Last week, in “Usury Comes to America,” I told the story of how the concept of a usury-based banking system, became entrenched in western society with the establishment of the Bank of England in 1694. More importantly, this movement has gained momentum thanks to the supporting influence of the Rothschild family; it has shaped our deteriorating financial situation worldwide ever since.
Here is a compressed history of how the Federal Reserve came about.
After 1863, the American financial system was built on fiat currency. The cornerstone of the banking system became debt. In other words, expanding the monetary base required banks to issue loans (debt), supported by an inadequate fractional reserve system. In 1874, legislation was passed that allowed banks to no longer require any reserves of gold or silver when creating new bank notes.
In other words, they were able to print dollar bills at will, out of thin air, backed by absolutely nothing. This debt-based system was responsible for regular cycles of boom and bust, a series of depressions and recessions in 1873, 1884, 1893, and 1907, culminating in The Great Depression brought on by the crash of 1929. Each of these major downturns were characterized by deflation and bank runs (in which citizens lost everything).
There was one American organization that, throughout all the ups and downs of booms and busts in the 1800s, reigned supreme, and that was J.P. Morgan. That’s because, during the Panic of 1857, they were quite unexpectedly bailed out by the Bank of England. Over the years, they developed closer and closer ties to the Bank of England and through it, to the House of Rothschild.
“Morgan’s activities in 1895-1896, installing US gold bonds in Europe were based on his alliance with the House of Rothschild.”—Triumph, Gabriel Kolko, Canadian historian
The Panic of 1907
The Panic of 1907 was a major turning point in swaying the public over to a need for a U.S. central banking system.
“Robert Owen, a co-author of the Federal Reserve act, later testified before Congress that the banking industry had conspired to create such financial panics in order to rouse the people to demand “reforms” that served the interests of the financiers.”—Ellen Hodgson Brown, Web of Debt
This panic began with the failure of the Knickerbocker Trust Company and the Trust Company of America. It was a story of big money, cartels, and copper, which had become a hot commodity, due to the discovery of electricity. The early 1900s saw the rise of monopolies—under the ownership of what many referred to as “The Robber Barons.”
“Carnegie built his business himself, and he loved competition; but Morgan was a different type of capitalist. He didn’t build, he bought. He took over other people’s businesses, and he hated competition. In 1901, Morgan formed the first billion dollar corporation, U.S. steel, out of mills he purchased from Carnegie. Early in the 20th Century, Morgan controlled the Wall Street syndicate that financial writer John Moody called ‘the greatest financial power in the history of the world.'”
The Robber Barons were pulling money out of an empty empty hat. Their privately-owned banks held the ultimate credit card, a bottomless source of accounting-entry money that could be ‘lent” to their affiliated corporate mistresses. The funds could then be used to buy out competitors, corner markets in scarce raw materials, make political donations, lobby Congress, and control public opinion.”—Ellen Hodgson Brown, Web of Debt
To make a long story short, in 1907, JP Morgan began circulating rumours that its competitor, Knickerbocker Bank and Trust Co was insolvent. The next morning, their shares dropped 50% in the stock market. This helped trigger an 11% drop in production, a 26% rise in imports, and an increase in unemployment from 3-8%. But the beginning of the end were the bank runs on the Knickerbocker bank. Lines of depositors formed outside other New York banks and an outright panic ensued.
People slept overnight in these lines, trying to get their money out of the banks as soon as they opened. Credit froze to a point that there was fear that the stock market itself would collapse.
Suddenly, JP Morgan stemmed the flow of money by extending liquidity (for a fee) to the banks that had sustained the biggest runs. They also released optimistic reports to the press, and got religious leaders to mount upbeat sermons.
In other words, JP Morgan (and their backers) completely controlled the financial situation, ruining many businesses and lives, while making money at the same time.
The 1907 Panic highlighted the weaknesses of the national banking system and indirectly led to acceptance amongst the public of a need for a central banking system.
Creation of The Federal Reserve
The creation of the Federal Reserve is well-documented in “The Creature from Jekyll Island,” by G. Edward Griffin. I highly recommend it. You can find a link on my Recommended Books page.
The Jekyll Island Hunt Club was a property off the coast of Georgia, owned by J.P.Morgan. In the fall of 1910, six mean boarded a rail car on their way to a duck hunting holiday. It was an 800 mile journey through Atlanta, Georgia, then Savannah, to the small town of Brunswick. The shades on the rail car were pulled shut all the way and the participants were on a first-name-only basis, so that attending servants would no know who they were.
