History of the Federal Reserve and US Monetary Systems in the United States
Administrative Logistics & Current Market Conditions
Course Schedule Adjustments:
There will be no class on Friday due to a scheduled exam.
On Tuesday, June 9, there will be no live class on campus because of World Cup related events. The instructor will record an extra lecture on the preceding Monday.
June 10 is the scheduled date for the next exam. Further details regarding the exam will be provided in the following class session.
Energy Markets:
Oil prices have dropped below and are currently following a downward trend.
Market pricing suggests a belief that the current war is nearing its end, though this is based on rumors and carries significant uncertainty.
High oil prices are universally viewed as a negative economic indicator.
Bond Market & Mortgages:
The bond market has been relatively flat, with yields moving less than one basis point.
Mortgage rates have dropped slightly over the past week because of the recent dip in bond rates.
Stock Market Indices:
The Dow Jones, Nasdaq, and S&P 500 were near all-time highs as of the lecture.
Markets have been largely flat to positive, following a period of indices hitting record levels on the previous day.
The Philosophical Foundations of US Banking (1789–1811)
1776: The United States declared independence.
March 4, 1789: George Washington became President. This marks the formal start of the national debt.
Alexander Hamilton vs. Thomas Jefferson:
Hamilton (Pro-Central Bank): Modeled his proposals after the Bank of England (which was modeled after banks in Amsterdam and Sweden). He favored fractional reserve banking.
Jefferson (Anti-Central Bank): Favored reserve banking, where banks only lend money by informing depositors and paying them interest, rather than lending out deposits without direct notice. He warned that fractional reserve banking leads to bank runs because banks do not physically hold all the money that has been deposited.
Fractional Reserve Standards: Historically, banks were required to keep in reserves and could lend out . This requirement has dropped to zero in modern times.
The First Bank of the United States (1791–1811):
It was the first central bank, though it had limited power compared to the modern Federal Reserve.
Ownership Structure: owned by the federal government and owned by secret private investors.
The Rothschild Connection: It is widely theorized that the Rothschild family, specifically Nathan Rothschild (the London-based brother of the five sons who started the bank in Germany), owned a significant portion of the bank. This was controversial given that the US had just fought a war for independence from British influence.
The Bimetallic Standard (1792): The US adopted a standard where the currency was backed by both gold and silver at specific ratios. During this time, every bank (state-chartered and national) issued its own unique physical currency.
The War of 1812 & The Second Bank (1811–1836)
1811: President James Madison, a Jeffersonian, allowed the charter of the First Bank of the United States to lapse.
War of 1812: Nathan Rothschild reportedly threatened the US with war if the charter was not renewed. Shortly thereafter, the US went to war with England.
The Second Bank of the United States (1816–1836):
Following the financial chaos of the War of 1812, public support shifted back toward a central bank.
New Powers: In addition to competing with state banks and issuing currency, the Second Bank was designated the "Lender of Last Resort." This meant the bank could bail out other banks in trouble.
The Battle of Waterloo (1815):
Nathan Rothschild used an advanced communication network to learn that the British had won against Napoleon twenty-four hours before the rest of London.
He manipulated the London Stock Exchange by pretending to sell in a panic, causing the market to crash. He then bought back government bonds at a low price, becoming one of the wealthiest men in England.
The Jacksonian Era & The Free Banking System (1836–1863)
Andrew Jackson (1829–1837):
Jackson was a Jeffersonian who deeply distrusted the central bank and the global elites he believed ran it.
In 1835, Andrew Jackson notoriously paid off the entire US national debt.
He allowed the charter of the Second Bank of the United States to expire in 1836.
Assassination Attempt (1835): Theories suggest the Rothschilds funded the first attempt on a President's life in 1835 because of Jackson's opposition to the bank. Jackson famously defended himself by beating the assailant with his cane.
Free Banking System (1837–1859): A period with no national or central bank. Only state banks existed. They issued their own currencies backed by gold and silver, but they could not operate across state lines.
Civil War Economy (1860–1863): During the war, both the North and the South moved to fiat currency (money not backed by precious metals) to fund the conflict.
Income Tax (1861): The federal government introduced its first income tax in 1861 to fund the war. It was abolished in 1872.
The National Banking System & The Gilded Age (1863–1910)
National Banking System (1863–1913):
The government shifted to a system of nationally chartered banks in addition to state banks.
State banks were prohibited from issuing their own currency; only national banks could do so, though individual bank designs persisted.
The Gilded Age (1880–1910):
Considered the greatest industrial revolution in history. Saw the rise of electricity, oil, railroads, cars, and airplanes.
Notably, this era was achieved without a central bank and without an income tax.
Wealthy "Barons" emerged, including J.P. Morgan, the Rockefellers, Carnegies, and Vanderbilts.
The Election of 1896: Centers on the conflict between "Gold Bugs" (who wanted a gold-only standard) and silver proponents.
Wizard of Oz Allegory: The book was a political commentary on this election. Dorothy's shoes were silver in the book (representing the silver movement); the Yellow Brick Road represented gold; the Scarecrow represented farmers; the Tin Man represented industrial workers; the Cowardly Lion was William Jennings Bryan (the Democratic nominee); and the Wizard was President Grover Cleveland/DC greed (Emerald City being green/money).
Gold Standard Act of 1900: Formally settled that the US was on a gold standard.
The Creation of the Federal Reserve (1910–1913)
Panic of 1907: A massive bank run occurred. J.P. Morgan used his personal wealth to bail out the government and the banking system. This crisis was used by politicians and bankers to argue for a regulator/central bank.
Jekyll Island, Georgia (1910):
A secret meeting of six men took place representing the three most powerful wealth groups: the Morgans, the Rockefellers, and the Rothschilds.
These men represented approximately one-fourth of the world's wealth. They drafted the plan for the Federal Reserve, essentially creating a banking cartel under the guise of a government watchdog.
The Sinking of the Titanic (April 15, 1912):
Three of the wealthiest men in the world who opposed the Federal Reserve—John Jacob Astor, Benjamin Guggenheim, and Isidore Strauss—all died on the Titanic. Most first-class passengers survived, but the three wealthiest did not.
The Titanic was built by a company owned by J.P. Morgan. J.P. Morgan was supposed to be on the ship but missed it.
Federal Reserve Act of 1913: Established the current central bank.
Mandate: Act as a lender of last resort and manage the money supply.
Structure: Divided into 12 districts to give the appearance of decentralization.
One Currency: Created the "Federal Reserve Note," which replaced individual bank currencies. These were initially backed by gold.
16th Amendment (1913): Legalized the federal income tax. It was pitched as a tax only for the super-wealthy but was never abolished.
Conspiracy Context: 9/11 and J.P. Morgan Parallels
Larry Silverstein & Building 7:
The instructor compares J.P. Morgan's absence from the Titanic to Larry Silverstein's absence from the World Trade Center on September 11, 2001.
Silverstein bought the World Trade Center in the summer of 2001. He and his children, who usually worked there, all missed work that specific day.
Building 7 (Salmon Brothers Building): A steel-frame building that collapsed at on 9/11 despite not being hit by a plane. This was the first time in history a steel building collapsed from fire alone. The BBC reported the collapse twenty minutes before it actually happened.
Building 7 housed offices for the FBI, CIA, IRS, and NSA.
Barry Jennings: A key witness who reported explosions in Building 7 before the towers fell.
Questions & Discussion
Question from the Audience: The instructor asked the audience if they had any questions regard the "massive audience" present (noting most are online).
Response: No questions were posed. The instructor concluded the history segment and noted they will finish the timeline and discuss the exam in the next class.