In the coming days we will be reporting on yet another issue that calls for immediate action on the part of the American People. This time, the central focus will be the “Fed” (Federal Reserve). There is no solid statement from the White House as of yet, and no actual legislation that I know of…only rumor. For now, I’ll just share what amounts to a brief history lesson.

Like many of you, I have very little knowledge of what the Fed really is. I mean, I recall what Econ 1000 teaches (vaguely), but beyond that? Not so much. Nor did I really know how it came to be.

Bearing in mind that this is only the barest of outlines, and only hits some of the highlights, a fairly straightforward origin is as follows:

Timeline:

  • 1791 – 1811: Despite staunch opposition from luminaries the likes of James Madison and Thomas Jefferson for being against both the spirit and the letter of the Constitution, the First (Central) Bank of the United States was chartered by Congress on February 25, 1791. Its purpose was ostensibly to standardize currency, control interest, establish credit both domestically and abroad. Additionally the bank was to administer an excise tax on domestic hard liquor, and an increased duty on imported spirits (leading to the “Whiskey Rebellion” in 1794). The bank’s charter expired as schedule after 20 years in 1811, and Congress opted to not renew.

“[The] Bank of the United States… is one of the most deadly hostility existing, against the principles and form of our Constitution… An institution like this, penetrating by its branches every part of the Union, acting by command and in phalanx, may, in a critical moment, upset the government. I deem no government safe which is under the vassalage of any self-constituted authorities, or any other authority than that of the nation, or its regular functionaries. What an obstruction could not this bank of the United States, with all its branch banks, be in time of war! It might dictate to us the peace we should accept, or withdraw its aids. Ought we then to give further growth to an institution so powerful, so hostile?” –Thomas Jefferson to Albert Gallatin, 1803. ME 10:437 http://memory.loc.gov/cgi-bin/query/P?mtj:2:./temp/~ammem_fHY8::

  • 1816 – 1836: Madison changed his position on the concept of the central bank during his presidency, and in 1816 he pushed legislation through Congress effectively creating the Second Bank of the United States. This was a desperate move on his part to stabilize currency during the massive inflation that followed the War of 1812. This bank was quite corrupt though and had a very questionable relationship with the federal government.

Andrew Jackson (always opposed to the concept of a centralized bank) was particularly vehement about putting this one down, and upon coming into his presidency started a series of “bank wars” in which he was intent upon “killing” this central bank. He believed the Bank was deeply corrupt, and stated, “…beyond question that this great and powerful institution had been actively engaged in attempting to influence the elections of the public officers by means of its money.” President Jackson diverted funds to the central bank by ordering his Secretary of Treasury to deposit federal monies into banks of his choosing.

Then in 1836, when a bill to re-charter the central bank made it through Congress, President Jackson quickly vetoed the legislation

 1913 – Present Day: The third national bank known as the Federal Reserve Bank…

It came about, largely in response to a panic that essentially started in 1907. In 1908 Congress passed the Aldrich-Vreeland Act which established a commission to study banking and currency reform.

It is worthy of note to point out that Nelson Aldrich (who personally led half the commission effort) had close personal ties to banker J.P. Morgan, and he actually married the daughter of banking magnate J.D. Rockefeller, Jr.

It is also worth of note that the vast majority of Congress opposed the creation of another centralized bank.

Finally, on a Sunday two days before Christmas (December 23, 1913), after months of hearings, amendments, and debates – the Federal Reserve Act was passed when most of Congress was home celebrating the holiday.

Just a few short years later, the Great Depression hit the nation full force.

On June 10, 1932, Thomas McFadden made a 25-minute speech before the House of Representatives, in which he accused the Federal Reserve of deliberately causing the Great Depression. Following is an excerpt from his speech: “Mr. Chairman, we have in this country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve Banks. The Federal Reserve Board, a Government board, has cheated the Government of the United States and the people of the United States out of enough money to pay the national debt. The depredations and iniquities of the Federal Reserve Board has cost this country enough money to pay the national debt several times over. This evil institution has impoverished and ruined the people of the United States, has bankrupted itself, and has practically bankrupted our Government. It has done this through the defects of the law under which it operates, through the maladministration of that law by the Federal Reserve Board, and through the corrupt practices of the moneyed vultures who control it.”
http://www.afn.org/~govern/mcfadden_speech_1932.html

The current administration and the Federal Reserve continue to attempt to keep the economy going with massive injections of bailout money. Tragically, this inflationary process could transform our current depression into a hyperinflationary collapse―turning the dollar into “unless paper” and totally destroying our economy. And at the rate we are going with the printing process, and talk of a second “stimulus package” that day will be sooner rather than later.

Statement of Congressman Ron Paul on the Federal Reserve Board Abolition Act, February 3, 2009: “From the Great Depression, to the stagflation of the seventies, to the burst of the dotcom bubble last year, every economic downturn suffered by the country over the last 80 years can be traced to Federal Reserve policy. The Fed has followed a consistent policy of flooding the economy with easy money, leading to a misallocation of resources and an artificial “boom” followed by a recession or depression when the Fed-created bubble bursts.”
http://www.house.gov/list/speech/tx14_paul/AbolishtheFed.shtml

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