which to value that promise, such as credit "ratings") more than the amount they loan. This is always *good* as both parties always increase their subjective wealth from trade. The borrower obtains a loan to buy a house; the banks obtains a presently valued promise of future payments. That something can be subjectively valued drastically differently in the future is a risk that exists for absolutely every exchange which occurs, with more or less consciousness, and nothing can remove that risk as nobody is omniscient and knowledge is always imperfectly and unevenly distributed.
However I think a return to full-reserve banking would be a treatment that's worse than the disease, at least as it currently stands.
You are correct. I would always put "fractional-reserve" in quotes. In the world, there only always exists a finite supply of all that exists. No matter how much money is printed, that supply of all which exists can only be distributed among 100% of the population. Two people can't be lent the same house; nor can two people be lent the same amount of money to purchase the same house. This is something which the major economic schools, including the Austrians, overlook. They all fail to account that the only thing which has changed in the world is the supply of money has increased. As that money is first printed, then distributed through exchange, price signals that the supply of money has increased. But all valuation is simultaneously in a state of constantly changing flux, including valuation for all the different supplies of things which exist, including money and credit promises. And these changing subjective valuations are also occurring simultaneously and independently in addition to because of changes in the supply of money. Money is just another "good" in the economy; subjectively valued just as any other good or service.
We need to accept, as a society, that not everyone has a right to a huge house financed with an even bigger mortgage.
No we need to accept, as a society, that if two people voluntarily finance a huge house with an even bigger mortgage, that is nobody else's business except the banker and the borrower. And no bailouts for either if the venture fails.
And we need to take a very hard look at the unsecured-loan industry that's financing much of the nation's consumer debt (in the form of either straightforward loans or credit cards).
Businesses should be held liable for identity left and subject to class action suits by those who have their credit ruined by complicit business accessories to identify theft. Improper security measures and lax identity identification systems that cause economic damage to consumers should be burdened completely by the thieves caught and the businesses burned. That is all.
But a return to full-cash-reserve banking would probably just dry up the supply of capital that the economy needs, and unless it was done worldwide and at once (not a chance), it would probably just result in a further influx of foreign capital.
No real goods and services can be fractionally purchased (unknowingly unless by fraud). All that occurs is an increase in fiat currency supply. Credit can naturally grow as credit has real subjective value. Credit can decline as credit has real subjective value. It doesn't matter that new IPod nanos cause people to subjectively v
Conspiracy Fools (Score:2, Interesting)
September 11th
http://www.popularmechanics.com/blogs/911myths/ [popularmechanics.com]
http://www.debunking911.com/index.html [debunking911.com]
http://www.911myths.com/ [911myths.com]
http://wtc.nist.gov/ [nist.gov]
Income Tax and the Federal Reserve
http://docs.law.gwu.edu/facweb/jsiegel/Personal/taxes/IncomeTax.htm [gwu.edu]
http://www.publiceye.org/conspire/flaherty/Federal_Reserve.html [publiceye.org]
Other
http://www.debunker.com/conspiracy.html [debunker.com]
http://www.ejectejecteject.com/archives/000140.html [ejectejecteject.com]
General
http://en.wikipedia.org/wiki/Conspiracy_theory [wikipedia.org]
http://www.urban75.org/info/conspiraloons.html [urban75.org]
http://www.csicop.org/si/9012/critical-thinking.html [csicop.org]
Re:Another good read... (Score:3, Interesting)
Any kind of hard standard however means that the money supply is disconnected from the actual underlying economy - it's linked to the actual reserve - a quickly expanding economy means, perforce, deflation and vice versa, which in turn causes an economy to fluctuate between deflationary and inflationary cycles far more quickly and dangerously - deflation being worse because there are no built in economic safeguards to preventing it once started - holding your money instead of spending it means it's *more* valuable tomorrow than today, which cause further deflation. rinse, repeat.
Moreover, since the access to the reserves influences the local money supply, the economy doesn't achieve equilibrium automatically over different areas (even with the same currency)) creating arbitrary opportunities for arbitrage, which, by definition, means that some economic energy is being drained off as people make money off the inefficiency (Albeit, while correcting it).
Lastly, you can, in theory, corner the market on *any* commodity (It was nearly done during the Grant administration). I always find it interesting that the very libertarian influences that tend to like the concept of a gold standard are the people philosophically opposed to the very regulations that would make it difficult to corner the gold market once implemented.
Pug (Again, my layman's views)
Re:US Dollar and Oil? (Score:4, Interesting)
What do Iran, Iraq, and Venezuela have in common? (besides being the subject of US animosity, chest-thumping, invasion, and a coup-attempt?)
They threatened to sell oil in Euros.
The reason Ron Paul is always talking about the Fed like he's some kind of nutcase is NOT because he's some kind of nutcase. It's because the Fed is the bouncer at "I want to run the planet" club. Want to go running all over the world invading countries? No problem when you can just print all the money you want with no accountability.
Once the dollar jumped off of the gold standard, the only thing propping up the dollar was the threat of military action by the US. That's very uncomfortable, so some folks wisely decided to use the world oil market as an intermediary. The dollar is supported by oil; oil is supported by military might. Any crack in US control of world oil is a crack in the dollar, and thus, the US economy.
The entire history of state-managed currency shows a steady trend of the ruling entity devaluing the currency to persue wars or other ambitions not generally related to the well being of society, with the obvious result that the citizenry become measurably worse off.
Anatomy of the Great Oil Swindle (Score:3, Interesting)
According to John Perkins' Confessions of An Economic Hitman [economichitman.com], it was a variety of things:
Perkins covers the many reasons why common people in non-westernized nations tend to hate the U.S. Feral Government - the things 'our [slashdot.org]' government has done/supported aren't especially nice. From the link above:
Now... 35 years later, there are trillions of US dollars out there sitting in central banks waiting to be spent on mostly oil. If oil were to be available in Euros, the dollars would be useless. They would come back to the USA.
The dollar will be worthless in the near future - 6 months? 12 Months? Hard to predict exactly when, but if the 'Neoconvicts' do eventually wage another illegal war of aggression against Iran, China and Russia will likely repudiate [webster.com] the dollar immediately thereafter. If I had much cash, I'd be buying Euros...
Re:Gold Standard == Bad (Score:3, Interesting)
1) Yes, gold follows supply and demand, but the problem is that these S/D curves result in significant daily volatility. It does not steadily increase like you seem to think. The problem with the volatility is that it exposes people to sharp, unpredictable price changes. (Yeah, yeah, "price changes are good, because they reflect..." I know. But that doesn't mean you have to tie all of your exchanges to a good that has "too much" volatility) The magnitude of these volatility cost is reflected in option prices on gold. If you think of it this way: all people must, in effect, buy a hedge against gold shifting in price.
It's true that you have to do this with government currency too; however, historically, it has been less volatile, so the risk is limited to the so-called "systematic risk" -- it requires a truly drastic crisis to have a major shift.
2) When you have to store gold to back the currency, you *are* that much closer to "running out of gold" because it's forever out of production. (If people actually start redeeming the notes and using the gold, the money supply contracts significantly, which can precipitate a crisis.) Storing it doesn't delay this event, but hastens it.
3) The analogy to oil seems valid, except that if more resources are diverted to extracting oil (or more generally, energy), that energy is put directly into production, instead of simply adding more backing to the currency.