Fractional reserve banking requires endless bailouts from the public
Through the prism of G. Edward Griffin's The Creature from Jekyll Island
This post looks at the nature of fractional reserve banking, concluding it is fundamentally set up to fail. In order to survive it requires endless bailouts by you, the public, paid for via a combination of increased taxation, debt and inflation.
“[The Rothschild dynasty] had conquered the world more thoroughly, more cunningly, and much more lastingly than all the Caesars before or all the Hitlers after them.” - Frederic Morton, The Rothschilds: A Family Portrait, p. 14
“The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.” - Lord Acton
G. Edward Griffin’s The Creature from Jekyll Island: A Second Look at the Federal Reserve (“Jekyll Island”) has an interesting history. Originally published in 1994, it swept through the libertarian movement and inspired the “End the Fed” slogans of Ron Paul, who based a chapter in his 2009 book of the same name on it. Jekyll Island was a best-seller at the time and has been continuously updated with new editions, and it almost single-handedly popularized the notion of a cartel conspiracy (at the eponymous island) to establish the Federal Reserve. It is written in clear prose, is well sourced and I highly recommend it, although one may need to reach a certain level of emotional and spiritual development in order to appreciate it.1
Griffin’s Wiki is here, although it’s been so distorted by CIA agents and establishment apparatchiks as to render him into a silly, inconsequential wackjob caricature (and hey, maybe he is in other areas, but Jekyll Island’s sourcing and arguments were strong). Other writers have covered the book such as
here and here.
The book’s core argument should be familiar to regular readers of this blog: the Rothschilds, Warburgs, Rockefellers and other top financiers banded together in a conspiracy to establish a banking cartel, based on the model of the corrupt Bank of England, that would allow them to print unlimited fiat currency and loan it at interest to the federal government. Griffin traces the first few attempts at forming a national bank:
the Bank of North America and the First Bank of the United States, both of which failed2, spurred on by a bitter rivalry between pro-centralization Federalism led by Alexander Hamilton and de-centralized anti-Federalism led by Thomas Jefferson; and
the Second Bank of the United States, upheld by the Supreme Court in McCulloch v. Maryland which turned the Constitution inside-out3 and which was shuttered in a nail-bitingly close political contest thanks almost entirely to the heroics of Andrew Jackson, who barely avoided assassination and who considered its shuttering to be his greatest accomplishment.4
One thing to keep in mind from this is that Nicholas Biddle, the head of the Second Bank, deliberately crashed the U.S. economy when the Second Bank was threatened in order to blame the country’s instability on Jackson (who was then censured by Congress, the censuring of which was ultimately reversed) — these are the kinds of games these parasitical banking scumbags play. Don’t for a second think that if the Federal Reserve is ever threatened that they wouldn’t crash the economy and blame it on their enemies as well.
After the Second Bank ended the U.S. went on to a long period of economic prosperity.
During this struggle Jackson is quoted as having said, “Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I intend to rout you out, and by the Eternal God, I will rout you out.”5 This quote is quite reminiscent of Jesus’s interaction with the money changers.
I’ll cover the Bank War in a future post, but needless to say the country would have been much further on the path toward ruin and much sooner without Jackson’s efforts.
This post isn’t intended do a deep dive into Jekyll which could easily cover a dozen posts, but rather to highlight a core aspect of it: how the fractional reserve system multiplies the money supply and requires endless public bailouts to keep banks from failing. This structure encourages both lending recklessness and endless monetary expansion, as well as perpetual increases of both public and private debt, and the public pays for this primarily through inflation which they don’t understand.
Let’s delve into this.
