you hello hello check one two one two hope y'all can hear me give it a minute to pop into the player window bear with me folks hello hello all right we got audio and hopefully y'all should be able to hear me fairly well here oh and hey what's up Nicholas brown yeah so we'll just get right into it this is going to be chapter 9 of the creature from Jekyll Island by G Edward Griffin chapters called the secret science the condensed history of fractional reserve banking the unbroken record of fraud booms busts and economic chaos the formation of the Bank of England the world's first central bank which became the model for the Federal Reserve System banks of deposit first appeared in early Greece concurrent with the development of coinage itself in US turn my phone off all right banks of deposit first appeared in early grades concurrent with the development of coinage itself they were known in India at the time of Alexander the Great they also operated in Egypt as part of the public granary system they appeared in Damascus in 1200 and in Barcelona in 1401 it was the city-state of venice however which has considered the cradle of banking as we know it today the Bank of Venice by the year 1361 there already had been sufficient abuse in banking that the Venetian Senate passed a law forbidding bankers to engage in any other commercial pursuit thus removing the temptation to use their depositors funds to finance their own enterprises they were also required to open their books for public inspection and to keep their stockpile of coins available for viewing at all reasonable times in 1524 a board of bank examiners was created and two years later all bankers were required to settle accounts between themselves in coin rather than by cheque in spite of these precautions however the largest bank at that time the house of Pisano and si Polo had been active in lending against its reserves and in 1850 sorry 1584 was forced to close his doors because of inability to refund depositors the government picked up the pieces at that point and a state bank was established the Banco de a Piazza delle Rialto having learned from the recent experience with bankruptcy the new bank was not allowed to make any loans there could be no profit from the issuance of credit the bank was required to sustain its sustain itself solely from fees for coin storage exchanging currencies handling the transfer of payments between customers and notary services the formula for owners banking had been found the bank prospered and soon became the center of Venetian commerce its paper receipts were widely accepted far beyond the country's borders and in fact instead of being discounted in exchange for gold coin as was the usual practice they actually carried a premium over coins this was because there were so many kinds of coin in circulation and such a wide variance of quality within the same type of coin that one had to be an expert to evaluate their worth the bank performed this service automatically when it took the coins into its halt each was evaluated and the receipt given for it was AK it was an accurate reflection of its intrinsic worth the public therefore was far more certain of the value of the paper receipts than many of the coins and consequently was willing to exchange a little bit more for them unfortunately with the passage of time in the fading from memory of previous banking abuses the Venetian Senate eventually succumbed to the temptation of credit strapped for funds and not willing to face the voters with a tax increase the politicians decided they would authorize a new bank without restrictions against loans have the bank create the money they needed and then borrow it so in 1619 the Banco del Garowe was formed which like its bankrupt predecessor began immediately to create money out of nothing for the purpose of lending it to the government 18 years later the Banco de a-- piazza de rialto was absorbed into the new bank in history's first tiny flame of sound banking sputtered and died throughout the 15th and 16th centuries banks had been springing up all over europe almost without exception however they followed the lucrative practice of lending money which was not truly available for loan they created excess obligations against their reserves and as a result every one of them failed it's not to say that their owners and directors did not prosper it merely means that their depositors lost all or a part of their assets entrusted for safekeeping at the bank of Amsterdam it wasn't until the bank of Amsterdam was founded in 1609 that we find a second example of sound banking practices and the results were virtually the same as previously experienced by the banco de a-- piazza de rialto the bank only accepted deposits stead fend steadfastly refused to make loans its income was derived solely from service fees all payments in and around Amsterdam soon came to be made in paper currency issued by the bank and in fact that currency carried a premium over coin itself the burgomaster's and the City Councilor Council were required to take an annual oath swearing that the coin reserve of the bank was intact Galbraith reminds us quote for a century after its founding it function it function to use usefully and with notably strict rectitude deposits were deposits and initially the metal remained in storage for the man who owned it until he transferred it to another none was loaned out in 1672 when the armies of louis xiv approached amsterdam there was grave alarm merchants besieged the bank summoned the suspicion that their wealth might not be there all who sought their money were paid and when they found this to be so they did not want payment as was often to be observed in the future however however desperately people want their money back from a bank when they are