G. Edward Griffin Discusses the Federal Reserve, Bernanke's Bailouts and Obama's Stimulus Plans
The editors of the Daily Bell have been avid readers of Mr. Griffin's tremendous literary contributions on free markets and personal liberty. Mr. Griffin is an American film producer, author and political lecturer.
Introduction: The focus of today's interview is the relevance, perhaps even more so today than when it was first published, of G. Edward Griffin's business bestseller, The Creature from Jekyll Island. First released in 1994, The Creature from Jekyll Island is a no-holds-barred look into the inner workings of the Federal Reserve banking system, or cartel if you will. Mr. Griffin peels back the layers of obstruction to rational analysis and leads the reader on a wonderfully researched, although disturbing, journey from the very beginning, when the Fed was still in the planning stages, up to the present, where it is now struggling to survive.
Daily Bell: We'd like to begin by thanking you for taking the time out of your very busy schedule to grant readers of TheDailyBell.com this exclusive interview.
G. Edward Griffin: Thanks for inviting me. I am honored to be invited to share my thoughts with your prestigious readership.
Daily Bell: For those of our readers unfamiliar with the fact that the US Federal Reserve is not a government agency, but a privately controlled corporation, how would you best describe this creature and how did it come into being?
G. Edward Griffin: Many people are shocked to discover that The Federal Reserve System is a cartel, no different than a banana cartel, a sugar cartel, or an oil cartel. It is a banking cartel composed of the largest and most powerful American banking institutions. This group wrote a cartel agreement in 1913 and then persuaded Congress to give it the status of law. In that way, the cartel can be sure that all the banks will conform to the agreement or be subject to criminal prosecution, a benefit that many cartels do not enjoy.
The first draft of the cartel agreement was prepared at a highly secret meeting held on Jekyll Island in November of 1910. The participants of that meeting represented the most powerful banks in the nation and also had financial roots to the largest banks of Europe as well. Those American institutions included the J.P. Morgan companies; the banking conglomerate of William Rockefeller; and Kuhn, Loeb and Company. The European connection included the Rothschild banks of England and France and the Warburg banking consortium of Germany and the Netherlands.
The irony in this is that the Federal Reserve Act was sold to the American public as a bill to control the banks when, in truth, it was drafted by the very banking interests it supposedly would control. The banking cartel decided to be its own regulator while making it appear that it was being regulated by Congress. That was the reason for the secrecy surrounding the Jekyll Island meeting. If the public had realized that the Federal Reserve Act was parented by the same industry it was supposed to control, there would have been great opposition to it, and it never would have been enacted into law.
Daily Bell: In your best selling book, The Creature from Jekyll Island, you refer to fractional reserve banking as the Mandrake Mechanism. It really isn't much of a trick and certainly not a very funny one considering it's a trick used to redistribute the wealth and savings of the majority to a few – leaving a path of destruction in its wake. How does this rather sick trick work?
G. Edward Griffin: I named this after a comic book character from the 1940s called Mandrake the Magician. Mandrake could wave his large, black cape and make anything appear out of thin air and, with another wave, make it disappear again. He was quite a guy and, when I finally came to understand how the Federal Reserve System creates money out of nothing and causes the money supply to shrink as well, I knew that it was The Mandrake Mechanism.
At first, the mechanism can appear to be very complicated – and, in fact, one has to be a diligent student to follow the twists and turns, the banking terminology, and the accounting concepts; but, when one stands back and observes the operation as a whole, the mechanism is simple. The problem most people have with understanding it is that they try to make sense out of it. They try to understand how it is fair and how everyone is benefitted by it. The fact is that it does not make sense insofar as fairness is concerned, and the administrators are benefitted far more than the participants. In fact, at the end of the game, the participants (meaning the general public) actually are plundered by it while the administrators are greatly enriched.