The fractional reserve banking system
Fractional reserve banking is the basis for the modern monetary system and it started in the 17th century. Under this system the public gives their earnings for safekeeping to a bank, and the bank then turns around and lends most of those funds out to others, leaving minimal reserves in its vaults, called the reserve ratio. These lended funds stay in the bank as new deposits by the lendee (which the bank then lends out again, with the process repeating itself multiple times). This process repeats itself and results in massive monetary creation and expansion even without a national bank printing money. Adair Turner, former chief financial regulator of the United Kingdom, stated that banks "create credit and money ex nihilo – extending a loan to the borrower and simultaneously crediting the borrower's money account".
The lower the reserve ratio a bank has, the more money they lend out and the higher both the monetary creation and their profits are — but also, the closer to the edge of collapse they become.
A bank run happens if too many of the depositors come to understand the bank does not have sufficient funds on hand for withdrawals, which results in the collapse of the bank. Eventually bank runs under this setup are guaranteed because banks hold themselves out as a prudent, responsible recipient of the public’s wealth while simultaneously recklessly engaging in over-leveraged gambling with those funds. After a bank collapses, the public - which doesn’t understand how this system works - then deposits their funds in the next bank and the process repeats itself. Austrian School economists such as Jesús Huerta de Soto and Murray Rothbard have strongly criticized fractional-reserve banking, calling for it to be outlawed and criminalized.
Fractional-reserve banks always fail under this system because it is fundamentally fraudulent. People would not keep their funds in institutions that they believed were at risk, but all of them are. This has happening with commercial banks throughout American history, using boom-and-bust cycles and reckless bank speculation to maximize private profits (see the so-called panics of 1873, 1884, 1893 and 1907). There is only one way to prevent the collapse: via public bailout. The way to ensure public bailout is with a central bank, which can print funds and shore up the fractional-reserve system and which the public mostly pays for, unwittingly, in the form of inflation. This is why even after being shuttered multiple times the central bank concept always returned, finally assuming its final monstrous form in the Federal Reserve.
The creation of the Federal Reserve
The meeting at Jekyll Island in 1913 took place under the greatest secrecy. The attendees arrived in secret, referred to each other only by their first name or even by code names, and employed only the most trusted servants and personnel. If the public found out about the meeting the cartel they were trying to establish their objective would have been ruined. The attendees included representatives of the greatest wealth on the planet:
Nelson Aldrich, Republican “whip” in the Senate;
Abraham Piatt Andrew, Assistant Secretary of the U.S. Treasury;
Frank Vanderlip, president of the National City Bank of New York, the most powerful bank at the time representing the Rockefellers and the international investment banking house of Kuhn, Loeb & Company;
Henry P. Davison, senior partner of J.P. Morgan;
Benjamin Strong, head of J.P. Morgan’s Bankers Trust Company; and
Paul Warburg, partner in Kuhn, Loeb & Company, a representative of the Rothschild banking dynasty and brother to Max Warburg who was head of the Warburg banking consortium in Germany and the Netherlands.
An article appeared in the New York Times on May 3, 1932 which stated “One-sixth of the total wealth of the world was represented by members of the Jekyll Island Club.” The reference was to the Morgan group, not the Rockefellers or the European financiers (although there is substantial evidence that Morgan was a fake anti-semite who was also funded and controlled by the Rothschilds6); combining them all and one fourth of the world’s wealth would be conservative.
There were a number of problems that this group wanted to address, per Griffin:
How to stop the growing influence of small, rival banks which were proliferating in the South and West and to insure that control over the nation’s financial resources would remain in the hands of those present (by 1913 the number of regional and local banks had grown to 71% holding 57% of the nation’s deposits, a trend that was accelerating);
How to make the money supply more elastic in order to reverse the trend of private capital formation and to recapture the industrial loan market (in other words, to stop companies from funding capital expansion with profits instead of with bank loans7);
How to pool the meager reserves of the nation’s banks into one large reserve so that all banks would be motivated to follow the same loan-to-deposit ratios. This would protect at least some of them from currency drains and bank runs (in other words, in times of crisis the public shifted their funds from banks with low reserve ratios to those with high reserve ratios; if banks all had the same reserve ratios this wouldn’t happen as much); and
Should this lead eventually to the collapse of the whole banking system, then how to shift the losses from the owners of the banks to the taxpayers.