issued it when they are assured they can get it they no longer want it end quote the principles of honesty and restraint were not to be long-lived however the temptation of easy profit from money creation was simply too great as early as sixteen fifty seven individuals had been permitted to overdraw their accounts which means of course that the banks created new money out of their debt in later years enormous loans were made to the Dutch East Indies company the truth finally became known to the public in January of 1790 and demands for a return of deposits were steady from that day forward ten months later the bank was declared insolvent and was taken over by the city of Amsterdam the Bank of Hamburg third and last experience with honest Banking occurred in Germany with the Bank of Hamburg for over two centuries it faithfully adhered to the principle of safe deposit the so scrupulous was its administration that when Napoleon took possession of the bank in 1813 he found seven million five hundred six thousand nine hundred fifty six marks in silver and silver held against liabilities of seven million four hundred and eighty nine thousand three hundred forty three that was seventeen thousand six hundred thirteen more than was actually needed most of the bank's treasure that Napoleon hauled away was restored a few years later by the French government in the form of securities it's not clear if the securities were of much value but even if they were they were not the same as silver because of foreign invasion the bank's currency was no longer fully convertible into coin as receipt money it was now fractional money and the self-destruct mechanism had been set in motion the bank lasted another 55 years until 1871 when it was ordered to liquidate all of its accounts and that is the end of the short story of honest banking from that point forward fractional reserve banking became the universal practice but there were two there were to be many interesting twists and turns in its development before it would be ready for something as sophisticated as the Federal Reserve System early banking in England in England the first paper money was the exchequer order of Charles the second it was pure fiat and although it was decreed legal tender it was not widely used it was replaced in 1696 by the XK X checker bill the bill was redeemable in gold and the government went to great lengths to make sure that there was enough actual coin or bullion to make good on that pledge in other words it was true receipt money and it became widely accepted as the medium of exchange furthermore the bills were considered as short-term loans to the government and actually paid interest to the holders in 1707 the recently created Bank of England was given the responsibility of managing its currency but the bank found more profit in the circulation of its own banknotes which were in the form of a fractional money and which provided for the collection of interest not the payment of it consequently the government bills gradually passed out of use and were replaced by banknotes which by the middle of the 18th century became England's only paper money it must be understood that at this time the Bank of England was not yet fully developed as a central bank it had been given a monopoly over the issue of banknotes within London and other prime geographic areas but they were not yet decreed as legal tender no one was forced to use them they were merely private fractional receipts for gold coin issued by a private bank where the public could accept reject or discount at its pleasure legal tender status was not conferred upon the bank's money until 1833 meanwhile parliament had granted charters to numerous other banks throughout the empire and without exception the issuance of fractional money led to their ultimate demise and the ruin of their depositors quote disaster after disaster had come upon the country and quote said Shaw because of the indifference of the state to these mere private paper tokens end quote the Bank of England however was favored by the government above all others and time after time it was saved from insolvency by Parliament how it came to be that way as an interesting story the Bank of England England was financially exhausted after half a century of war against France and numerous civil wars fought largely over excessive taxation by the time of the War of the League of Augsburg in 1916 ninety-three King William was in serious need for new revenue 20 years previously king charles ii had flat-out repudiated a debt over a million pounds which had been lent to him by scores of Goldsmith's with the result that 10,000 depositors lost their savings this was still fresh in everyone's memory and needless to say the government was no longer considered a good investment risk unable to increase taxes and unable to borrow parliament became desperate for some other way to obtain the money the objective says Groseclose was not to bring the money mechanism under more intelligent control but to provide means outside the ownerís or Nega opportunity arise out of this necessity the first group consisted of the political scientists within the government the second was comprised of the monetary scientists from the emerging business of banking the organizer and spokesman of this group was William Patterson from Scotland Paterson had been to America and came back with a grandiose scheme to obtain a British Charter for a commercial company to colonize the Isthmus of Panama then known as Darien the government was not interested in that so Patterson turned his attention to a scheme that did interest them very much the creation of money the two groups came together and formed an alliance now that's too soft of a word the American Heritage Dictionary deveined defines a cabal as a