A TALE OF WINE AND WATER
Edited
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:
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.
gold-eagle.com
Jack |
