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A TALE OF WINE AND WATER
Final Part

It is still not a part of common knowledge, that under gold standard, sterling (and to a lesser degree mark and franc) enjoyed reserve currency status, which allowed Bank of England to replace substantial amount of gold with notes, and then use the gold so extracted from circulation as "hot money" for inducing boom and bust cycles around the world, including these United States.

Sterling acquired its reserve currency status by sheer preponderance of English merchant fleet in worldwide shipping, which made London banks the logical place to finance the foreign trade transactions, and sterling bill the logical currency for these transactions. In fact, world prices of all commodities were quoted in sterling then, as they are quoted in US dollar now.

Massive withdrawal of gold would of course drastically reduce the prices of stocks, which could then be had for pittance, in order to be sold when their prices soared upon gold's return, only to be repurchased for pittance when gold left again. And that was one half of the secret of the boom and bust cycles under gold standard. (The other half, closely interconnected with international gold movements, were stock market meltdowns.) Boom and bust cycle was never an immanent defect of the gold standard system, as it has been pictured to this very day; it was Bank of England's manipulation, plain and simple.

So, if somebody will tell you that return to gold standard will bring back boom and bust cycles, that somebody will have to explain why boom and bust cycles coincided with movements of gold from and to England, and also, whatever happened to boom and bust cycles under fiat money regime.

Aside from the 1907 fracas, engineered on purpose to provide the argument for Congress that "elastic currency" was badly needed, there were no busts between 1900 and 1914, when English gold was pouring into the United States to finance preparations for the Great War. While US economy was booming, J.P. Morgan was consolidating strategic industries into giant conglomerates, such as US Steel, International Harvester, International Merchant Marine (General Electric was consolidated earlier). Morgan's new biographer, Jean Strouse, writes that Andrew Carnegie, having sold his steel empire into US Steel for $480 million, said to Morgan during the Atlantic crossing: "Mr Morgan, I believe I should have asked you for another $100 million." To which Morgan allegedly replied: "If you had, I'd have paid it."

During this period of intense preparations for the war, Bank of England was stretching sterling's reserve currency status beyond every limit imaginable, but because England had just acquired Transvaal and Orange Free State in the course of the Boer War, everyone assumed the Bank of England was good for all the paper it was passing around. That was the reason why they needed Transvaal so bad, that they resorted to the use of concentration camps to keep it.

Fed by this incessant flow of English gold, by January 1914, the grand total of all bank deposits in America climbed to $14 billion mark, but... $32 billion more were needed to save the British Empire.

How to serve additional 32 gallons of wine from a 14-gallon barrel? That was the question.

In order to extract from America nine and a half billion dollars in foreign loans once the war broke out, and twenty two and a half billion dollars for US own war expenses, American central bank had to be established first.

What is central bank?

Central bank, also known as "bank of issue", has right to counterfeit money. This is all one needs to know to grasp the entire meaning of this institution.

This counterfeited money is always a paper money because the very idea of counterfeiting gold died together with the last medieval alchemist. A coin that contains 516 grains of gold 9/10 fine is worth 516 grains of gold 9/10 fine whether it was minted officially or counterfeited. Gold has intrinsic value, paper does not.

Under decentralized banking system, as it existed before Federal Reserve legislation was enacted by Congress in December 1913, bankers could not increase money supply at will beyond the safety margin of the fractional reserve without risking insolvency.

Under centralized banking system, the insolvency threat would disappear because every loan the bankers would elect to make could instantly be made good by a ledger entry in the central bank and by newly printed counterfeited currency under the name and style of "Federal Reserve Notes".

Under central bank regime, bankers could help themselves to a gallon of wine and then pour a gallon of water back into the barrel.

The market could not be deceived indefinitely, of course, and prices would begin to climb, but the effect would always be felt long after the fact. By siphoning the earned money (as opposed to the counterfeited money) from the other end of the market and converting it into debt, the sale of "liberty bonds" would in effect keep a lid on inflation and would make the counterfeited Federal Reserve dollars go further. By this stratagem, the counterfeited dollars, created by the central bank out of nothing simply by making ledger entries, would be converted into dollars earned by the people in the sweat of their brows.

