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8/93
Why do recessions and depressions happen? The average
mainstream opinion will list reason after reason after reason
... of which virtually all are beyond the direct control of man
and seem as unpredictable as the weather. 'Events get beyond our
ability to control them ...' is the usual line we our force fed
to believe. People will not hesitate to blame our politicians ,
however, as the direct cause for many of our woes. Then how is
it that the forces that control our monetary system have
repeatedly escaped the public eye when it comes time to analyze
the effects of scarce credit? Why do they get to hide behind the
'uncontrollable events' scenario while our politicians do not?
Judge for yourself the power of the Federal Reserve- the power
that crushed a healthy American economy back in the years 1920
and 1921 - and see who is to blame and just how 'unpredictable
and uncontrollable' the causes of recessions/depressions can be.
The Federal Reserve secretly held a meeting in Washington DC on
May 18, 1920 from which they printed 100 copies of what they
discussed. One copy was discovered by the Manufacturers Record
and written about in the Feb 22, 1923 edition. That editorial
was later entered into the Congressional Record of the 67th
Congress 4th session 2/28/23. The actual Federal Reserve
meeting text was itself entered into the Congressional Record
and can be found in Senate document #310 (2/24/23). The
following excerpts comes from the Manufacturers Record story,
Senator Heflin's comments after the article was read into the
record, and the Federal Reserve text itself. My comments are
enclosed in brackets []. All the material to follow can be found
at any public library that serves as a government depository;
or you can find it in the book 'Bankonomics in One Easy Lesson'
(which consists entirely of the MR story, Sen. Heflin's
comments, and the entire Fed text) available for $10 via
Monetary Science Box 86 Wickliffe, Ohio 44092
After one of the most fateful meetings in the financial history
of the world ... Governor Harding of the Federal Reserve Board,
in closing that meeting of the Federal Reserve Board, The
Federal Advisory Council, and the class "A" directors [the
Board, even up to today, is advised by the F.A.C.; the FAC and A
directors are ALWAYS comprised of bankers] of the Federal
Reserve banks said: "I would suggest gentlemen, that you be
careful not to give out anything about any discussion of
discount rates. ... if people think rates are going to be
advanced there will be an immediate rush to get into the banks
before the rates are put up, and the policy of the reserve board
is that that is one thing we never discuss with a newspaper man
... And I think we are all agreed it would be very ill-advised
to give out any impression that any general overhauling of
rates was discussed at this conference. ... We ... will prepare
a statement which will be given to the press tomorrow morning
and we will all see what it is."
In a rather lengthy opening speech Governor Harding said:
"Every effort should be made to stimulate necessary production,
especially of food products and to avoid waste." And having
encouraged the farmers to the utmost extent during the spring of
1920 to carry on their farming operations despite the high wages
that were being paid labor, drastic deflation was put into
effect, breaking down the prices of farm products to an extent
that literally bankrupted hundreds of thousands of farmers.
"We can", said Governor Harding, "restrict credit and expand
production," No human being has yet found a way to restrict the
credit facilities essential for increasing production and at the
same time bring about increased production. That statement is
so rankly absurd ... And as that day's meeting was devoted to a
discussion of how to increase interest rates in order to lessen
the volume of business, it is interesting to quote from a
statement made by Comptroller Crisinger, recently nominated as
governor of the Federal Reserve Board, in which he said:
"Falling prices and high interest rates are never twin sisters
of prosperity." "It is very clear", said Governor Harding, "that
if we find it impossible under the present circumstances to
increase the volume of production of the most essential
articles, the only thing for us to do is to reduce consumption
of those articles." This plan ... had been secretly inaugurated
long before the meeting ... for on Feb. 12, 1920, the
Manufacturers Record published an extract from a letter from one
of the foremost bankers in the country ...he said: "You can
further see that if by any pressure these bonds can be turned
out of the Federal Reserve banks and turned over to the strong
boxes of great institutions ... just to that extent the 12
[Federal Reserve] banks would be in a position to extend
additional facilities to merchants and business men generally.
Of course it seems hard that anyone who for patriotic purposes
should have invested in Government bonds should be practically
called upon to part with say, a loss of from 8 to 9 percent, but
facts are stubborn things and conditions more important than
theories." The same banker wrote us ... that there was too much
business in the country and it should be brought down to normal
conditions. Governor Harding said: "We should be careful,
however, not to overdo this matter of liquidation." ... But
drastic deflation is exactly what took place. ... Over and over
again during the process of deflation it was stated by Governor
Harding and others that the banks of the country were guilty of
misleading, even to the extent of practically lying to their
customers by declining to make loans. .. in Governor Harding's
speech he said: "The directors of the Federal reserve banks are
clearly within their rights when they say to any member bank,
'We ... want you to reduce. We can not let you have any more."
