The United States had no central bank between 1836 and 1913. On December 23, 1913, President Woodrow Wilson signed the Federal Reserve Act into law creating the Federal Reserve System, comprising a Federal Reserve Board and twelve regional reserve banks.
Last week, US Representative Ron Paul of Texas, who advocates the abolition of the Federal Reserve and the return to an American economy reminiscent of the last four decades of the nineteenth century - - falling prices, a link to gold and a much reduced role for government - - won support in Congress for a new system of oversight of the Fed. Meanwhile, multi-millionaire right-wing Fox News broadcaster, Glenn Beck, held a campaign-style rally in Florida to coincide with the publication of a new book. Evidence of the paranoid style in American politics has been growing since January 20, 2009 when Barack Obama became president and modern day versions of 1930's demagogues like Huey Long of Louisiana and Father Charles Coughlin, a Canadian-American anti-semitic radio priest, are ready to reap the fields of uncertainty and fear.
Glenn Beck, a self-described recovering alcoholic and drug addict, said on Saturday, that his political movement will target deficit spending, health care legislation that will “destroy” the economy and a dearth of “personal responsibility.” His rival for leadership of the conservative movement, is radio show host, Rush Limbaugh, who in 2003 disclosed that he was addicted to pain medication.
Finding redemption after 'sin,' is a potent marketing message in American politics.
The conservative President Ronald Reagan who was not particularly religious, but as a leader, won the respect of friend and foe, used to often quote from the sermon of John Winthrop, governor and leader of the Massachusetts Bay Company, 'A Modell of Christian Charity,' written on board the Arbella on its voyage to Boston Harbour in 1630: "...that men shall say of succeeding plantacions: the lord make it like that of New England: for wee must Consider that wee shall be as a Citty upon a Hill, the eies of all people are uppon us."
Reagan's dream was of a America as a shining white city on a hill; dreams and reality however, always diverge in all countries.
Some years ago, I was given a copy of a book, 'The Creature from Jekyll Island,' by a business group that was the target of sophisticated fraudsters. The subject of the book was the creation of the Federal Reserve. When I was a student, I had purchased two other books in a second-hand bookshop in Denver, Colorado - - 'The American Tradition,' by renowned historian Richard Hofstadter, which was first published in 1948, and 'The Treason of the Senate,' a compilation of articles by journalist David Graham Phillips, which were published by newspaper owner William Randolph Hearst in 1906, and together with Ida Tarbell's celebrated 19-issue magazine series on John D. Rockefeller's Standard Oil Trust, gave rise to the word 'muckraker' and led to the break-up of the oil giant by the US Supreme Court in 1911, into 34 independent companies and the direct election of the US Senate in 1913, the year of the authorisation by Congress of the creation of the Federal Reserve.
David Graham Phillips had targeted the powerful head of the Senate Finance Committee, Senator Nelson Aldrich, who was accused of massive corruption and buying the votes of his electors, the members of the Rhode Island state legislature. In a famous speech, President Theodore Roosevelt, warned that "hysterical sensationalism is the poorest weapon wherewith to fight for lasting righteousness." He said: "In Bunyan's 'Pilgrim's Progress,' you may recall the description of the Man with the Muck Rake, the man who could look no way but downward, with the muck rake in his hand; who was offered a celestial crown for his muck rake, but who would neither look up nor regard the crown he was offered, but continued to rake to himself the filth of the floor."
America had experienced a bad economic bust in 1893 and in late 1907, the markets were hit by another panic. The 70-year old John Pierpont Morgan, the foremost banker in America, chaired a committee of fellow Wall Streeters, which decided on the banks that should be saved, with the assistance of the US Treasury.
There was a recognition among policymakers, that a central bank was needed but there was no chance of that happening if it would be called a central bank.
In November 1910, the wealthy Senator Aldrich, together with a group mainly comprising financiers, boarded a private train in New Jersey for Georgia, where they planned to spend a week or more discussing a plan for a central bank, on the Jekyll Island winter resort. Besides Aldrich, the participants were Henry P. Davison, a partner of J.P. Morgan and Co., A. Piatt Andrew, a Harvard economics professor on leave as Assistant Treasury Secretary, Frank Vanderlip, second in command to James Stillman at National City Bank - - a forerunner of today's Citibank, and German-born Paul Warburg, an investment banker from Kuhn-Loeb.
