End the Fed: Unpacking Its History as a Debt-Based System
Most people are familiar with “The Fed”
But, not many people are aware of its origins, nor do they know that J. P. Morgan and John D. Rockefeller, Jr., were instrumental in its creation in 1913. This occasion was the third time the United States had tried to establish a central bank.
The first central bank was created while George Washington was President and it was established at Alexander Hamilton’s urging. This first national bank was appropriately called, The First Bank of the United States. It was primarily established in order to pay off the debt America had incurred during the Revolutionary War. The bank also issued a common currency that Americans could use to pay the taxes that were then used to pay down the debt. Hamilton felt the government also needed a safe place to keep its money.
2025 "End the Fed" Silver Proof Round, by Chris Duane
Hamilton based the bank’s framework on that of the Bank of England and Washington signed the bill into law on February 25, 1791. It functioned for twenty years until its charter expired, and at that point, in 1811, President Madison refused to renew the charter. Madison felt the national bank’s creation was unconstitutional as the establishment of a national bank was not explicitly authorized by the US Constitution. The President also felt that the bank had outlived its usefulness since all of the debt from the Revolutionary War had been paid off.
The bank’s demise spawned the creation of dozens of state banks, many issuing their own currency, much of which was not backed by silver or gold. In 1817, President Madison re-established the national bank, now called The Second Bank of the United States (SBUS), mainly due to the need to pay off the debt incurred while fighting the War of 1812. Not only was the re-creation of the bank necessary to help pay the debt but it again provided a stable and uniform currency for the young country and it was all backed by silver and gold reserves.
In addition, the SBUS re-established the issuance of credit to individuals, businesses and the government itself, just as did the First Bank of the United States. Philadelphian Nicholas Biddle was president of the bank from 1823-1836. This second bank became a private Pennsylvania corporation 1836 when President Andrew Jackson refused to renew its charter.
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Jackson felt, as Madison did, that the bank’s existence was unconstitutional. In addition, the President felt it was too easily influenced by politics and was simply too powerful. More importantly, although the bank was functioning on a sound footing and providing services appreciated by the public, Jackson distrusted banks. He had previously gone bankrupt when he took paper currency for land he sold and when the lending bank went under, he was left with nothing but valueless paper notes. He took all of those suspicions of banks with him into the White House.
When President Jackson refused to sign the bank’s charter, and Congress could not muster enough votes to override the President’s veto, the federal deposits were transferred to states banks. And to make matters worse, the Second Bank of the United States had invested heavily in the cotton trade, which concurrently collapsed as well The SBUS was liquidated in 1841 but it took until 1852 before all the lawsuits were litigated.
Seventy-five years later…
following the Panic of 1907, the government began to look for ways to control the economic roller coaster which was getting out of control.
This panic was primarily caused by the United Copper Company stock collapse on Wall Street. Excessive speculation in the stock market was spawned by easy access to money. This crash snowballed into massive runs on banks, which led to many bank failures. The biggest of these failures was New York City’s third largest trust company, Knickerbocker Trust Company. It collapsed into insolvency in October of 1907 sending the country into a deep recession.
This panic led banker J.P. Morgan and industrialist John D. Rockefeller, Jr., along with their powerful political ally, Rhode Island US Senator Nelson W. Aldrich, to actively promote the establishment of a third central bank. After much discussion, research and deliberations by politicians and bankers alike, President Woodrow Wilson signed The Federal Reserve Act into law on December 23, 1913. This act, “provided for the establishment of Federal Reserve Banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes.”
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Essentially, the Federal Reserve Act created a public/private commission, which today, is comprised of twelve regional Federal Reserve Banks. These decentralized banks are located across the country so that their decisions are not based solely on local conditions. The banks are in New York City, Boston, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco.
In general, most agree that the bank has accomplished what it was created to do. But, there are many others who feel the Federal Reserve lacks public transparency and that its members are too secretive about their activities. The Fed’s policies and financial manipulations of markets have led to asset bubbles which eventually burst. Their monetary decisions and the implementation of those policies have often led to excessive inflation. In addition, heavy political influence, during their decision-making processes, continues to be troublesome.
Finally, the Federal Reserve monetary policy has created a global, generational, debt-based fiat Ponzi scheme which enslaves humanity in perpetual debt; onerous debt which most people will never be able to pay off during their lifetimes.