For nine days, this small group met in secret to plan out the creation of a central banking “cartel” for the United States that is still in existence today, of course. This was the beginning of the Federal Reserve System, which allegedly has connections to the Rothschild family through its members. Although Senator Aldrich hosted the meeting, the credit for putting it all together has been attributed to Paul Warberg, who was a partner in Kuhn, Loeb & Co., the Rothschild’s main American banking operation after the civil war.
The meeting at the luxurious Jekyll Island Hunt Club retreat in November 1910, was attended by six men:
- Benjamin Strong, head of J.P. Morgan’s Banker’s Trust;
- Nelson W. Aldrich, chair of the National Monetary Commission;
- A. Piatt Andrew, Assistant Secretary of the Treasury and Special Assistant to the National Monetary Commission (the only other commission member besides Aldrich);
- Paul Warburg, a recent immigrant from a prominent German banking family who was a partner in the New York banking house of Kuhn, Loeb & Co.;
- Frank A. Vanderlip, president of the National City Bank of New York;
- Henry P. Davison, senior partner of J.P. Morgan & Co.;
In order to get the bill passed, the group needed a president who would sign it, so they orchestrated the founding of a new party, the Bull Moose Party, and brought a previous President, Teddy Roosevelt out of retirement to help to syphon votes so that the odds were in favour of getting Woodrow Wilson elected. Wilson knew very little about finance but was under the influence of “Colonel” Edward Mandell House, who lived in the White House and had strong connections to Morgan and the Rothschilds.
They changed the name of the bill from the Aldrich Bill to the Federal Reserve Act and brought it to the floor of Congress for a vote three days before the Christmas break, on December 22, 1913, when everyone was distracted. President Wilson signed it into law the next day. He’s reported to have regretted that he had done after the fact, saying before he died, “I have unwittingly ruined my country.”
“In plain English, the Federal Reserve Act authorized a private central bank to create money out of nothing, lend it to the government at interest, and control the national money supply, expanding or contracting at will.”—Ellen Hodgson Brown, Web of Debt
Opposition was extremely vocal upon learning how Congress had been duped, with Charles Lindberg calling the Act “the worst legislative crime of the ages”:
“This is the strangest, most dangerous advantage ever replaced in the hands of a special privilege class by any government that ever existed… the financial system has been turned over to… a purely profiteering group. The system is private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people’s money.”—Representative Charles August Lindberg, 1913
England on the Skids
After WWI, England was close to broke. She had abandoned the gold standard early in the war so that she could print as much fiat currency as necessary to pay for the war. Introducing that much currency into the marketplace caused inflation to soar. The affect on the pound is that the value dropped substantially.
Before the war, Britain has been the major power in the world. After the war, it was only natural that she wanted to regain that status. To do that required going back on the gold standard at the same level she was at previously. However, setting a price for an ounce of gold arbitrarily without considering the value the market gives your currency isn’t realistic. If you try to value your money above its actual worth, it causes deflation, which leads to depression.
Before the war, an ounce of gold was priced at $4.86 US. The government decided to peg gold at that same price after the war. Getting back to a stable currency based on gold was deemed important, as it allowed countries to trade and exchange money between themselves at a level that was fair to all.
But when England pegged the pound that high, nobody believed it was worth it. As a result, trade took a nosedive. No country is going to buy your products if they’re over-priced and they can get them from another country for half the price.
Rather than experiencing the inflation of wartime, England began to experience deflation, and a depression followed. Products created in Britain were too highly priced; businesses couldn’t sell them abroad. So England was forced to let the dollar float; it ended up losing a third of its value.
Meanwhile, the United States was doing well. America had also inflated during WWI, but not anywhere near the amount England had. The strategy is common and has been used over and over again over the past few hundred years:
“… to have one nation deliberately inflate its currency at a rate greater than the other nation so that real purchasing power, in terms of international trade, moves from the more inflating to the less inflating nation. This is a method truly worthy of the monetary scientists. It is so subtle and so sophisticated that not one in one thousand would even think of it, much less object to it. It was, therefore, the ideal method chosen in 1925 to benefit England at the expense of America.”—G. Edward Griffin, The Creature from Jekyll Island
The Secret Meeting of 1927
Montagu Norman became Governor of the Bank of England in 1920. Benjamin Strong had become the first Governor of the Federal Reserve Bank of New York in 1914, just after its formation. Mr. Strong had been one of the original six in the rail car at Jekyll Island.
Norman was considered by many to be eccentric, if not mentally unbalanced. Nonetheless (or perhaps, because of it), the two of them became close, spending many holidays together, and otherwise communicating weekly by cable in almost total secrecy. They were determined to use their financial power to force all major countries of the world to go on the gold standard and to use central banks to control the world economy, without interference from governments.