conspiratorial group of plotters or intriguers there is really no other word they could so accurately describe this group which with much of the same secrecy and mystery that surrounded the meeting on Jekyll Island the Cabal met in Mercer's Chapel in London and hammered out a seven-point plan which would serve their mutual purposes one the government would grant a charter to the monetary scientists to form a bank to the bank would be given a monopoly to issue banknotes which would circulate as England's paper currency 3 the bank would create money out of nothing with only a fraction of its total currency backed by coin for the monetary scientists then would loan the government all the money that it needed 5 the money created for government loans would be backed primarily by government io u--'s 6 although this money was to be created out of nothing and would cost nothing to create the government would pay quote interest on it at the rate of 8 percent 7 government IOUs would also be considered as reserves for creating additional loan money for private commerce these loans also would earn interest thus the monetary scientists would collect double interest on the same nothing the circular which was distributed to attract subscribers to the bank's initial stock offering explained quote the bank hath benefits of interest on all the money's which it the bank creates out of nothing end quote the Charter was issued in 1694 and a strange creature took its initial breath of life it was the world's first central bank Rothbard writes quote in short since there were not enough private savers willing to finance the deficit Patterson and his group were graciously willing to buy government bonds provided they could do so with newly created out of thin air banknotes carrying a raft of special privileges with them this was a splendid deal for Patterson and company and the government benefited from the flim-flam of a seemingly legitimate bank's financing their debts as soon as the Bank of England was chartered in 1694 King William himself and various members of parliament rushed to become shareholders of the new money factory they had just created end quote excuse me the secret science of money both groups within the cabal were handsomely rewarded for their efforts the political scientists had been seeking about 500,000 pounds to finance the current war the bank promptly gave them more than twice what they originally sought the monetary scientists started with a pledged capital investment of 1.2 million pounds textbooks tell us that this was lent to the government at 8% interest but what is usually omitted is the fact that at the time the loan was made only 720 thousand pounds had been invested which means the bank quote loaned 66 percent more than it had on hand furthermore the bank was given the privilege of creating at least an equal amount of money in the form of loans to the public so after lending their capital to the government they still had it available to loan out a second time an honest loan of their seven hundred twenty thousand pounds at eight percent would have yielded fifty seven thousand six hundred pounds an interest but with the new secret science they were able to earn eight percent on a 1.2 million pounds given to the government plus an estimated nine percent on seven hundred twenty thousand pounds loaned to the public that a that adds up to one hundred and sixty thousand eight hundred pounds more than 22 percent on their investment the real point however is that under these circumstances it's meaningless to talk about a rate of interest when money is created out of nothing the true interest rate is not 8% or 9% or even 22% it's infinity the first official act of the world's first central bank can be seen in the grand pretense that has characterized all those who have C followed the bank pretended to make a loan but what it really did was to manufacture the money for the government's use if the government had done this directly the Fiat nature of currency would have been immediately recognized and it probably would not have been accepted at full face value in payment for the expenses of war by creating money through the banking system however the process be mystifying to the general public the newly created bills and notes were indistinguishable from those previously backed by coin and the public was none the wiser the reality of Sancta vated anytime the politicians want this is a godsend to the political scientists who no longer must depend on taxes or the good credit of their treasury to raise money it's even easier than printing and because this process is not understood by the public it's politically safe the monetary scientists of course are amply paid for this service to preserve the pretense of banking it's said they collect interest but this is a misnomer they didn't lend money they created it their compensation therefore should be called what it is a professional fee or a commission or a royalty or kickback depending on your perspective but not interest from inflation to bank runs the new money created by the Bank of England splashed through the economy like rain and April the country banks outside of the London area were authorized to create money on their own but they had to hold a certain percentage of either coin or Bank of England certificates in reserve consequently when these plentiful banknotes landed in their hands they quickly put them into the volts and then issued their own certificates in even greater amounts as a result of this pyramiding effect prices rose a hundred percent in just two years then the inevitable happened there was a run on the bank and the Bank of England could not produce the coin when banks cannot honor their contracts to deliver coin in return for their receipts they are in fact