Here is how it works: The first step happens when the government needs to borrow more money than the public is willing to lend at the interest rate offered. At that point, the government turns to its partner, The Federal Reserve System, and goes through the motions of borrowing the shortfall. I say "goes through the motions" because the Fed has no money to loan. The government, however, gives it permission to create the money t needs out of thin air, a move that, if done by anyone else, would send them to prison for counterfeiting. The Fed can do it, however, because the government authorized it to do so when it passed the Federal Reserve Act. So the Fed creates whatever amount of money is needed and then gives it to the government, calling it a loan. In truth, the government essentially printed its own money but, instead of using printing presses, it used the banking system which entered numbers into an accounting ledger and called it checkbook money. The end result is the same except that the public doesn't understand it (a great advantage to the politicians) and the banks earn interest on so-called loans of money it never had (a great advantage to the banks).
That's just the starting point. When the government spends the money it receives from the Fed, it goes to individuals and corporations that immediately deposit it into their private banking accounts. This is where the action really becomes interesting. The banks (under the protection of the Federal Reserve Act) are allowed to create out of thin air up to ten times the amount of those deposits and then go through the appearance of lending it to their customers. Once again, I use the phrase "go through the appearance" to emphasize that most of the money they loan does not exist until borrowers request it. At that point, the money is created out of thin air and advanced to the borrower – at interest, of course. Think about that. Banks collect interest on nothing.
When the loans are paid back, the money disappears back into the vaults or ink wells, or computer chips from which it came. That's the Mandrake Mechanism.
Daily Bell: The Federal Reserve states that one of its primary objectives is to protect us from inflation. It doesn't sound like the guys running the Fed really care about doing that? In fact, it seems as if they are purposefully doing the exact opposite.
G. Edward Griffin: Remember, the Fed is a banking cartel. It was not created to serve the public or the nation or the economy or any of the other myths we are taught in school. All cartels have but one mission, and that is to serve the best interests of the members of the cartel. Period.
When Greenspan or Bernanke tell Congress that the Fed is trying to fight inflation or promote employment or help industry or help homeowners, don't believe any of it. That is what they have to say to keep the gullible public asleep and content with the system. It wouldn't go over well if they were to say, "Who cares about inflation? We are bankers, and our mission is to keep the banks afloat. Our mission is to get the stupid voters to cough up enough money through taxes and inflation to reimburse us for all those bad loans we have made – and to pay our exorbitant salaries. That's our mission and, by God, don't think for an instant we're going to let anyone stand in our way."
Daily Bell: Why do you suppose more media outlets don't question such an obviously destructive monetary structure? Do you think there is a coordinated relationship between those in control of the mainstream media outlets and those in control of the Federal Reserve?
G. Edward Griffin: I think the answer is obvious just by studying performance. However, an examination of the people on the boards of directors and the companies they represent confirms that Media companies are controlled by the same financial matrix we are discussing. Any editor or reporter in a major media company knows instinctively that it would be career suicide to speak the whole truth about the Federal Reserve.
Daily Bell: So, is it safe to say that the general public is not supposed to know the truth about the Federal Reserve and the intentions of those who control it?
G. Edward Griffin: Your phrasing is significant. "The general public is not supposed to know ..." My reply is: Who is doing the supposing? Of course, I understand the implication that the financial elite say the public is not supposed to know, and I agree. If the public understood, the scam would end. But, from my point of view, and from the view of members of Freedom Force International who are working to rebuild financial security and political freedom, the public definitely is supposed to know the truth. It is on this very point that the future of mankind is hinged.
Daily Bell: Do you think the liberating power of the Internet is something the banking elite is not prepared for and that the awareness spawning around the globe about their deceitful banking practices has them scrambling for solutions?
G. Edward Griffin: There is no doubt that the ruling elite do not like the Internet's present ability to bypass the controlled media and reach the people directly. However, I do not think it is correct to say they are not prepared. They have known almost from its inception that the Internet will need to be controlled by them if they are to keep the masses dumbed down. That is why we constantly have been conditioned to accept Internet content regulation supposedly as a means of preventing terrorism, crime, child pornography, drug traffic, and just about anything else that the public dreads. The real objective is control for its own sake. They already have this censorship of the Internet in China and numerous other Asian countries. The next step in this evolution is to put the UN in ultimate control of the Internet. If we allow this type of control to be established, the Internet will no longer be a tool of enlightenment but one of suppression.