The task to impose such central bank upon the people of America was entrusted to a cabal of investment bankers and "robber barons", led by J.P. Morgan and Company, a long time representative of the interests of the Bank of England in the United States. It was not a simple matter.

At the outset, "good reason" for central bank creation had to be established for the benefit of those who were against it. This was accomplished by the stage managed "money panic" of 1907.

"Money panics" were not the immanent fault of the gold standard as they were often pictured. Typically, they were caused by the stock market meltdowns, such as the one that was precipitated by E.H. Harriman's attempt to take over Northern Pacific in 1901.

Loss of capital on the stock market would lead to withdrawals of bank deposits and recalls of loans. Faced with uncertainty, the banks would "go on the clearing house basis", meaning, they would not pay gold for paper until the underlying transactions duly cleared. To the public, this was nothing short of musical chairs game. By going on the clearing house basis, the banks were in effect putting the public on notice that some of the banks were likely to be found with their vaults empty when the music stopped. The public would then proceed to withdrew deposits from all the banks, and this would push the whole economy into recession.

The 1901 stock exchange meltdown example is used here for the reason that it was the only meltdown on record that did not lead to full blown money panic because Jacob Schiff (who started it by countermanding Harriman's order for additional common shares of Northern Pacific) announced on the stock exchange floor that his bank, Kuhn Loeb and Company, would not enforce contracts against stockbrokers who sold Northern Pacific stock short when it reached stratospheric level only to see it climbing twice as high and becoming unobtainable for any price. Schiff also offered to supply brokers with Northern Pacific stock at pre-panic price to enable them to make good on their obligation to return it to their clients, thus putting an end to panic selling of blue chip stocks to raise cash for reacquiring otherwise unobtainable Northern Pacific stock.

The 1901 stock market meltdown stands as the best proof on record that money panics were originating at the stock exchange and could be stopped once for all by closing stock exchanges for good and making the public buy and sell the corporate stock on the basis of its properly certified book value directly from and to the issuing corporation. Internet makes this proposal perfectly feasible.

The 1907 "money panic" was different. It was activated when major New York banks went on the clearing house basis the moment Charles T. Barney of the Knickerbocker Trust was set up for the fall guy of the stock cornering scheme, while ample gold reserves all around the country could not possibly justify going on the clearing house basis anywhere. Charles A. Prouty of the Interstate Commerce Commission, at the quarterly dinner of the Economic Club of New York, reported in the New York Times of December 12, 1907, "...departing from the recent custom of lauding the financial powers of the city for the relieving of the financial situation, shook his finger in their faces and told them figuratively that 'you did it'."

Once the effects of that orchestrated "money panic" made themselves felt (and Charles T. Barney committed suicide), the insidious word of mouth propaganda surfaced all over the country, that it was high time to put an end to such money panics once for all by introducing "elastic currency" which would assure continuous rediscounting of commercial paper, and thus would protect national economy from recessions. This sophistry sounded so rational on its face, that before long even such populists as William Jennings Bryan would be persuaded to toe the line with the "money trust".

Throughout the whole century no one confronted this argument to this very day with a simple observation that it contained a contradiction in terms:

Throughout the whole century no one confronted this argument to this very day with a simple observation that it contained a contradiction in terms:

If this "elastic currency", i.e. "temporary" increase in money supply, was needed to replace the funds temporary unavailable for discounting commercial paper because they were lent as call money at exorbitant interest rates to bid for unobtainable shorted stock and thus prevent dumping blue chip stocks in Harriman-type meltdown, the electorate should have been told in no uncertain terms that the purpose of this "elastic currency" was to finance stock market debacles, and thus keep discounting of the commercial paper uninterrupted.

And if this "elastic currency" was needed to replace the funds temporarily unavailable for discounting commercial paper because they were withdrawn abroad, the electorate should have been told that the purpose of this "elastic currency" was to finance "hot money" speculations abroad.

We have seen in Part II of Euro and Gold Price Manipulation how Mr Clinton attempted to deceive Congress that emergency loan (elastic currency) was needed to save US taxpayers from impending loss on their investments in Mexico, and when his request was ignored, Mr Greenspan, not being able to provide any more of the Fed's "elastic currency" beyond $6 billion already allowed, obtained additional billions abroad from Bank for International Settlement, which of course used other central banks deposits for this purpose. And that money was then used to drive the currencies of the very same nations, whose central banks deposits were so used, some 20 percent up in order to close the circular charade that in the end allowed the hot money speculators earn over 100 percent return in six months. Would William Jennings Bryan still toe the line with "money trust" if his misconceptions were dispelled timely in similar fashion?