They knew the way to do this would be with a cartel mechanism: a central bank. It would have to be modeled like the Bank of England, which was privately owned and printed money from nothing to loan to the government at interest. Henry P. Davison, who as a Morgan partner, told a Congressional committee in 1912: “I would rather have regulation and control than free competition.” John D. Rockefeller was even blunter: “Competition is a sin.”
But prior central banks had failed and the public was leery of them; how to get around that? Paul Warburg was the genius who the others relied on: he had the most experience with understanding the structure of the Bank of England, and he had keen psychological insights as well. John Kenneth Galbraith explained, “…Warburg has, with some justice, been called the father of the system.” Professor Edwin Seligman, a member of the international banking family of J. & W. Seligman, writes that “…in its fundamental features, the Federal Reserve Act is the work of Mr. Warburg more than any other man in the country.”
Warburg’s answer was simple: don’t call it a central bank and make it sound like it’s both government controlled and stable, even though it would be neither. Hence “Federal” and “Reserve”, even though the Federal Reserve would be a privately owned central bank with no reserves. Additionally, to hide that it was centralized they would create a system of regional banks that would make the bank appear decentralized, even though the powers of the bank were fully centralized and hidden.8 Furthermore, the bill to be passed would both be written to be as complex as possible9 and to keep much of the controversial provisions vague; the important thing was to get the Federal Reserve passed, and later revisions would clarify the extent of the Fed’s powers when the public was not paying attention. Indeed, there would be 195 future amendments to the Act (so far). Another strategy was that the big banks would pretend to be against the bill in public; this way the masses, who hated the bankers, would be inclined to like it. Various politicians, academics and the media would be paid off to support the bill, extolling its virtues of providing a stability mechanism for existing banks that would protect the consumer; true opponents of the central bank such as wonderful Charles Lindbergh Sr. and the smaller regional bank heads would be ignored and not invited to speak before congress or invited to key events.10 The bill would be jammed through as quickly as possible.
This strategy was as brilliant as it was devious, and it worked. An earlier bill sponsored by Senator Aldrich — who was a known big banking shill — failed, so some of its cosmetic features were changed while the core features remained the same and the new bill, which Aldrich pretended to oppose, emerged triumphantly.
The monstrous system of perpetual debt slavery, endless corruption and infinite inflation had won and the public of both America and the world had lost.
The results
With the public now the backstop for the big banks, the objective for the banks became to be as reckless as possible in order to drive up short term profits and then have the public bail them out using the Federal Reserve (but only the best-connected banks that became labelled “too big to fail”; the less-connected banks, which changed over time, were always ripe for elimination or takeover).11 How the fractional reserve system results in inflation and impoverishment for the masses is too confusing and complicated for the public to understand; they understand direct taxation and may protest about it, but they do not understand inflation so they remain quiet about it.
The Federal Reserve owners also wanted and continue to want to drive up public, private and corporate debt to the maximum extent possible in order to maximize interest payments from the public to the Federal Reserve owners. The best way to do this was and remains via a combination of entitlement spending, wars12, and endless “foreign aid” to underdeveloped nations who had no hope of ever paying the money back (which is fine, as the goal is not to be paid back but to establish a system of perpetually growing interest payments). They want the loan balance to grow in perpetuity so that the interest owed grows more and more until they own everything. Being paid back would mean the interest on their loans stops until they can loan them out again, which is bad. As a result the U.S. national debt has exploded and gone parabolic. It will not have a good end.