Norman spent a good deal of his time on steamships travelling the world, keeping in touch with central bankers in various countries. On July 1, 1927, he arrived in New York Harbor (under another name) on the Mauritania and went into conference with Benjamin Strong. They agreed, with Andrew Mellon, the US Secretary of the Treasury, to inflate the US monetary system.
This resulted in an increase in US bank reserves of $445 million and lowered the rediscount rate to member banks from 4 to 3.5 percent, allowing the banks to borrow more reserves, which in turn allowed them to increase loans to business and the public, thereby inflating the currency. It flooded the market with over $10 billion in under six years (based on a fractional reserve multiple).
Real estate and the stock market were the beneficiaries. Inflation in the US also caused prices of goods and services to rise, making them uncompetitive on the international market. It did just the opposite to British products, which greatly increased Britain’s overall income from trade.
It created massive bubbles in both in the US, while gold flowed from the US to Britain, thereby shoring up Britain’s economy, lifting her out of depression.
It also eventually led to the 1929 stock market crash, because when money in “cheap,” people borrow it to speculate, similar to what’s going on in our economy today.
Throughout history, whenever governments inflate to a high degree (or a lower degree over a longer period of time), it leads to inflation. Lower interest rates allow investors to borrow more money and speculate in the stock market.
This same formula was at work all through the 1800s, causing booms and busts each time. You can recognize the housing bubbles in Canada and Australia (the US housing bubble has burst once already, but has crept up close to its previous highs and is about to crash again). Stock markets all over the world are on the verge of topping out, and crashing.
The Cycles of Herbert Hoover and Donald Trump
Cue Herbert Hoover: A man in the wrong place at the wrong time, who got blamed for the Great Depression, although he had nothing to do with it.
Herbert Hoover was a populist president, as is Donald Trump. It’s amazing to me the similarities between these two men as well as for the periods in which they became president.
There are contrasts, as well—the biggest seems to be that Trump easily communicates with the general public, but Hoover on the other hand, was able to sway intellectuals with his arguments but was quite “distant” from the “average Joe.”
President Hoover was well aware of the impending financial collapse years before he actually ran for office. Several times, he attempted to get the banking community to raise interest rates to attempt to dampen the stock market frenzy. He was against the practice of inflating the US economy to help England, having real concerns for the damage it would eventually do to the US economy:
“Hoover raised his fears again two years later, after the Fed governors voted in July 1927 to lower interest rates despite robust economic performance. The policy was designed to prop up the principle economies of Europe, which were struggling to reinstate the prewar gold standard, and needed help to stem a drain of bullion to America but monetary ease in the US economy risked channeling funds into an already overheated domestic stock market.”—Herbert Hoover and the White House, Charles Rappleye
There are many other similarities with the present time (relating to Donald Trump). President Hoover had a rather dour relationship with the press, and was very sensitive to criticism:
“Observers of Mr. Hoover during and since his campaign are wondering how he will react to criticism, once the criticism begins. He has proven himself more sensitive to censure, since his nomination, then any man in public life.”—Fred Essary, Editor & Publisher, 1929
In fact similarities are so pervasive that they even relate to the inauguration speeches. On inauguration day, just after Hoover read the oath of office, Calvin Coolidge grasped his hand and gave him a warm smile. The crowd broke into applause and Hoover moved to the lectern to deliver his inauguration speech:
“As if beckoned by the ovation the misting drizzle gave way to a downpour. Umbrellas sprouted and the song fell into silence as Hoover delivered his address in strong, slightly metallic tones, his cadence flat and even. Rain spattered his face and soaked his clothes but Hoover did not falter.”—Herbert Hoover and White House, Charles Rappleye
If you remember, Trump’s inaugural speech, it started to rain just as he began.
Two days after his inauguration, Hoover met with the Federal Reserve. The warning bells from Wall Street were getting louder and louder. The current bull market is often attributed to the actions of Donald Trump (although he has nothing to do with it). Likewise, in 1929, the stock market was often referred to as the “Hoover Bull Market.”
“Speaking on March 6 (1929) the same day Hoover met with the officers of the Fed, Warburg warned that unless the gambling on stocks was throttled back,”The ultimate collapse is certain not only to affect the state Lee speculators themselves, but also to bring about a general depression involving the entire country.”—Herbert Hoover and the White House, Charles Rappleye
Several times, Hoover sent representatives to a group of New York bankers, in an attempt to get the Federal Reserve to raise interest rates to quell the out-of-control speculation in the stock market. The bankers refused to do anything.
