Thursday, October 13, 2011

The History of Central Bankers - Part 3: The Creation of the Federal Reserve (1865 - 1913)

What is a Central Bank?  How did it evolve and what is their place in our economy?

To understand why there is a push to end the US Federal Reserve in the Occupy Wall Street movement we must understand the history behind the Central Banks.

Two days ago we presented The History of Central Banks - Part 1 (48 B.C. - 1791 A.D.) which covered the evolution up to the establishment of the first Central Bank in America in 1791.

In Part 2 we covered the period from 1791- 1865 in which two US Central Banks were created and then abolished.

At the end of Part 2 we covered how Abraham Lincoln had created debt free money called 'Greenbacks'. But the bankers struck back. With President Lincoln needing further congressional authority to issue more Greenbacks, Lincoln was forced into allowing the bankers to push their "National Banking Act" through Congress.

The most important part of this Act was that from now on the entire United States money supply would be created out of debt by the National Banks buying United States Government Bonds and issuing them for reserves for banknotes.

After he had been re-electied President of the United States on November 8th, 1864, Lincoln wrote a friend the following:
  • "The money power preys upon the nations in times of peace and conspires against it in times of adversity. It is more despotic than monarchy, more insolent than autocracy, more selfish than bureaucracy."

Salomon P Chase, now President Lincoln's Former Secretary To The Treasury, stated:

  • "My agency in promoting the passage of the National Banking Act was the greatest financial mistake in my life. It has built up a monopoly which affects every interest in the country."
In 1865 Lincoln was assassinated. Subsequent allegations were made that international bankers were responsible for President Lincoln's assassination:
  • "Abraham Lincoln, the murdered emancipator of the slaves, was assassinated through the machinations of a group representative of the International Bankers, who feared the United States President's National Credit ambitions. There was only one group in the world at that time who had any reason to desire the death of Lincoln. They were the men opposed to his national currency program and who had fought him throughout the whole Civil War on his policy of Greenback currency."

It has been alleged that Lincoln's assassination was not purely because the International Bankers wanted to re-establish a central bank in America, but also because they wanted to base America's currency on gold, which they of course controlled.

The bankers wanted to put America on a Gold Standard. This was in direct opposition to President Lincoln's policy of issuing Greenbacks, based solely on the good faith and credit of the United States:
  • "They were the men interested in the establishment of the Gold Standard and the right of the bankers to manage the currency and credit of every nation in the world. With Lincoln out of the way they were able to proceed with that plan and did proceed with it in the United States. Within 8 years after Lincoln's assassination, silver was demonetized and the Gold Standard system set up in the United States."

In 1866 the European central bankers wanted the re-institution of a central bank in America under their control and an American currency backed by gold.

They chose gold because gold has always been relatively scarce and therefore a lot easier to monopolize, than, for example, silver, which was plentiful in the United States, and had been found in huge quantities with the opening of the American West.

So, on April 12th, Congress went back to work at the bidding of the European central bankers.

Congress passed the "Contraction Act" which authorized the Secretary of the Treasury to contract the money supply by retiring some of the Greenbacks in circulation.

This money contraction and it's disastrous results is explained by Theodore R. Thoren and Richard F. Walker, in their book, "The Truth In Money Book," in which they state the following:
  • "The hard times which occurred after the Civil War could have been avoided if the Greenback legislation had continued as President Lincoln had intended. Instead there were a series of money panics, what we call recessions, which put pressure on Congress to enact legislation to place the banking system under centralized control. Eventually the Federal Reserve Act was passed on December 23rd 1913."
The "Contraction Act" passed by Congress affected America because if forced the money supply to go down purely because currency in circulation was being withdrawn. That contraction is show here:

Year In circulation - Approximate amout/per capita amount

1866 - $1,800,000,000 / $50.46

1867 - $1,300,000,000 / $44.00

1876 - $600,000,000 / $14.60

1886 - $400,000,000 / $6.67

Thus in the twenty years since 1866 two thirds of the American money supply had been called in by the bankers representing a 760% loss in buying power over this twenty years.