Between 1913 and 2013 the dollar has lost 95% of its value via inflation from monetary printing. This served as a hidden tax which disproportionately impacts the poor as a regressive tax:
The Federal Reserve also put Andrew Jackson on their unbacked fiat was a thinly veiled “fuck you” to his legacy, who would have hated everything they represent:
Driving up consumer and government debt by the central bank owners remains entirely intentional. In 2010 interest on the national debt was already consuming 44% of all the revenue collected by personal income taxes, a percent which is much higher today:
It is a fraud perpetuated on the public who does not understand how the system works.
Griffin’s Prediction
The following is the summary of a “pessimistic scenario” prediction Griffin made in 1994, which by its broad strokes seems pretty accurate as to the future which has and is developing:
A pessimistic scenario of future events includes a banking crisis, followed by a government bailout and the eventual nationalization of all banks. The final cost is staggering and is paid with money created by the Federal Reserve. It is passed on to the public in the form of inflation.
Further inflation is caused by the continual expansion of welfare programs, socialized medicine, entitlement programs, and interest on the national debt. The dollar is finally abandoned as the de facto currency of the world. Trillions of dollars are sent back to the United States by foreign investors to be converted as quickly as possible into tangible assets. That causes even greater inflation than before. So massive is the inflationary pressure that industry and commerce come to a halt. Barter becomes the means of exchange. America takes her place among the depressed nations of South America, Africa, and Asia - mired together in economic equality.
Politicians seize upon the opportunity and offer bold reforms. The reforms are more of exactly what created the problem in the first place: expanded governmental power, new regulatory agencies, and more restrictions on freedom. But this time, the programs begin to take on an international flavor. The American dollar is replaced by a new UN money, and the Federal Reserve System becomes a branch operation of the IMF/World Bank.
Electronic transfers gradually replace cash and checking accounts. This permits UN agencies to monitor the financial activities of every person. A machine-readable ID card is used for that purpose. If an individual is red flagged by any government agency, the card does not clear, and he is cut off from all economic transactions and travel. It is the ultimate control.
Increasing violence in the streets from revolutionary movements and ethnic clashes provide an excuse for martial law. The public is happy to see UN soldiers checking ID cards. The police-state arrives in the name of public safety.
Eventually all private dwellings are taken over by the government as a result of bailing out the home-mortgage industry. Rental property is also taken, as former landlords are unable to pay property taxes. People are allowed to live in these dwellings at reasonable cost, or no cost at all. It gradually becomes clear, however, that the government is now the owner of all homes and apartments. People are living in them only at the pleasure of the government. They can be reassigned at any time.
Wages and prices are controlled. Dissidents are placed into work armies. There are no more autos except for the ruling elite. Public transportation is provided for the masses, and those with limited skills live in government housing within walking distance of their assigned jobs. Men have been reduced to the level of serfs who are subservient to their masters. Their condition of life can only be described as high-tech feudalism.
Conclusion
Interestingly, Jekyll Island remains available to purchase on Amazon, while its later successor and close cousin (in terms of material) A History of Central Banking and the Enslavement of Mankind by former South African central banker Stephen Mitford Goodson is banned (but available for free here). I’m always curious about banned books as it shows an area of wrong-think that the establishment is scared of. Perhaps it is because of the latter’s legitimacy at having worked inside the system, or perhaps it is because Griffin has some significant blind spots regarding his libertarian leanings that ultimately render his positions, like Ron Paul’s (who I will also cover more in a future post) relatively toothless and harmless.13 Goodson was more of a dissident in this respect than Griffin; the latter wanted to end the Federal Reserve and return to gold and silver-backed currency (a romantic ideal) while the former wanted to nationalize the Fed and end the practice of allowing private parties to parasite off lending (because the privately owned Fed prints money and loans it at interest to the U.S. Treasury). Goodson’s approach is more realistic because governments will not limit their lending practices in the long-term unless perhaps forced to by religious dictates such as in Islam, but they could certainly take away the benefits of interest accruing to private parties.