After closing his address the meeting was opened by Governor
Harding with an invitation to those in attendance to make
reports as to conditions in their communities ... Mr. Thomas
Beal of the Federal Reserve Bank of Boston said: "We seem to
been able to have had some liquidation in our district." Mr.
Kennard of the same bank said ... "I also think that the rates
for money should continue on a high level, with the hope of
causing liquidation in commodities." Mr. Kennard emphasized
the congestion of the transportation facilities, and the fact
that the warehouses were congested because they did not have the
shipping facilities .. and yet without shipping facilities
merchants and manufacturers were told that they must ship their
stuff in order to liquidate their accounts.
Mr. James A. Alexander of New York, said: "Large users of
credit are inquiring as to what the future has in store for them
... unless there is a very substantial contraction ... the users
of credit [bank created money] in the country may become more
hopeful again that the situation is not one to be feared, and
they will feel justified in going ahead and making very
substantial and large commitments for the future." " I am afraid
that somebody is bound to be penalized in order to bring about
'production' ... further expansion must be prevented and that
curtailment should be had wherever possible." " There is one
thing, I think, to be feared, and that is if the transportation
facilities are improved and commodities moved freely and credits
[bank created money] are thereby released it may make a
temporary ease in the money market , and may encourage people to
go ahead and expand. I believe now is the time to put the rates
up and to keep them up." Mr. Tremon also of the New York
district said: "We can do that if we begin and restrict credit
within reason the granting of credit through individual banks.
... The way to do it is to bring them face to face with the
officials of the Federal reserve banks in each district and have
them understand the situation and have them in turn go back and
deal with the commercial and business interests."
When the Government sold its bonds the Treasury Department and
the banks of the country pledged to 20,000,000 buyers of these
bonds that they could be carried through the banks until they
could be paid out for earnings. On the subject of liquidating
these Government bonds, Mr. Wayne [Philadelphia FRB director]
said: "We have been endeavoring in our own bank in the last
month to force Liberty bonds on the market, but they do not go
on very comfortably. People who have to part with them and lose
13 points do not part with their money very gracefully. Mr
Francis Douglas of the Philadelphia Federal Reserve Bank ...
suggested that a letter stating the actual conditions should be
sent to the various banks, not only the member banks but
nonmember banks, throughout the country in a plan of education,
and added: "It would be very beneficial and would help a great
deal in the deflation of credit."
Mr. Robert Wardorp of the Cleveland Reserve bank said: "I think
a reasonable depression in business will be a good thing for
the country."
Mr. Charles E. Reiman of Baltimore, a director of the Richmond
bank said: "I hardly see the necessity of increasing the rate at
this time ... With regard to the retail business, I have made a
pretty close examination of it, and I do not think the shelves
are overloaded." Mr. Reiman was entirely correct in his position
that there was no necessity of increasing the rate and that the
country was not overstocked with goods.
Mr. J.K. Ottley of the Atlanta Federal Reserve Bank said: "I
would not feel at this time ... that a raise in the rate was
necessary other than to put in this basic line and make the
penalties very strong as they progress." In view of the fact
that penalties rates were inflicted by the Atlanta [Fed Rsv]
bank on one Alabama bank, which was trying to protect its farmer
customers, up to 87 1/2 percent, the Atlanta bank evidently
carried out the suggestion of making the penalties very strong
Mr. George M. Reynolds of Chicago was evidently not in favor of
breaking down business so as to get a new basis from which to
start again. Mr. Charles H. McNider said: "We feel there must be
reason, there must be sanity, that the essentials must be taken
care of, that there can not be an extraordinary cutting down of
credits [bank money] at this time because that would create a
disaster. We ought to deflate in a sane and reasonable manner."
Unfortunately, Mr. McNider's suggestions were not taken, for we
deflated in an insane and extraordinary manner, and the result
was world disaster. Mr E. L. Johnson, of the Chicago Federal
Reserve Bank ... added: "Governor Harding's speech should be
properly disseminated among them with a show of authority, even
if you do not have it." What an amazing statement ... Governor
Harding's speech should be broadly disseminated among the banks
with a show of authority, even if Governor Harding did not have
such authority! Mr. Wesley C. McDowell of the Minneapolis
Reserve Bank said: ... "The Federal Reserve Bank of Minneapolis
is making $10,000 a day. Is that profiteering when they have
been using our money without any interest ever since it started?
... it does not seem to me that now is the proper time to
increase our rate ... We want to stop some of this high finance
in politics in business." Mr. J.C. Mitchell of Denver ... "In my
opinion we corrected the trouble there by putting in the
progressive interest rate ... We considered it a little bit
drastic, but we thought we would try it." Mr. Mitchell thought
it was a success. We venture to say that a million people in
that territory thought it was a dismal failure. Mr. John T.