Daily Bell: Dr. Ron Paul, the popular free-market Congressman from Texas, has suggested that if the US does not make changes now, albeit painful ones, towards an honest money system that the country faces an inflationary financial crisis that makes the inflationary period of the Carter era look like a warm up act. Do you agree with that and that rampant inflation will undoubtedly revisit America's shores as a result of all of these bailouts and stimulus programs?
G. Edward Griffin: Yes I do. The collectivists who run the Fed and dominate our government do not believe in free-market solutions to any problem, least of all, those of such magnitude as money and banking. They know only one trick: inflate the money supply. So, as long as collectivists dominate our power centers, I see no way to avoid inflation. However, I must add that we need to look at more than the money issue. The freedom issue is just as important, if not more so. While inflation ramps up and while the government is pushing more and more newly created money into the sys tem, parallel to that we are witnessing a tremendous loss of personal freedom. If the government funds a bank, eventually the government will own the bank. If the government funds a manufacturing company, eventually the government will own the company. If the government funds a homeowner's mortgage, eventually the government will own the house. If the government funds a person's food, shelter, health care, transportation, and education, eventually the government will own that person.
My biggest concern is that, in the name of purchasing financial security, people are paying with their freedom – and they're not getting security either.
Daily Bell: We've heard it argued that 40% of the world's wealth has been wiped out in the deleveraging phase of this economic collapse and that inflation is unlikely to happen as a result. How do you answer those folks?
G. Edward Griffin: We need to define terms. Fiat money (the kind without precious-metal backing) is not wealth. It can be called wealth or capital or whatever you want to call it; but, true wealth is measured in terms of tangible assets with intrinsic value, which means they have characteristics that give them value even if they were not used as money. Gold or silver as money, therefore, has the advantage of being money and wealth at the same time.
Money with only the promise and threat of governments to back them up is not wealth. This means that the 40% of the economy that has disappeared never existed as wealth in the first place. It was only fools wealth. People who had all those digits in their banking accounts thought they were wealthy when they were not. True, during the boom cycle, they could have spent those digits for houses, cars, boats, and airplanes (or gold) and could have acquired wealth in that fashion. Those things did not disappear in the last 6 months. The only things that disappeared were digits in a computer, which represented fiat money.
If you had $1 million in gold a year ago, you would have had $1 million in wealth a year ago and about the same amount today. However, if you had $1 million in fiat money a year ago, you would have had no wealth a year ago and the same amount today: zero. Only when you possess tangible assets do you have wealth. That's one of the beauties of a gold or silver-backed currency. When you hold that type of currency you actually do have wealth. Unless we are talking about assets that are subject to destruction (such as timber that can be destroyed by fire) wealth never just disappears.
Regardless of this definition, I feel that deflation will continue for a little while longer as most of the fiat bubbles are wiped out and prices return to a fair-market balance between price and value but, what will follow will be a new, even larger bubble based on the incredible amounts of fiat money now being pumped into the system. As long as collectivists are running the show, we will have inflation and will continue to build totalitarian governments everywhere.
Daily Bell: How about the pundits who tell us that General Motors, AIG, Citigroup and others are too big to fail? Do you agree with that?
G. Edward Griffin: This may begin to sound like a broken record, but as long as collectivists are in charge of governments and monetary systems, we will continue down exactly the same track we have been following. That means the corporations will be maintained at the expense of taxpayers. Are they too big to fail? Of course not. That is merely a slogan to end the debate. However, I might rephrase the statement. Corporations, with their present influence over Congressmen, are too corrupt to fail.
Daily Bell: What about the over-leveraged American home-owners who can no longer afford to make their mortgage payments? Shouldn't US taxpayers be expected to help them out? Don't people have a right to own their own home?