Ultimately, Griffin fails to ask the toughest question of all: what is it about Western civilization that allowed the Rothschilds and their allies and agents to take such advantage over the majority population in the first place? It is not enough to blame greed and speculators because such a nightmarish fractional reserve system, the peak of usury, never evolved in the Islamic world or elsewhere. Yes, most nations historically engaged in currency depreciation and other monetary games, but this is on an entirely different level. How can the core of a problem be solved unless its root causes are understood? The national bank had been killed three times before the Federal Reserve but kept coming back; eventually its horrible proponents would get lucky or skillful enough to pull off the victory, and this is what happened.
My answer to this question is that the egalitarian ratchet effect deriving from Pauline Christianity resulted in Ashkenazi Jews possessing an exclusive money lending role during the Middle Ages which strengthened and evolved14 as Western Christianity fell into nihilism from the Nietzschian Death of God (killed by Aquinas accommodating Aristotelean logic; Orthodoxy was not impacted by this process). Christianity also encouraged a separation of Church and State which ultimately allowed oligarchical power centers, especially financial power centers, to develop. As I have written elsewhere, only a strong monarch, king or dictator has the power to keep oligarchical monopoly formation in check. This was anathema to other religions like Islam, which served as an all-encompassing system with power centered in monarchy and which never allowed oligarchy to develop, which will be discussed in another post.
Thanks for reading.
When I tried reading it a decade ago, not understanding enough about how the world worked, my eyes glazed over and I was not able to finish it.
The First Bank of the United State’s charter wasn’t renewed on the basis of a single vote, cast by Vice President George Clinton to break the tie.
This shows how the Constitution is a piece of paper meant to mollify the masses into complacency; unless power rests in a king, emperor, or dictator who will keep other power centers in line, power will inevitably flow into oligarchy regardless of any safeguards built into the system. It is one or the other; there is no third option.
When asked what his greatest accomplishment had been during his two terms as President, Andrew Jackson replied "I killed the Bank."
See The Minds of Men: An American Intelligence Brief by Eric Sanders, AuthorHouse, 2014. pp. 27-28.
Griffin, p. 415: “John Moody answers: “The Rothschilds were content to remain a close ally of Morgan rather than a competitor as far as the American field was concerned.” Gabriel Kolko says: “Morgan’s activities in 1895-1896 in selling U.S. gold bonds in Europe were based on his alliance with the House of Rothschild.” Sereno Pratt says: “These houses may, like J.P. Morgan & Company…represent here the great firms and institutions of Europe, just as August Belmont & Company have long represented the Rothschilds.” And George Wheeler writes: “Part of the reality of the day was an ugly resurgence of anti-Semitism…Someone was needed as a cover. Who better than J. Pierpont Morgan, a solid, Protestant exemplar of capitalism able to trace his family back to pre-Revolutionary times?” Morgan also died with a relatively tiny fortune, indicating that he was merely the front-man for much richer and more powerful powers.
This is why globohomo later destroyed Michael Milken: the proliferation of junk bonds outside the control of the existing system which allowed corporations to raise funds directly from the public, cutting out intermediaries, threatened their control. After Milken was destroyed the system absorbed the junk bond system and adapted it to their use.
Frank Vanderlip said: “The law as enacted provided for twelve banks instead of one…but the intent of the law was to coordinate the twelve through the Federal Reserve Board in Washington, so that in effect they would operate as a central bank.”
Antony Sutton writes: “Warburg’s revolutionary plan to get American Society to go to work for Wall Street was astonishingly simple. Even today, …academic theoreticians cover their blackboards with meaningless equations, and the general public struggles in bewildered confusion with inflation and the coming credit collapse, while the quite simple explanation of the problem goes undiscussed and almost entirely uncomprehended. The Federal Reserve System is a legal private monopoly of the money supply operated for the benefit of the few under the guise of protecting and promoting the public interest.”