bankrupt they should they should be allowed to go out of business and liquidate their assets to satisfy their creditors just like any other business this in fact is what always had happened to banks which loaned out their deposits and created fractional money had this practice been allowed to contain an error mankind would have learned to distinguish real money from fool's gold and the world would be a lot better because of it today that of course was not allowed to happen the Cabal is a partnership and each of the two groups is committed to protect each other not out of loyalty but out of mutual self-interest they know that if one fails so does the other it's not surprising therefore that when there was a run on the bank of England Parliament intervened in May of 1696 just two years after the bank was formed a law was passed authorizing it to quote suspend payment in species end quote by force of law the bank was now exempted from having to honor its contract to return the goal the pattern of protection was set this was a fateful event in the history of money because the precedent has been followed ever since in Europe in America the banks have always operated with the assumption that their partners and government will come to their aid when they get into trouble politicians may speak about protecting the public but the underlining reality is that the government needs the Fiat money produced by the banks the banks therefore at least the big ones must not be allowed to fail only a cartel with government protection can enjoy such insulation from the workings of a free market it is commonly observed in modern times that criminals often are treated lightly when they rob their neighbor but if they steal from the government or from a bank the penalties are harsh this is merely another minification of the cabal's partnership in the eyes of government banks are special and it has been that way even from the beginning of their Brotherhood for example Galbraith tells us in 1780 when the Lord George Gordon led his mob through London and protests against the Catholic Relief Acts the bank was a principal target it signified the establishment for so long as the Catholic districts of London were being pillaged the authorities were slow to react when the siege of the Bank began things were thought more serious troops intervened and ever ever since soldiers have been sent to guard the bank by night booms and busts now guaranteed once the Bank of England had been legally protected from the consequences of converting debt into money the British economy was doomed to a nauseating roller-coaster ride of inflation booms and busts the natural and immediate result was the granting of massive loans for just about any wild scheme imaginable and why not the money cost nothing to make and the potential profits could be enormous so the Bank of England and the country's banks which pyramid in their own money supply on top of the bank supply pumped a steady stream of new money into the economy great stock companies were formed and financed by this money one was for the purpose of draining the Red Sea to recover the gold supposedly lost by the Egyptians when pursuing the Israelites a hundred and fifty million pounds were siphoned into vague and fruitless ventures in South America and Mexico the result of this flood of new money how many times must history repeat itself was even more inflation in 1810 the House of Commons created a special committee called the Select Committee on the high price of gold bullion to explore the problem and to find a solution the verdict handed down the final report was a model of clarity prices were not going up it said the value of the currency was going down and that was the that was due to the fact that it was being created at a faster rate than the creation of goods to be purchased with it the solution the committee recommended that the notes of the Bank of England be made fully convertible into gold coins thus putting a break on the supply of money that could be created in defense of the gold standard one of the most outspoken proponents of a true gold standard was a Jewish London stockbroker by the name of David Ricardo Ricardo argued that an ideal currency should be absolutely invariable in value he conceded that precious metals were not perfect in this regard because they do shift in purchasing power to a small degree then he said they are however the best with which we are acquainted almost everyone in the government agreed with Ricardo's assessment but as is often the case theoretical truth was fighting a losing battle against practical necessity men's opinions on the best form of money were one thing the war with Napoleon was another and it demanded a constant flow of funding England continued to use the central bank mechanism to extract that revenue from the populace depression and reform by 1815 prices had doubled again and then fell sharply the Corn Act was passed that year to protect local growers from lower priced imports then when corn and wheat prices began to climb once more in spite of the fact that wages and other prices were falling there was a widespread discontent and rebellion by 1816 notes rage astrum quote England was in deep depression there was stagnation of industry and trade generally the iron and coal industries were paralyzed riots occurred spasmodically from May through December and quo in 1821 after the war had ended and there was no longer need to fund military campaigns the political pressure for a gold standard became too strong to resist and the Bank of England returned to a convertibility of its notes into gold coin the basic central bank mechanism was not dismantled however it was merely limited by a new formula regarding the allowable fraction of its reserves the bank continued to create