Scott of the Dallas bank said: ...I believe we ought to continue
our efforts with our member banks throughout the country and
induce them to curtail their loans as far as possible to only
the legitimate needs of legitimate business ... The Federal
Reserve banks have been charged with profiteering by reason of
the rates that they are now charging. We are making in the
neighborhood of 100 percent on our capital" Mr. C.K. McIntosh of
San Francisco, said: ... "We know that there is a demand that
exceeds the supply of credit; we know that there must be
discrimination, and we are ready to join in any proposition" Mr.
John Perrin, of the Federal Reserve Bank of Chicago, said: ...
"If it were possible for every bank in the country to reduce its
loans during the next three or four months to the extent, say,
of 10 percent , there would be a total expansion in the fall
possible of approximately $2,000,000,000" Here is a definite
suggestion as to calling loans amounting to $2,000,000,000 in
order that they might be reloaned in the fall.
When the Federal reserve system undertook to violate every
promise made by the government and by the banks in persuading
people to buy Liberty bonds, promising to carry them and then
calling loans on them in order to force them out of the banks,
breaking them down from 12 to 15 points or more, the honor of
the Government and the good faith of the of banks was trampled
in the mire and millions of bonds brought in good faith by
patriotic people to help the banks and help the government were
forced to be sold at a loss, and the national government bought
$2,000,000,000 of its own dishonest promises to pay ... And at
these low prices hundreds of millions of bonds were bought in by
big estates and big institutions, with heavy losses to innocent
original purchases. Mr. John Skelton Williams [Comptroller of
the Currency and member exofficio of the Board back then] ...
said: "If anything of that kind comes it will be our fault, the
fault of those who are in charge of the banking and commercial
interests of the country, and I do not believe that they are
going to bungle it." Unfortunately those in charge of the
banking interests of the country did bungle it .. and proved by
the figures which he has published showing how badly it was
bungled. As the Manufacturers Record showed a few weeks ago, the
decline in the value of farm lands in 1920 and 1921 under
deflation amounted to about $18,000,000,000 and the decline in
the value of farm products of these two years as compared with
1919 prices showed a decrease of over $14,000,000,000 making a
total loss to the farmers of upward of $32,000,000,000. If to
this we add the decrease in securities, stocks and bonds of
railroads and industrial corporations ...we wiped out about
$50,000,000,000 of values. Mr. [John Skelton] Williams
repeatedly warned the board of the danger that faced the country
from its deflation campaign ... on July 31, 1920, Comptroller
Williams gave a statement to the press showing that the unused
lending power of the reserve banks was still $750,000,000. ...
On August 9, 1920, Mr. Williams called attention of the reserve
board to the fact that certain banks in New York were using the
funds of the reserve system for speculative ventures and were
extorting grossly excessive interest rates from customers
...August 26, 1920, Comptroller Williams filed a memorandum with
the board urging a reduction in rates ... the reserve board's
answer ... was to tighten the screws still further ... When
Comptroller Williams a few weeks later offered a resolution in
the board to require the banks ... to limit interest charged ...
the board voted down his resolution.
[comments from Senator Heflin after the Manufacturers Record
article was read into the record]
The Supreme Court of the United States rendered decision months
ago taking the Federal Reserve Board seriously to task,
criticizing and condemning its conduct in its effort to destroy
a little State bank out in Nebraska, and no news was ever sent
out from the Capital regarding that decision ... I wonder what
influence it was that kept that information from going out to
the country. ... Scores of newspapers nestling about these
regional reserve banks have attacked me, have written
editorials criticizing and condemning me for the fight that I
have made .. They were simply doing what they were told to do
... I said on this floor time and time again that there was a
conspiracy, a secret meeting held somewhere ... that it was
prearranged. ... These newspaper yelpers of the Federal Reserve
Board said, "There is nothing in it." ... I have here a copy of
the little journal that was kept of that conspiracy that they
held [the text that's entered in Senate document #310] ... We
never got hold of this little document until Governor Harding
was driven from the Federal Reserve Board.
The country did not know that within 30 days there would be
serious trouble in the financial world over here. The country
did not know that the Liberty bonds, ... were to tumble down,
and that the people who had them and were trying to hold them
would be forced to throw them upon the market and that the bond
sharks of Wall Street would feast and fatten upon them.
It was agreed in that secret meeting to hoist the black flag;
but the people being slaughtered did not know it. Out in
Southern California the bankers; convention was in session. ...
and this Federal reserve agent got up and said to these bankers:
"You must not loan any more money on farm paper, agricultural
products, live stock" and so forth and dozens of bankers sprang
to their feet and said "We do business with the farmers and
cattle people. ... They need money, and we must let them have
money." Then this agent made this significant statement : "If
you loan them money, we will not rediscount your paper."