The secret meeting organised by a politician whose daughter was married to John D. Rockefeller Jnr, son of America's richest man, has provided rich fodder for conspiracy theorists since and to add to the cauldron of suspicion, it's claimed that the Jewish banker Paul Warburg, represented Europe's most renowned banking family - - the House of Rothschild.
The conspiracy has also formed the basis for prime bonds fraud, which involves a claim that institutions such as the Fed, the IMF and World Bank, operate a secret trading system with the top 100 or 'prime' banks in the world, as international banks require security for US dollars, which are no longer supported by gold. A high trading discount/return is available to wealthy investors and a compelling feature of defrauding the rich is that they generally are reluctant to publicise their folly, when they lose amounts such as $10 million or $20 million.
The history of American central banking was the motivation behind the secrecy of the meeting on Jekyll Island.
The first treasury secretary, Alexander Hamilton, advocated the creation of a central bank and the First Bank of the United States was established in 1791. When its 20-year charter expired in 1811, a proposal to renew the charter failed by the margin of a single vote in each house of Congress.
There was resistance to the power of a federal bank but after the chaos of a war with Britain, the Second Bank of the United States was chartered in 1816.
In 1828, Andrew Jackson, the hero of the 1815 Battle of New Orleans over the British, was elected president.
Jackson was suspicious of Eastern money interests and according to historian Richard Hofstadter, his experience of personal financial ruin after accepting commercial notes, which later defaulted, on the sale of thousands of acres of land, influenced his antipathy towards the Second Bank of the United States.
"I do not dislike your Bank anymore than all banks. But ever since I read the history of the South Sea bubble, I have been afraid of banks,"Jackson told the head of the bank according to Hofstadter.
The president vetoed a Bill which provided for an extension of the charter, terming the Bank of the United States, a menace to the country's liberty and independence. The transfer of government deposits to smaller banks, created a credit bubble in 1837, which inevitably burst.
There were some improvements in the national banking system in the 1860's and in 1896, William Jennings Bryan, a 36-year old from Nebraska, won the Democratic Party's nomination for the presidency on the basis of a rousing speech advocating a bimetallic gold and silver standard for the currency: "If they dare to come out in the open field and defend the gold standard as a good thing, we shall fight them to the uttermost, having behind us the producing masses of the nation and the world. Having behind us the commercial interests and the laboring interests and all the toiling masses, we shall answer their demands 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."
In a famous essay in 1964, 'The Paranoid Style in American Politics,' Richard Hofstadter wrote: "American politics has often been an arena for angry minds. In recent years we have seen angry minds at work mainly among extreme right-wingers, who have now demonstrated in the Goldwater movement how much political leverage can be got out of the animosities and passions of a small minority. But behind this I believe there is a style of mind that is far from new and that is not necessarily right-wind. I call it the paranoid style simply because no other word adequately evokes the sense of heated exaggeration, suspiciousness, and conspiratorial fantasy that I have in mind. In using the expression 'paranoid style' I am not speaking in a clinical sense, but borrowing a clinical term for other purposes...It is the use of paranoid modes of expression by more or less normal people that makes the phenomenon significant."
Hofstadter warned: "The paranoid spokesman sees the fate of conspiracy in apocalyptic terms - - he traffics in the birth and death of whole worlds, whole political orders, whole systems of human values. He is always manning the barricades of civilization. He constantly lives at a turning point. Like religious millenialists he expresses the anxiety of those who are living through the last days and he is sometimes disposed to set a date fort the apocalypse."
With a bumpy recovery ahead, the paranoid style is likely to have momentum for some time.
The Fed won't be abolished but a political system dominated by money and sectional interests, coupled with a central bank whose independence is compromised, will not be positive for the American economy.
President Obama will also be under pressure to propose protectionists measures, in the aftermath of mid-term elections next year, if China continues to keep its currency undervalued, against the backdrop of a poor jobs market.
The national debt doubled during the two terms of George W. Bush and most Republicans have become fiscal conservatives since January 20, 2009. Political amnesia is a wonderful thing to behold!
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