Lindbergh explained: “Ever since the Civil War, Congress has allowed the bankers to completely control financial legislation. The membership of the Finance Committee in the Senate and the Committee on Banking and Currency in the House has been made up of bankers, their agents and attorneys. These committees have controlled the nature of the bills to be reported, the extent of them, and the debates that were to be held in them when they were being considered in the Senate and the House. No one, not on the committee, is recognized…unless someone favorable to the committee has been arranged for.”
Congressman Louis T. McFadden repeatedly attacked the Federal Reserve in a series of 1934 speeches, which can be viewed here. He served as Chairman of the United States House Committee on Banking and Currency during the Sixty-sixth through Seventy-first Congresses, or 1920-1931 so he was eminently qualified on this issue. In 1933 he had introduced House Resolution No. 158, which included articles of impeachment for the Secretary of the Treasury, two assistant Secretaries of the Treasury, the Board of Governors of the Federal Reserve, and the officers and directors of its twelve regional banks. McFadden was apparently murdered on behalf of the Federal Reserve owners in 1936.
I have discussed the mind of the central bank owners previously, but Griffin has an interesting and apt description of it as well:
They were not necessarily evil in a moral sense. What preoccupied their minds were not questions of right or wrong but of profit and loss. This analytical indifference to human suffering was aptly described by one Rothschild when he said: “When the streets of Paris are running with blood, I buy.” They may have held citizenship in the country of their residence, but patriotism was beyond their comprehension. They were also very bright, if not cunning, and these combined traits made them the role model of the cool pragmatists who dominate the political and financial world of today….
…A study…reveals a personality profile, not just of the Rothschilds, but of that special breed of international financiers whose success typically is built upon certain character traits. Those include cold objectivity, immunity to patriotism, and indifference to the human condition. That profile is the basis for proposing a theoretical strategy, called the Rothschild Formula, which motivates such men to propel governments into war for the profits they yield. This formula most likely has never been consciously phrased as it appears here, but subconscious motivations and personality traits work together to implement it nonetheless. As long as the mechanism of central banking exists, it will be to such men an irresistible temptation to convert debt into perpetual war and war into perpetual debt.”
An example is on p. 334, where Griffin states: “If the free market had been left to operate, it is certain that, before long, one or more banks would gain a deserved reputation for honesty and full faith with their depositors. They would become the most popular banks and, therefore, the most prosperous.” This is WRONG! Per Peter Thiel in “From Zero to One”, any corporation seeks to become a monopoly because corporations seek to maximize their profits and free market capitalism drives profits down. Therefore, unless there is an external limiting influence — such as a king or monarch enforcing the free competition — free market capitalism will always devolve to monopoly, every time. If Griffin applied this principle properly, his conclusions would be quite different.
AUTHOR: "only a strong monarch,... has the power to keep oligarchical monopoly formation in check." See the English Civil War, also fought in America. Kings lost their power because they replaced the nobility with a King controlled army, which made sense at the time, but the paid armies turned. If you compare pictures of nobles between the 14th and 18th, you will see they went from rugged to faggoty dressed in Whigs and silk, because nobles no longer had a martial obligation or could fight for titles. The Christian Knighthoods were like the Iranian Basij, which protected Christianity, became high society clubs.
The Fed is partly nationalized. Yes, the Fed governors have an unconstitutional level of independence form the President, but the Treasury gets the profits from the Fed. When the Treasury borrows from the Fed, it is an accounting fiction. It is no different than simply printing greenbacks.
Other than that, your article is spot on.
The real challenge is how to back out of this system.
To some degree we made a partial backout by creating FANNIE MAE and FREDDIE MAC. For the most part, home loans are no longer financed by bank deposits. Banks are just sales fronts and bill collectors. (On the downside, while this reduces the amount of maturity transformation, it does fuzz up the issue of skin in the game. Witness 2008. And it centralizes too much activity in Wall St. In theory, it would be possible for community banks to finances mortgages without maturity transformation https://conntects.net/blogPosts/GreenandFree/68/Mortgages-Without-Maturity-Transformation )