I referred to a man from the Northwest, a Republican himself a
wealthy man, now a Senator in this body, telling me that they
sent him word that they were going to deflate, and telling him
to act accordingly and get in out of the weather and he said, "I
can not get in. ... if you do deflate, it is going to cost me
thousands of dollars." and he said, "It did cost me thousands of
dollars."
Governor Harding did not go off the board until his term expired
by law August 9. ... it was disclosed that he could not be
confirmed by the Senate if he had been reappointed.
I would like to ask them if the spokesman for the New York bank
did not protest, as the secret record shows he did, against
having this progressive interest rate applied to New York, and I
would like to ask them why it was they never did apply that rate
to New York. [NY is the home of the financial lords - it isn't
hard to see why they wouldn't want what they planned for the
rest of the country to happen in their own back yard.]
They were spreading their propaganda over the country in an
effort to educate the people that panics could not be prevented,
that they would just come anyhow every 5 or 10 years.
Under this deflation drive I saw the agricultural masses of the
South and West swept down, pillaged and plundered by the
speculators and gamblers of the country. I saw 7,000,000 men
driven out of employment. I saw industries stand idle. I saw
stagnation in business in my country...
Turning to the Congressional Record No. 196, issue of August 2,
1922, we find on page 11871, that, having charged the governor
of the Federal Reserve Board, Mr. Harding, with having applied
the progressive interest rate to the agricultural sections of
the South and West, but not at all to other sections of the
country, the Senator [Heflin] continued, "I hold in my hand a
letter, written by the governor of the Federal Reserve Bank of
Atlanta, in which he acknowledges that they charged a bank in my
State 87 1/2 percent interest." ... this valuable document had
been furnished him by the former Comptroller of the Currency ,
Williams. .. Moreover, Senator Heflin made it absolutely clear
that this rate was actually collected. ... as Senator Heflin so
trenchantly put it: "Six percent in New York, and an interest
rate of 87 1/2 percent in Alabama."
[Manipulation of the United State's money supply for the
benefit of bankers did not start with the Federal Reserve. It
actually pre-dates the Constitution itself with the private Bank
of North America. The following letters illustrate this. They
concern Senator John Sherman who the most prominent supporter of
the 1863 National Banking Act. These letters can be found, among
other places, in the books "Federal Reserve, Fractional Reserve
and interest-free Government Credit Explained" by Dr. Peter
Cook of Monetary Science "Money: Questions and Answers" Fr.
Coughlin also available via M.Science]
Rothschild Brothers, Bankers
London, June 25th, 1863
To:Messrs. Ikleheimer, Morton, and Vandergould,
No. 3, Wall st., New York, U.S.A.
Dear Sir: A Mr. John Sherman has written us from a town
in Ohio, U.S.A. as to the profits that may be made in the
National Banking business under a recent act of your Congress, a
copy of which act accompanied this letter. Apparently this act
has been drawn upon the plan formulated here last summer by the
British bankers... that if enacted into law, would prove highly
profitable to the banking fraternity throughout the world. Mr.
Sherman declares that there has never been such an opportunity
for capitalists to accumulate money, as that presented by this
act, ... "it gives the National Banks an almost absolute control
of the National money system. The few who can understand the
system," he says, "will either be so interested in its profits
or so dependent of its favors that there will be no opposition
from that class, while on the other hand, the great body of
people, mentally incapable of understanding the tremendous
advantages that capital derives from the system, will bear its
burdens without complaint and perhaps without suspecting that
the system is financially inimical to their interests."...
"Your respectful servants,
Rothschild Brothers."
[The answer to the above letter:]
New York City, July 6th 1863
"Messrs Rothschild Brothers London, England
"Dear Sirs: We beg to acknowledge the receipt of your
letter of June 25th, in which you refer to a communication
received from the Hon. John Sherman of Ohio, with reference to
the advantages and profits of an American investment under the
provision of Our National Banking Act. "The fact that Mr.
Sherman speaks well of such an investment or of any similar one,
is certainly not without weight, for that gentleman possesses in
a marked degree, the distinguishing characteristics of a
successful financier. His temperament is such that whatever his
feelings may be they never cause him to lose sight of the main
chance. He is young, shrewd, and ambitious. He has fixed his
eyes upon the Presidency of the United States and is already a
member of Congress. He rightfully thinks he has everything to
gain both politically and financially (he has financial
ambitions, too) by being friendly with men and institutions
having large financial resources, and which at time, are not too
particular in the methods, either obtaining government aid, or
protecting themselves against unfriendly legislation. We
trust him here implicitly. His intellect and ambition combine
to make him exceedingly invaluable to us indeed, we predict that
if his life is spared, he will prove to be the best friend the
moneyed interests of the world ever had in America."
Your most obedient servants,
"Ikleheimer, Morton and Vandergould"