In the second stage, William Howard Taft had to be removed from the office of the President of the United States, when it became apparent that he only paid lip service to the central bank idea, but was truly against it. This was done by underwriting Theodore Roosevelt's third party bid against Taft in 1912, which assured the election of Woodrow Wilson on Democratic party line. Wilson was surrounded by deep cover proxies of J.P. Morgan. They virtually hypnotized him with international bankers omnipotence, and also infected him with the globalist religion of Cecil Rhodes secret society, which by then evolved into the imperial "Round Table" organization.

The third stage was to see the central bank legislation through Congress. To make it palatable to farm states representatives, the "money bill" disguised the central bank as "Federal System", consisting of twelve "Reserve Banks" scattered all over the country, ostensibly to protect the local interests. Still, the bill had to be passed by dishonorable stealth, when its most vocal opponents went home for Christmas.

There were no jets in 1913 and rail travel to faraway states took several days. It was a well established custom that members from far states were leaving early in order not to spend Christmas on the train, and other members who could stay longer were honor bound not to act on matters of national importance while their colleagues were absent. But Federal Reserve Act was rushed through the House-Senate conference committee when its most vocal opponents were literally on the trains, and President Wilson signed it in a big hurry on December 23, 1913, to make sure it was not derailed by the outwitted members of Congress upon their return from Christmas recess. Many of them found out what happened from their local newspapers on Christmas Eve.

Unsavory hay is still being made out of the fact that the key role in drafting and enacting Federal Reserve Act, from the days of the super secret Jekyll Island conference of 1910 to the days of Christmas recess plot of 1913, was played by Paul Moritz Warburg, one of the senior partners in Kuhn, Loeb and Company. Not many people seem to understand today that New York banks of that era were either "British" or "German", and because the central bank initiative came from England via the "British" banks led by J.P. Morgan, it was imperative, if that initiative was going to succeed, that "German" group be invited to join the plot. Otherwise, Jacob Schiff and the "Germans" could disrupt J.P. Morgan's vespers. (E.g., Schiff was able to sabotage Russian loans in New York even as Russia fought on the allied side in World War I.)

In the end, while the opponents of the Federal Reserve System would be denouncing it with relish as German Jewish plot, England and her allies would be getting the loans they needed, and the bankers controlling the Fed would be gaining the status of de facto government of the United States.

Two additional constitutional amendments would round off the Federal Reserve legislation into a major coup d'etat which would in effect terminate the unique heritage of the American Revolution. One would remove the constitutional prohibition against income tax, the other would provide for election of Senators by popular vote. The former, would in effect convert free citizens into medieval serfs by requiring them to work in landlord's fields for so many days each year; the latter, would in effect destroy sovereignty of the states vis-a-vis the federal government. Federal Reserve Act itself was a double fraud because it took away from Congress its constitutional power to "coin money" by ordinary legislation rather than by constitutional amendment.

In January 1914, total bank deposits in America stood at $14 billion. By way of taking one gallon of wine at a time and pouring a gallon of water back into the barrel, $32 billion were easily extracted from American economy by January 1920, even as deposits doubled to $29.4 billion. This nominal increase of deposits from $14 billion to $29.4 billion was in reality smaller than 9 percent because, with CPI reading "193", the Federal Reserve dollars of January 1920 were worth only 51.8 cents in terms of Gold Standard dollars of July 1914.

In short, Federal Reserve System was doing admirably well what it was created to do, namely, financing the war for the British Empire by way of counterfeiting United States dollars. The only problem was that the war came and went, but the counterfeiters remained. But this was not the only legacy of the Great War; Communism in Russia was another.

In the next essay in two parts, entitled "The Real Lenin", we shall retrace the historic roots of Communism in Russia, not only because it was never done satisfactorily by anyone before, but because that factor was the key consideration in the fateful decision to falsify gold fixings by the London Bullion Market Association.

Part 1

J.N. Tlaga
tlaga@shadow.net

Copyright 2000 J.N. Tlaga

January 6, 2001