“The New York bankers all scoffed at the idea of the market was not ‘sound,'” Hoover wrote icily in his memoirs, “They were certain that this was a ‘New Era,’ to which old economic experience did not apply.”—Herbert Hoover and the White House, Charles Rappleye
Once the crash had begun, Hoover proposed a dramatic expansion in federal public works, and called for the states to do likewise. He invited private business to join in. President Trump seems to have similar ideas in terms of a public works program going forward.
“Public officials across the country vowed municifent budgets for 1930 —$35 million for public works in the city of St. Paul; half a billion in the state of Texas. Private industry was even more open-handed: electric utilities committed to spend $1.4 billion on new construction and another half-billion on maintenance; U.S. Steel announced a three-year expansion budgeted at $250 million.”—Herbert Hoover and the White House, Charles Rappleye
Their were other interesting parallels between what’s going on today in the world of Washington and Donald Trump and Hoover’s era (pre-depression):
“Relations with the White House press corps had been deteriorating from the first days of the presidency, when Hoover had sent out his rules for quotation and attribution. Since then the twice-weekly press meetings have become sullen, desultory affairs, with the president making a few terse remarks and correspondents accepting brief, typed handouts in lieu of live interviews. The crowd of reporters, which initially numbered more than a hundred, dwindled to as few as a dozen.”—Herbert Hoover and the White House, Charles Rappleye
Against his better judgement, on June 17, 1929, President Hoover signed into law the Smoot-Hawley tariff bill, which fixed tariffs on 887 specific products and led to an international trade war. The rest is history, and Hoover has been vilified ever since.
President Trump appears to be heading down the same path—he’s openly talking about a program of tariffs, which will likely head to a similar trade war.
I’m fascinated by the march of cycles throughout history. It’s uncanny how the traits at 172 and 516 year cycles tops stamp themselves on the characters who seek the highest office. Society also takes on the subtle imprints of an era long past. If you’re sensitive to the work of Dr. Raymond Wheeler, for example, Alexander Chizhevski, Nicolai Kondratiev, or Edward Dewey, it becomes obvious how the past becomes full circles as the cycles echo the future. You can get a good sense of how to navigate the upcoming social and political changes by simply studying the past.
Parallels to Today
While the parallels to Herbert Hoover are really extraordinary, the real story is the deflationary cycle, which rears its ugly head with each and every depression we’ve experienced throughout history.
“Everything plays a part in the unfolding drama of a downturn. Under normal circumstances an economy will weather problems, but when it is weighed down by heavy debts to purchase land, or to speculate in its value, any shock, and more particularly a shock to the related credit-creation process, will expose the weak foundations. One of the secrets, In the final stages of a cycle, is to watch for a contraction in credit. A downturn is yet to happen without one.“—The Secret Life of Real Estate and Banking, Phillip J. Anderson
Next week: The Central Banking Cartel: International Blood Suckers
Above is the daily chart of ES. The full wave up looks to be like a triple three (a combination wave) which is almost at completion (or will be with one small final wave up to about 2406.
The final pattern of the triple three is now labelled as a very rare running triangle with a final motive wave as the final thrust wave. This would be the top of wave red 3 (not labelled). In high degree wave structures, the thrust out of a triangle can be a blow-off wave, and that certainly seems to be what we got.
The 4th wave will come down in three waves. After we finish the A and B waves, it’s likely we’ll be able to project the bottom of the fourth wave. Then once we finish the fourth wave, we’ll get a final blow-off wave. I’m making a point not to try to project a date for a top, as the indices have such low volume and are moving so slowly.
Here are the path predictions going forward:
- Wave 4 will come down in 3 waves with any of the corrective patterns possibly in play.
- Wave 5 is likely to be an ending diagonal. In any event, it will be in 5 waves (not motive).
Summary: We’re at the top of wave 3 of the final larger 5 wave pattern, ready to turn down into four with one more very small wave up to a new high. I expect all major US indices to turn early this week. The larger wave 4 should come down in 3 waves (an ABC configuration to the target).
After completing the fourth wave, we’ll have one more wave to go, which could be an ending diagonal, as a fifth wave. It could also be a wave in 5 waves. It will move in tandem with the final wave in the USD currency pairs.
The long awaited bear market is getting closer.
Here’s the latest HOURLY chart of ES (emini futures):
Above is the 60 minute chart of ES showing our progress to the end of the day on Friday (click to enlarge). We’ve rallied slightly at the end of the day, but not to new high. I expect a new high at to hit the target on Monday or Tuesday. I’m projecting a target for ES of 2406/7.
Both ES and NQ have small waves that are overlapping the first waves, so this may be projecting a small ending diagonal as we move to the final top of wave 3.
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