G. Edward Griffin: It would take more time to adequately answer that question than we have; so, at the risk of sounding too harsh and inconsiderate of my fellow humans, I must give the short answer. The proper function of government is to protect the lives, liberty, and property of its citizens. Nothing more. Acts of charity are very important but must be kept away from government. Otherwise every scheme and scam would be perpetuated through under the guise of helping some unfortunate individual or class of citizens. The class of citizens called taxpayers should not be expected to help the class of citizens called homebuyers with distressed mortgages. People do not have a right to force me or anyone else through taxation to give them a home.
If anyone finds that to be uncharitable, I urge them to examine the more complete defense of this point of view as posted to the Freedom Force web site: http://www.freedomforceinternational.org/freedom.cfm?fuseaction=creed.
Daily Bell: It seems safe to say that you do not think any of the current bailout and stimulus solutions being offered by Bernanke, Geithner or Obama have any hope of stabilizing the banking industry and that they are they simply ignoring the problem and pouring more fuel on a burning victim?
G. Edward Griffin: I like your analogy of pouring more fuel on a burning victim. That's it exactly.
Daily Bell: Would you agree that the only way to get out of this current crisis and to prevent future ones is to abolish the central banking cartel and privatize the issuance of currency? And further to that point, do you think an Honest Money system, one anchored by gold or silver, or both, would be the best way to anchor confidence in the US dollar?
G. Edward Griffin: I definitely think the banking cartel called the Federal Reserve System should be abolished, but I will take that one step further. Some critics of the Fed are calling for its abolishment as a private institution but that it be empowered to continue performing its function as an agency of the government. They want to take this power away from those big, bad bankers and give it to those nice, trustworthy politicians. That is such a foolish concept. The problem is not who creates money out of nothing but that anyone does it. The politicians and bankers have a tight partnership. It would continue exactly the same whether operated as is or under the theoretical supervision of the Treasury. Does anyone really think that any of the last ten Secretaries of the Treasury would change anything?
So, I am for the abolishment of the Fed, not a change in appearance.
Privatizing the currency is another issue. I do not advocate this nor do I oppose it. I believe what I preach, and I preach freedom-of-choice so long as government does not give competitive advantage one way or the other and so long as all players are required to honor their contracts. Under those conditions, it would be appropriate for the government to issue its own gold or silver-backed currency provided there is no legal-tender law to force citizens to accept it. If the currency is sound, people will accept it without coercion of law. If it is not sound and there is public dissatisfaction with it, privately-issued currencies would spring up and, if they were solidly backed by gold or silver, people would use them in preference to government money. If we just remove the element of coercion, the best money eventually would become the nation's money.
Daily Bell: What are your thoughts on gold backed money versus a bimetallic standard of both gold and silver. Which do you prefer and why?
G. Edward Griffin: Anyone interested in this question probably already is familiar with the history of money, particularly in the United States, where both gold and silver were simultaneously used for backing government currency. This was awkward, as one can imagine but, as long as the free-market value of gold and silver were left alone, the ratio between the two metals remained amazingly constant for long periods of time, and the system worked without hardship to anyone. Then, as the ratios between the metals began to change, the system began to break down leading to a defacto single standard.
My preference would be a single-metal standard. Should it be gold or silver? My preference would be gold, but I must add that, if the public wants silver, that would be fine with me. The important thing is that one or the other must be settled on if we ever hope to return to sound money.
Daily Bell: As an aside, the press coverage of the recent Madoff scandal was focused on the issue of Wall Street greed – most media coverage anyway. But in its essence, isn't the Madoff Ponzi scheme similar to the Federal Reserve's scheme? Don't they both rely on an increasing base of demand for their obligations in order for the house of cards to stay erect?
G. Edward Griffin: That is a common view among critics of the FED. In fact, I carried a cartoon to that effect in our weekly Internet news service called Unfiltered News. (A free subscription is available: http://www.realityzone.com/ourcrusade.html. The current edition can be viewed here: http://www.realityzone.com/current.) While it is true that the Fed constantly expands the money supply and its customer base of interest-paying customers, that is not an intrinsic characteristic. Theoretically, the system could stop expanding or actually contract to some extent and still operate as it has. The Fed could plunder the public at a constant rate without accelerating if it chose to do so. A Ponzi Scheme has no choice. It must expand or collapse. Technically, therefore, the Ponzi analogy is not entirely accurate. In practice, however, it is very accurate.