Money became scarce simply because bank loans were called in and no new ones were given.


In 1872 Ernest Seyd is sent to America on a mission from the Rothschild owned Bank of England. He is given $100,000 which he is to use to bribe as many Congressmen as necessary for the purposes of getting silver demonetized. Silver had been found in huge quantities in the American West and this abundant supply would eat into Rothschild's profits.


In 1873 Congress passes the "Coinage Act" which results in the abrupt halt to the minting of silver dollars.

Representative Samuel Hooper, who introduced the bill in the house, publically admits that Ernest Seyd had actually drafted the legislation.


In 1874 Ernest Seyd admits that he was behind the demonetizing of silver in America when he makes the following statement:
  • "I went to America in the winter of 1872 - 1873, authorized to secure, if I could, the passage of a bill demonetizing silver. It was in the interests of those I represented, the governors of the Bank Of England, to have it done. By 1873, gold coins were the only form of coin money."

Due to the manipulation of the money supply in America, one third of the workforce is unemployed and unrest is growing.

There are even calls for a return to Greenback money or silver money. As a result, Congress creates the "United States Silver Commission" to investigate the problem.

This commission clearly understood that the national bankers were the cause of the problem, with their deliberate contraction of the money supply. An excerpt of their report reads as follows:
  • "The disaster of the Dark Ages was caused by decreasing money and falling prices... Without money civilization could not have had a beginning and with a diminishing supply it must languish, and unless relieved, finally perish. At the Christian era the metallic money of the Roman Empire amounted to $1,800,000,000. By the end of the 15th century it had shrunk to less than $200,000,000... History records no other such disastrous transition as that from the Roman Empire to the Dark Ages..."

Despite this damning report from the commission, Congress took no action.


In 1877 rioting breaks out from Pittsburgh to Chicago. The bankers get together to decide what to do and they decided to hang on, as they knew that despite the violence, they were now firmly back in control.

At the meeting of the American Bankers Association they urged their membership to do everything in their power to put down any notion of a return to Greenbacks.

The American Bankers Association secretary, James Buel, even wrote a letter to the members in which he blatantly called on the banks to subvert both Congress and the press. In this letter he stated:
  • "It is advisable to do all in your power to sustain such prominent daily and weekly newspapers, especially the Agricultural and Religious Press, as well as oppose the Greenback issue of paper money and that you will also withhold patronage from all applicants who are not willing to oppose the government issue of money... To repeal the Act creating bank notes, or to restore to circulation issue of money will be to provide the people with money and will therefore seriously affect our individual profits as bankers and lenders. See your Congressman at once and engage him to support our interests that we may control legislation."


In 1878 James Buel's letter clearly had some effect as, although pressure mounted in Congress for change, the press tried to turn the general public away from the truth.

An example of this is from the New York Tribune in their 10th January edition in which this bankers propaganda piece appeared:
  • "The capital of the country is organized at last and we will see whether Congress will dare to fly in its face."

This early control of the media didn't work entirely as on February 28th Congress passed the "Sherman Law."

This law allowed the minting of a limited number of silver dollars ending the 5 year hiatus.

However this did not mean that anyone who brought silver to the United States Mint could have it struck into silver dollars, free of charge, as had been the practice in the period prior to Ernest Seyd's Coinage Act in 1873.

Gold backing of the American currency also remained.

But what the Sherman Law did ensure was that some money began to flow into the economy again. Coupled with the fact that the bankers now realized that they were still firmly in control, bankers started issuing loans again and the post Civil War depression was finally over.


The American people elect Republican candidate James Garfield as the 20th President of the United States.

This was a worry to the money changers because, as a Congressman, Garfield had been Chairman of the Appropriations Committee and was a member of Banking and Currency.

The money changers were therefore aware that President Garfield was in full knowledge of their scam on the American people. Indeed following his inauguration, President Garfield stated:
  • "Whosoever controls the volume of money in any country is absolute master of all industry and commerce... And when you realize that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate."

Strangely enough within a few weeks of making that statement, President Garfield was assassinated on the 2nd of July.


