Secrecy has a purpose now just as it did in 1910. The reasons vary, but conspiracy is top of the list. On November 20 of that year America’s leading financiers met on JP Morgan’s Jekyll Island estate off the Georgia coast. The secrecy was so complete that en route these men wouldn’t even use their surnames.
The agenda was to create a central bank. The reason for secrecy was threefold: one, Americans showed an historical distrust of central banks, and two, the public’s and Congress’s wariness regarding these financial manipulators, and three, two of the attendants were from government; the attendance by Senator Nelson W. Aldrich, Chairman of the Senate Finance Committee, and from Treasury, Assistant Secretary Abram Piatt Andrew Jr., gave an appearance of collusion.
The reasons they would provide their supporters in promoting acceptance was to avoid the economic chaos such as the recent Bank Panic of 1907 by establishing a central bank capable of providing liquidity in times of tight credit and lack of depositor confidence.
This was a disingenuous proposition since the panic was caused by a prior reckless expansion of credit for questionable ventures that ended badly, leading to failed banks and brokerages. The panic caused by those failures rapidly spread, freezing credit and causing depositor runs on banks. With the help of JP Morgan and his allies, liquidity was restored, but actually by those that caused the unsustainable credit expansion in the first place with dangerous fractional banking, a process of actually increasing the money supply without even the need to issue more currency.
In essence, this was a scheme to provide the banking system with a means to physically expand the money supply in order to maintain fractional banking and avoid the burden of the banks themselves having to capitalize their overextended credit. The product of this nine day meeting became known as the Aldrich Plan; it proposed establishment of a central bank called the National Reserve Association, with currency power, nationwide branches and a board of directors. The board would be bankers, but the US Treasury would be included. There was no provision in the plan for effective oversight.
To give such power to the very source of the problem was indeed a tragic mistake. The ability to expand credit at the stroke of a pen, or now a stroke of the keyboard, is a financier’s dream. To enable Wall Street the ability to control markets that should be under no control other than the natural and spontaneous activity of those that produce the goods and services of the economy, what we call Main Street, is a manipulation against liberty of huge economic proportions. Herein lies the very cause of what we now call income inequality, a system of cronyism, not capitalism, yet bizarrely the latter is blamed for its own destruction by the former.
The original stated purpose of the Federal Reserve as the nation’s central bank was to have a safe yet flexible but more stable monetary and financial system. The fact that these goals were inherently contradictory was a concern to its critics, but their voices were lost in the euphoria of getting the ability to control and manipulate the medium of exchange, the life blood of a modern economy.
The mandate was adjusted overtime, principally in 1977 to “…promote effectively the goals of maximum employment, stable prices, and moderate long term interest rates.” While on paper, the Federal Reserve was to be independent from the government, it was a symbiotic relationship. In order to work as planned, the US Treasury and the Federal Reserve had to by necessity coordinate policy and operations in order to effectively operate under this mandate. Within the Federal Reserve there was the Federal Open Market Committee, the public voice of the Federal Reserve, whose periodic “Beige Book” detailed the Fed’s “forward guidance”, a euphemism for a planned economy. Americans love euphemisms, especially in order to avoid the toxic word socialism, even though in reality it’s what they got.
What this cabal of Jekyll created was a Hyde transformation of a free market economy to the monstrous evil of a planned economy to serve the self-gratification of the power elite. The metaphorical question is will we have the same ending?