Daily Bell: Ok, so we've established that the mainstream media and the elite who control both it and the Federal Reserve are continuing down a road that's been traveled before. One, as most Germans and Austrians will tell you, doesn't end very nicely. So what can anyone do about it?
G. Edward Griffin: Nothing!
OK, have I shocked you? What I mean is that, so long as collectivists continue to control our government and our monetary system, there is nothing we can do, because they hold the power to make change, which is the same power to prevent change. It is an exercise in futility to talk about what should be done when those who have the ability to do it are determined not to do it. It may be useful for those of us who are trying to mobilize public awareness to discuss and analyze the necessary components of reform, but we know well that the powers in Washington will, not only ignore our arguments, but will do everything possible to silence our voices.
The reason we formed Freedom Force International was to address this very issue. If, in addition to seeking an understanding of the problem and in addition to drafting a workable solution to the problem, we also unite to recapture control of the power centers of society (including but not limited to political parties) only then will we acquire the power to bring about reform. We have a slogan in freedom Force that sums it up: Don't fight City Hall. Become City Hall.
Daily Bell: Your suggestion that people accept personal responsibility for their future and to employ human action to protect their family's future is one we certainly endorse. Should people who own gold be concerned we may once again see a 1933 style confiscation? After all, Barack Obama is being compared to FDR?
G. Edward Griffin: That is a real possibility. The power elite will stop at nothing to perpetuate and expand their control over all of us. Our only defense is to work together, to unite, to develop a strategy, and then work like crazy to become City Hall.
Daily Bell: We are very concerned to see America moving further and further away from a freedom-loving nation to one that is rapidly looking more and more like a police state. Where does it all end?
G. Edward Griffin: One thing is certain. It will not stay as it is. It is constantly moving. Right now, the movement is in the wrong direction. We are headed directly for totalitarianism. Unless something changes, that is where we are going to be. I'll say it again, that is what motivates us in Freedom Force. This is no idle philosophical discussion. Our lives and those of our children are on the line right now.
Daily Bell: Tell us a little bit more about Freedom Force International, the non-profit organization you referenced earlier in this interview. When did you launch Freedom Force and how is it making a difference today?
G. Edward Griffin: Freedom Force International was founded on December 12, 2002. I launched the organization with the vision that, someday, our members all around the world would become leaders in their respective countries on behalf of sound money and personal freedom. We have a long way to go, of course, but we are under way. Already we have members in over sixty countries.
Our members are not mere complainers. They have a plan to do something about it. They also share a common belief in The Creed of Freedom, which is a statement of principles that guide them in their mission to build a better world.
We are determined to influence the political direction of the world by becoming influential in the power centers of our respective countries. The most obvious of those are political parties, but we also know the importance of the media and the educational system. Most power centers are comprised of large numbers of people who follow small numbers of people. It is the mission of Freedom Force members to become influential within the small groups that lead.
Another mission of Freedom Force is to provide an ideological umbrella under which many patriotic groups can unite toward a common goal. By unite, I do not mean one organization but many organizations, each with their special purpose, style, and leadership, but united under the ideological principles expressed in The Creed of Freedom. It's very important to know what you are for as well as what you are against.
Freedom Force already has become a significant movement. Anyone who really wants to make a difference on behalf of sound money and personal freedom will want to become part of this international brotherhood.
Daily Bell: Where can one go if they wish to find out more about Freedom Force International and to consider adding their voice to this growing movement of liberty minded people?
G. Edward Griffin: The web site is www.freedom-force.org. There is a lot of information there, but it is not expected that anyone will read it all at one sitting, although that sometimes happens. It is structured so that the most important information appears first with sub categories available for drilling down into many areas of interest. Freedom Force is the answer.
Daily Bell: One final question, Jim Rogers, Peter Schiff and many other outspoken free-market thinkers have suggested gold could rise to $2,000 per ounce or even much higher. Do you think this is likely to happen as more and more people awaken to the truth about our current monetary system and as inflation rears its ugly head? Do you have your own prediction?