By 1891 the money changers had spent 10 years (1881-1891) creating economic booms followed by depressions so that they could buy up thousands of homes and farms for pennies on the dollar.

They were preparing to take the economy down again in the near future and in a shocking memo sent out by the American Bankers Association, which would come out in the Congressional Record more than twenty years later, the following is stated:
  • "On September 1st 1894 we will not renew our loans under any consideration. On September 1st we will demand our money. We will foreclose and become mortgages in possession. We can take two-thirds of the farms west of the Mississippi, and thousands of them east of the Mississippi as well, at our own price...Then the farmers will become tenants as in England."

                        - quote from the American Bankers Association, as printed in the Congressional Record of April 29, 1913.


The central issue in the Presidential campaign of 1896 is the issue of more silver money.

Senator William Jennings Bryan from Nebraska, a Democrat aged only 36, makes an emotional speech at the Democratic National Convention in Chicago entitled "Crown Of Thorns And Cross Of Gold."

Senator Bryan stated:
  • "We will answer their demand for a gold standard by saying to them, you shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold."

The bankers supported the Republican candidate, William McKinley who in return favored the gold standard.

Furthermore those in the McKinley campaign got manufacturers and industrialists to inform their employees that if Bryan were elected all factories and plants would close and there would be no work.

This tactic succeeded, McKinley beat Bryan, albeit by a small margin.


In 1898 Pope Leo XIII stated the following on the subject of usury:
  • "On the one hand there is the party which holds the power because it holds the wealth, which has in its grasp all labor and all trade, which manipulates for its own benefit and its own purposes all the sources of supply, and which is powerfully represented in the councils of State itself. On the other side there is the needy and powerless multitude, sore and suffering. Rapacious usury, which, although more than once condemned by the Church, is nevertheless under a different form but with the same guilt, still practiced by avaricious and grasping that a small number of very rich men have been able to lay upon the masses of the poor a yoke little better than slavery itself."


During the early 1900's, the money changers were anxious to advance their business of setting up another private Central Bank for America.

Rothschild and Jacob Schiff, (the head of Kuhn, Loeb and Co) in a speech to the New York Chamber of Commerce, stated, or rather threatened:
  • “Unless we have a Central Bank with adequate control of credit resources, this country is going to undergo the most severe and far reaching money panic in its history.”

Rothschild agent, J. P. Morgan was put at the forefront of this charge.

Interestingly J. P. Morgan's father, Julius Morgan, had been America's financial agent to the British, and after Julius' death, J. P. Morgan took on a British partner, Edward Grenville, who was a long time director of the Bank Of England.

This year was the year of the money changers attack.

J. P. Morgan and his cohorts secretly crashed the stock market. They were aware that thousands of small banks were so vastly over extended, some only had reserves of 1% under the fraudulent fractional reserve principle. Within only a few days, bank runs became commonplace across the nation.

Morgan then stepped up and publicly announced that he would support these failing banks.

What he failed to mention is that he would do this by manufacturing money out of nothing. And then what happened, surprise, surprise, Congress let him do it!

So Morgan manufactured $200,000,000 of this completely reserveless private money and used it to purchased goods, services and sent some to his branch banks to lend out at interest.

As a result the general public regained confidence in money, but most importantly it meant the banking power was now further consolidated into the hands of a few large banks.


In 1908, with the widespread financial panic over, J. P. Morgan was hailed as a hero by the then President of Princeton University, Woodrow Wilson, who even crassly or arrogantly stated:
  • "All this trouble could be averted if we appointed a committee of six or seven public spirited men like J. P. Morgan, to handle the affairs of our country."

Following the panic President Theodore Roosevelt had also signed into law a bill creating the "National Monetary Commission."

This commission was supposed to study the banking problem and make recommendations to Congress. Naturally, the commission was packed with J. P. Morgan's friends and cronies.

The chairman was Senator Nelson Aldrich from Rhode Island.

Aldrich represented the Newport Rhode Island homes of America's richest banking families. His daughter married John D. Rockefeller Jr., and together they had five sons (including Nelson who would become Vice President in 1974 and David who would become Head of the Council on Foreign Relations).