money out of nothing for the purpose of lending it and within a year the flower of a new business boom unfolded then in November of 1825 the flower matured into its predestined fruit the crisis began with the collapse of Sir Peter coal & Company and was soon followed by the failure of 63 other banks fortunes were wiped out and the economy plunged back into depression when a similar crisis with still more bank failures struck again in 1839 Parliament attempted to come to grips with the problem after five more years of analysis and debate Sir Robert Peel succeeded in passing a banking Reform Act it squarely faced the cause of England's booms and busts an elastic money supply what peels Bank Act of 1844 attempted to do was to limit the amount of money the banks could create to roughly the same as it would be if their bank notes were backed by gold or silver it was a good try but it ultimately failed because it fell short on three counts one it was a political compromise and was not strict enough allowing the banks to still create lending money out of nothing to the extent of 14 million pounds in other words it was a a fractional amount thought to be safe at the time - the limitation applied only to paper currency issued by the bank it did not apply to checkbook money and that was then becoming the preferred form of exchange consequently the so called reform didn't even apply to the area where the greatest amount of abuse was taking place and three the basic concept was allowed to remain unchallenged that man in his infinite political wisdom can determine what the money supplies should be more effectively than an unmanaged system of gold or silver responding to the law of supply and demand the roller-coaster continues within three years of the reform England faced another crisis with still more bank failures and more losses to depositors but when the Bank of England tottered on the edge of insolvency once again the government intervened in 1847 the Bank was exempted from the legal reserve requirements of the Peel Act such as the Rocksteady dependability of man-made limits to the money supply grows close continues the story quote ten years later in 1857 another crisis occurred due to excessive and unwise lending as a result of over optimism regarding foreign trade prospects the Bank found itself in the same position as in 1847 and similar measures were taken on this occasion the bank was forced to use the authority to increase its fiduciary or debt based money issue beyond the limit imposed by the bank charter act again in 1866 the growth of banking without sufficient attention to liquidity in the use of bank credit to support a speculative craze prepared the way for a crash which was finally precipitated by the failure of the famous house of overand gurney & Co the Act of 1844 was once more suspended in 1890 the Bank of England once again faced crisis and again the result of widespread and excessive speculation in foreign securities particularly American and Argentine this time it was the failure of baring brothers that precipitated the crash and quote the mechanism spreads to other countries it is an incredible fact of history that in spite of the general and recurring failures of the Bank of England during these years the central bank mechanism was so attractive to the political and monetary scientist that it became the model for all of Europe the Bank of Prussia became the Reichsbank Napoleon established the Banque de France a few decades later the concept became the venerated model for the Federal Reserve System who cares if the scheme is destructive here is the perfect tool for obtaining unlimited funding for politicians and endless profits for bankers and best of all the little people who pay the bills for both groups have practically no idea what's been being done to them in summary the business of banking began in Europe in the 14th century its function was to evaluate exchange and safeguard people's coins in the beginning there were notable examples of totally honest banks which operated with remarkable efficiency considering the vast variety of coinage they handle they also issued paper receipts which were so dependable they freely circulated as money and cheated no one in the process but there was a great demand for more money and more loans and the temptation soon caused the bankers to seek easier paths they began lending out pieces of paper that said they were receipts but which were in fact counterfeit the public couldn't tell one from the other and accepted both of them as money from that point forward the receipts in circulation exceeded the gold held in reserve in the age of fractional reserve banking had dawn this led immediately to what would become an almost unbroken record from then to the present a record of inflation booms and busts suspension of payments bank failures repudiation of currencies and recurring spasms of economic chaos the Bank of England was formed in 1694 to institutionalize fractional reserve banking as the world's first central bank it introduced the concept of a partnership between bankers and politicians the politicians would receive spendable money created out of nothing by the bankers without having to raise taxes in return the bankers would receive a commission on the transaction deceptively called interest which would continue in perpetuity since it all seemed to be wrapped in the mysterious rituals of banking which the common man was not expected to understand there was a practically no opposition to the scheme the arrangement provided so profitable to the participants that it soon spread to many other countries in Europe and eventually to the United States in Chapter 9 the creature from Jekyll Jekyll Island by G Edward Griffin and the stream peace out everybody thanks for watching