G. Edward Griffin: I think $2000 per ounce is very realistic in view of the run-away money creation machine we have been discussing. However, I must remind newcomers to this topic that purchasing gold and silver should be viewed primarily as insurance, not investment. Even if the price of gold should rise to astronomical levels, the price of everything else also will be rising at about the same rate. If the price of a loaf of bread becomes twice what it is today, then the price of gold at twice what it is today will not seem to be particularly shocking. The value of holding precious metals in time of inflation is not that you will increase your purchasing power but that you will not lose purchasing power. You will hold your own while those who do not own gold or silver or other tangible assets will have their savings wiped out.
Daily Bell: Thank you so much for taking the time to share you wisdom with us. We wish you all the best in your future endeavors.
G. Edward Griffin: Thank you for the opportunity. I hope this will be of value to your readers.
It was a great pleasure to interview G. Edward Griffin who is a legend in the field of free-market studies. Before the Internet, when there was little in the the way of free-market economics and less information on the way the Federal Reserve actually worked, Ed provided thousands with an alternative – but more credible – reality.
Yes, apparently economics had a vision that went beyond that of John Maynard Keynes. History wasn't simply an endless interlude of great men each inflicting their vision on various epochs. In fact, in order to understand history it turned out you had to follow the money. And Ed did, brilliantly.
Along with that valiant handful who fanned the sputtering flame of Austrian, free-market economics, Ed provided an antidote to the modern Western structures of business and economics. His methodology was not purely that of an economist however. Ed approached Western society from the standpoint of a sleuth and a historian and he was not afraid to deal with the obvious coincidences of power that add up to serial economic conspiracies.
Of course today with the aide of the Internet we can see that Ed's vision is all-too-true. The Federal Reserve for all of the stability it seems to provide, is actually a destabilizing influence on Western economies just as Ed has maintained throughout his career. In fact, the Federal Reserve is a cartel, and its history, as befits a cartel, is secretive, arrogant and even brutal.
For Ed to write about these issues in the middle and late 20th century without the benefit of the Internet or other electronic methodologies is most impressive. One man with only the tools of scholarship – and not a formal scholar – wrote a series of honest books and articles that truthfully described an alternative monetary history that is proving all too accurate today.
And once again Ed is there to show us the way. Who can doubt – whether this latest financial crisis was manufactured or not – that the solutions being proposed on the world stage are more of the same. That is, they further consolidate power and remove the ability of average citizens to pursue private financial dealings – just as central banking does.
In fact, if we understand it correctly, the remedies being proposed in America and elsewhere to combat the latest fiat-money collapse would involve the presentation of private trading data to the Securities and Exchange Commission for purposes of evaluating whether or not such trading was destabilizing to world markets.
This is absolutely nonsensical of course. The SEC and other agencies are not in the position to evaluate systemic risk much less to bring down large trading entities because they seem to threaten the system. The idea is madness and one can imagine the chaos that would ensue if such an activity were pursued (though it well may be, sooner or later).
In fact, as Ed has pointed out numerous times, without a central banking cartel there would be much less systemic risk to worry about. A gold standard would fairly well restrain those who seek to print endless amounts of fiat money that endlessly stimulate Western economies – until assets are mis-allocated and markets eventually crash.
Unlike the paid bankers and wealthy VIPs who spew out misinformation on virtually every media, Ed has devoted his life to patiently making the case that central banking (and all that surrounds it) is a pernicious and dangerous activity. He was correct so many years ago when virtually no one else was providing that message. He is no less correct now – and it is a wonder that a single individual can be so prescient on so many levels.
Ironically, you will not see Ed feted on TV channels or appearing across the country on talk radio. Fortunately Ed has psychic satisfactions that far outweigh the shallow satisfactions and conveniences of mortal lifetimes. He has lived a life devoted to the truth and has told that truth courageously to an ever-expanding group of readers and admirers. Count us as both. Thanks, Ed.