Following the establishment of this National Monetary Commission, Senator Aldrich immediately embarked on a 2 year fact finding tour of Europe where he consulted at length with the private central bankers in England, France, and Germany, or rather Rothschild, Rothschild, and Rothschild.


In 1910 Senator Aldrich returns from his two year European fact finding mission on 22nd November.

Shortly afterwards some of America's most wealthy and powerful men boarded Senator Aldrich's private railcar in the strictest secrecy. They journeyed to Jekyll Island off the coast of Georgia.

In this group were Paul Warburg, who was earning a $500,000 a year salary from Rothschild owned firm, Kuhn, Loeb & Company.

This salary was for him to lobby for a privately owned central bank in America.

Also present was Jacob Schiff, a Rothschild who had purchased Kuhn, Loeb and Company shortly after he arrived in America from England.

The Rothschilds, Warburgs and Schiffs, interconnected by marriage, were essentially the same family.

Secrecy at this meeting was so tight that all the participants were cautioned to use only first names, to prevent servants from learning their identities. Years later one participant, Frank Vanderlip, President of National Citibank and a representative of the Rockefeller family confirmed the Jekyll Island trip.

In a 9th February 1935 edition of the Saturday Evening Post, Vanderlip stated:
  • "I was as secretive indeed, as furtive as any conspirator... Discovery we knew, simply must not happen, or else all our time and effort would be wasted. If it were to be exposed that our particular group had got together and written a banking bill, that bill would have no chance whatever of passage by Congress."

It was not just the setting up of a Central Bank that was on the agenda.

Other problems for these bankers were that the market share of these big national banks was shrinking fast. In the first ten years of the century the number of United States banks had more than doubled to over 20,000. By 1913 only 29% of all banks were national banks and they held only 57% of all deposits. As John D. Rockefeller put it:
  • "Competition is Sin!"

Senator Aldrich later admitted in a magazine article:
  • "Before passage of this Act, the New York Bankers could only dominate the reserves of New York. Now we are able to dominate bank reserves of the entire country."
So one of the aims of these conspirators was to bring these new banks under their control. Secondly the nations economy was so strong that corporations were starting to finance their own expansions out of profits instead of taking out huge loans from large banks. Indeed in the first ten years of the century 70% of corporate funding came from profits.

Basically American Industry was becoming independent of the money changers and the money changers were not about to let that happen.

There was also much discussion regarding the name of the new bank, which took place in a conference room in the Jekyll Island Club Hotel. Aldrich believed the word "bank" should not even appear in the name. Warburg wanted to call the legislation, the, "National Reserve Bill" or the "Federal Reserve Bill." The idea was not only to give the impression that the purpose of the new central bank was to stop bank runs but also to conceal its monopoly character.

After nine days at Jekyll Island, the group dispersed. This group of conspirators immediately set up an educational fund of $5,000,000 to finance Professors at top universities to endorse the new bank.

The new central bank would be very similar to the old Bank Of The United States in that it would be given a monopoly over United States currency and create that money out of nothing. Also in order to make the public think it was under control of the Government, the plan called for the central bank to be run by a board of governors appointed by the President and approved by the Senate.

This would not cause any undue problems for the bankers as they knew they could use their money to buy influence over the politicians in order to ensure the men they wanted got appointed to the board of governors.


The Aldrich bill is presented to Congress for debate.

This was very quickly identified as a bill to benefit the bankers or an expression for them which was coined at the time, "The Money Trust."

During the debate Republican Charles A. Lindbergh stated:

  • "The Aldrich plan is the Wall Street Plan. It means another panic, if necessary, to intimidate the people. Aldrich, paid by the government to represent the people, proposes a plan for the trusts instead."

As this debate continued on, the bankers realized they didn't have enough support. So the Republican leadership never brought the Aldrich bill to a vote.

Instead the bankers decided to switch their attention to the Democrats and started heavily financing Woodrow Wilson, the Democratic Presidential nominee.

The Wall Street banker, Bernard Baruch, was put in charge of the Wilson project. As historian James Perloff stated:
  • "Baruch brought Wilson to the Democratic Party headquarters in New York in 1912, 'leading him like one wood a poodle on a string.' Wilson received an, 'indoctrination course,' from the leaders convened there...."

During the Democratic Presidential campaign, Wilson and the rulers of the Democratic Party pretended to oppose the Aldrich bill. As Republican representative, Louis T. McFadden, explained twenty years later, when he was was Chairman Of The House Banking And Currency Committee:
  • "The Aldrich Bill was condemned in the platform...when Woodrow Wilson was nominated... the men who ruled the Democratic Party promised the people that if they were returned to power there would be no central bank established here while they held the reins of government. Thirteen months later that promise was broken, and the Wilson administration, under the tutelage of those sinister Wall Street figures who stood behind Colonel House established here in our free country the worm-eaten monarchical institution of the, 'King's Bank' to control us from the top downward and to shackle us from the cradle to the grave."
On November 5th Woodrow Wilson was elected President.  Soon after J. P. Morgan, Paul Warburg, Bernard Baruch et al, advanced a new plan which Warburg called the Federal Reserve System.

The leadership of the Democratic Party hailed this new bill called the "Glass-Owen Bill"  as totally different to the Aldrich bill, when in fact it was virtually identical.

Democrats were so vehement in their denial of the similarity of the "Glass-Owen Bill" to the "Aldrich Bill" that Paul Warburg, the creator of both bills, had to inform his paid friends in Congress that the two bills were virtually identical and therefore they must vote to pass it.

Warburg stated:
  • "Brushing aside the external differences affecting the 'shells' we find the 'kernels' of the two systems very closely resembling and related to one another."

However this admission by Warburg was not made public.

Instead Senator Aldrich and Frank Vanderlip, the President of Rockefeller's National Citibank of New York, were to publicly state their opposition to the bill in order to make people think that the bill proposed was radically different to the Aldrich bill.

Indeed Frank Vanderlip stated years later in the Saturday Evening Post:
  • "Although the Aldrich Federal Reserve Plan was defeated when it bore the name Aldrich nevertheless its essential points were all contained in the plan that finally was adopted."


In 1913, with Congress nearing a vote on the Glass-Owen bill, they called Ohio Attorney Alfred Crozier to testify. Crozier noticed the similarities between the Aldrich Bill and the Glass-Owen Bill, and subsequently stated:
  • "The... bill grants just what Wall Street and the big banks for twenty-five years have been striving for - private instead of public control of currency. It (the Glass-Owen bill) does this as completely as the Aldrich bill. Both measures rob the government and the people of all effective control over the public's money, and vest in the banks exclusively the dangerous power to make money among the people scarce or plenty."

The debate on this bill was not going well for the banks with many Senators intimating the bill was corrupt and deceitful.

The bill, however, was approved through the Senate on December 22nd.

How did this happen? Because most of the Senators had left town to return home for the Christmas holidays. Furthermore, these Senators had been assured by the leadership that nothing would be done regarding this bill until long after the Christmas recess.

Representative Charles A Lindbergh Sr. stated:
  • "This Act establishes the most gigantic trust on earth. When the President signs this bill, the invisible government of the monetary power will be legalized. The people may not know it immediately, but the day of reckoning is only a few years removed... The worst legislative crime of the ages is perpetrated by this banking and currency bill."

Interestingly, only a few weeks earlier, in October, Congress finally passed a bill legalizing direct income tax of the people.

This was in the form of a bill pushed through by Senator Aldrich, which is now commonly known as the 16th amendment.

The income tax law was fundamental to the Federal Reserve. This is because the Federal Reserve was a system which would run up, essentially, an unlimited Federal debt.

The only way to guarantee the payment of interest on this debt was to directly tax the people, as they had done with the Bank Of England.

If the Federal Reserve had to rely on contributions from the States they would be dealing with bigger entities who could revolt and refuse to pay the interest on their own money or at least bring political pressure to bear in order to keep the debt small.

In a stunning historical note, this 16th amendment was never ratified, and therefore many American citizens do not pay their income tax and there is nothing the United States Government can do about it.

For further information on this go to

Also, back in 1895, the Supreme Court had also found an income tax law similar to the 16th amendment as unconstitutional. The Supreme Court also found a Corporate Tax Law unconstitutional in 1909.

Another important amendment that was put through this year is the 17th amendment.

This provided for the direct election by the people of two Senators from each state as oppose to the original system of having state legislatures elect United States Senators. More democratic, you would think, until you realize these bankers could now provide the funds for their hand picked people to run for the Senate, and thus avoid future problems like getting the Federal Reserve through the Senate.

But back to the Federal Reserve.

If you are in any doubt as to whether the Federal Reserve is a private company, a basic check the public can carry out is in their phone book.

Look under the government pages and it is not listed, but you will find it listed within the business pages. The Federal Reserve is a 'federal' as the private delivery company Federal Express.

Who really owns the Federal Reserve?  The following banks:

Rothschild Bank of London
Warburg Bank of Hamburg
Rothschild Bank of Berlin
Lehman Brothers of New York
Lazard Brothers of Paris
Kuhn Loeb Bank of New York
Israel Moses Seif Banks of Italy
Goldman Sachs of New York
Warburg Bank of Amsterdam
Chase Manhattan Bank of New York

Some argue that the Federal Reserve is a quasi-governmental agency, yet the President appoints only 2 of the 7 members of the Federal Reserve Board of Governors every four years.  And he appoints them to 14 year terms, which is far longer than any term he could possibly serve as President.

The Senate confirms these appointments, but as we have seen, that is the idea, because these are the very people hand picked by the bankers who also finance their campaigns, ensuring loyalty to them, not the people.

Let's summarize how the Federal Reserve creates money out of nothing. It is a four step process:
  1. The Federal Open Market Committee approves the purchase of United States Bonds (Bonds are simply promises to pay or Government IOU's. People purchase bonds in order to get a secure rate of interest. At the end of the term of the bond, the government repays the bond, plus interest and the bond is destroyed.)
  2. The bonds are purchased by the Federal Reserve.
  3. The Federal Reserve pays for these bonds with electronic credits to the seller's bank, these credits are based on nothing.
  4. The banks use these deposits as reserves. They can loan out over ten times the amount of their reserves to new borrowers, all at interest.
Let's look at an example of how this works with a Federal Reserve purchase of $1,000,000 of bonds.

This then gets turned into over $10,000,000 in bank accounts. The Federal Reserve in effect creates 10% of this totally new $10,000,000 and the banks create the other 90%.

To reduce the amount of money in circulation this process is simply reversed.

The Federal Reserve sells these bonds to the public and the money flows out of the purchaser's local bank. Loans must be reduced by ten times the amount of the sale, so a Federal Reserve sale of $1,000,000 in bonds, results in $10,000,000 less money in the economy.

How does this benefit the bankers, whose representatives met at Jekyll Island?

It prevented any future banking reform efforts, as the Federal Reserve was to be the only producer of money.

This in turn prevented a proper debt free system of government finance, like President Lincoln's Greenbacks, from making a comeback.

Instead the bond based system of government finance, forced on Lincoln after he created Greenbacks, was now cast in stone.

It delegated to the bankers the right to create 90% of our money supply based on a fraudulent system of fractional reserve banking and allowed them to loan out that 90% at interest.

It centralized overall control of our nations money supply in the hands of and for the profits of a few men.

And it established a private central bank with a high degree of independence from effective political control.

The Federal Reserve is basically a government within a government. Congress doesn't control it and it's funded by the banks.

Tomorrow Part 4: The Era of the Federal Reserve (1913 - 2011)

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  1. Ok I'll bite - where is Part 4 :-)

  2. I hope that the worst hasn't happened.

    The Fed has taken over "Whisperer"!!!

    It's a conspiracy!!!

    Also, it is just a bit disgusting to see how the wealthy can control the rest of us.