June 30, 2008
Elaine Meinel Supkis
To be frank, going back into old Fed Reserve speeches, one is struck by both how similar today's problems are to past difficulties as well as how openly earlier Fed chiefs used to try to talk to Congress and the public. People thought Greenspan was very smart and clever because he talked in circles and made little rational sense. This supposedly made his many mysterious policies look difficult and thus, we had to trust him because he knew more than us little people. Well, that was a false front. Today, we go back to when I was born to see what Mc Chesney Martin Jr thought about Fed policies after WWII and during the Korean War. He is the Fed chief who shoved things to the bitter destruction of the gold standard and the devaluing of silver coinage.
First, let us introduce the longest-serving Fed Chief, a man born with a silver spoon in his mouth. The destroyer of the silver/gold basis of our currency was done by the hands of the son of one of the founders of the Federal Reserve at Jekkyl Island, Georgia, in 1913.
William McChesney Martin, Jr. (born December 17, 1906, St. Louis, Missouri – died July 28, 1998, Washington, D.C.) was the ninth and longest-serving Chairman of the United States Federal Reserve, serving from April 2, 1951 to January 31, 1970 under five Presidents. William McChesney Martin, Jr. was born to William McChesney Martin and Rebecca Woods. Martin's connection to the Federal Reserve was forged through his family heritage. In 1913, Martin's father was summoned by President Woodrow Wilson and Senator Carter Glass to help design the Federal Reserve Act that would establish the Federal Reserve System on December 23 that same year. His father later served as governor and then president of the Federal Reserve Bank of St. Louis.Martin was a graduate of Yale University, where his formal education was in English and Latin rather than economics.
Ah, a family affair! The protean forces unleashed by daddy were completed by the son. McChesney Martin Jr. presided over the launching of the Cold War which was a perpetual war and coming in on the wings of the needs of Truman for waging the wasteful and dangerous Korean War, the need for more and more money on top of the huge debts generated by WWII....Martin Jr. had to fix this so the government could wage war while tricking the populace into thinking there was no wars. Thus, no war taxes, no more rations, no more sacrifices. From the ascension of the son onto the saddle of the War Horse, McChesney Martin Jr. was able to carry out his mission!
For the American people were slowly but surely lured into believing there was no war even as wars raged all around them. As nuclear bombs were blasting away in the Pacific, in America itself, as we expanded our military bases in every country we could, as outright confrontations blew up into full scale military wars, during all of this there was NO rationing, NO war bonds being sold, NO measures to control costs. Everything was free and easy and the basis of the New World Order whereby the great wealth of the US was to be eaten away by debts began. Let's look at the conflict between the Fed and Truman that got Martin Jr. into office:
The 1951 Accord, also known simply as the Accord, was an agreement between the U.S. Department of the Treasury and the Federal Reserve that restored independence to the Fed.During World War II, the Fed pledged to keep the interest rate on Treasury bills fixed at 0.375 percent. It continued to support government borrowing after the war ended, despite the fact that the Consumer Price Index rose 14% in 1947 and 8% in 1948, and the economy was in recession. President Harry S. Truman in 1948 replaced then Chairman of the Federal Reserve Marriner Eccles with Thomas B. McCabe for opposing this policy, although Eccles's term on the board would continue for three more years. The reluctance of the Fed to continue monetizing the deficit became so great that in 1951, President Truman invited the entire Federal Open Market Committee to the White House to resolve their differences. William McChesney Martin, then Assistant Secretary of the Treasury, was the principal mediator. Three weeks later, he was named Chairman of the Fed, replacing Eccles.
HAH! Fake interest rates so the government could wage war! Sounds familiar! Indeed, this is THE MODUS OPERANDI since WWI. The whole reason the Fed was created was for this purpose. Note how this created inflation, raging inflation right after the WWII ended. Also note how this 0.3% rate is very Japanese. The government LOVES these rates! All governments on earth would dearly love to imitate Japan and have perpetual cheap rates! Alas, the US, like today, had raging real inflation. Hell, Japan has that today yet they ignore this successfully. They even say, they want this super-sub 1% rate to run forever! This is what Truman wanted.
But like a similar man, Henry II of England, he put his buddy and good friend into Canterbury only to see him take on the mitre and crown and turn on his master and demand his own due and office. Interest rates rose. The Korean War ended. Eisenhower rose in power and took over the Presidency.
More of Martin Jr's biography:
His most famous quote about his central banking philosophy was that the job of the Federal Reserve is "to take away the punch bowl just as the party gets going,"[1] referring to the need to raise interest rates when the economy is at its most active.He was selected as the administrator-designate of the Emergency Stabilization Agency; part of a secret group created by President Dwight D. Eisenhower in 1958 that would serve in the event of a national emergency that became known as the Eisenhower Ten.[2]
Ah, the Eisenhower Ten! That does ring some bells in my own childhood! What were they for?
When nuclear war kills most Americans, these were the Ten who would come out of their government-paid caves to run the country! WWIII would put them in total control. These people became my enemies as i ground my baby teeth in fury over the idea that they would protect themselves while the rest of us burn in the Apocalypse. The fact that this group of conspirators were allowed to be secret is a clue as to the viciousness of this whole thing. Is this democracy? Of course not. Martin Jr. wanted desperately to have the media tell the US public that his job was to prevent us from enjoying life too much. He was going to be the Guardian at the Gates of Wealth and the Cave of Death. As one of the Ten who would control us if most of us died, this was rather a dark joke, no? This is all quite literal.
Americans were told to party! The punch bowl was always out. Even as there were hints in the news that perhaps smart people would take care to have some sort of system to either escape from the cities very, very fast and have a good hiding hole safe in the mountains, the general feeling was 'feel good' not 'oh my god, we are all going to die and the Ten will take over!' By the time I was ten years old, I practiced running barefoot in the desert just in case of nuclear war and I was caught without shoes. Survival time!
I decided it was time to go to the dawn of Martin Jr.'s rule of the Fed to see if we can trace the evolution of his leadership there and how it ended with the Fed utterly destroying the silver coinage and the gold/dollar peg. For he set everything on a crazy course downwards and this is very much part of the 'Fabulous Fifties' culture, the 'Happy Days' which was the false front on a house of mirrors that was slipping down the mountainside. I, personally, have very bad memories of the 1950's but then, I saw the Dark Side of that era from close up. Very close up for a mere child. I truly expected WWIII.
This first speech was given when I was still nursing at my mother's breasts:
Remarks of Wm. McC. Martin, Jr., Chairman, Board of Governors of the Federal Reserve System, before the 77th Annual Convention of the American Bankers Association, Chicago, Illinois,
October 2, l95l.
We are all painfully aware today of the manifold and overpowering complexities of our modern life. As bankers, dealing in media of exchange, we understand more clearly than ever before the ramifications inherent in our daily operations, which, like the proverbial pebbles tossed into the pool, set in motion forces with far-reaching repercussions. It was this realization that led originally to the creation of the Federal Reserve System.Out of the increasingly unwieldy gyrations, the Frankenstein mechanics of an uncontrolled supply of money, the need for a strong central bank has been found to be essential to our economic stability. The banks, the people, and the Government realized that panics and crises, caused by periodic irregularities in the flow of our money supply, must no longer be permitted to rock our country back and forth every few years. The Central Bank was designed to minimize these convulsions, create more stable values, and thus make possible the smooth functioning of monetary machinery so necessary to promote the growth of the country and to improve standards of living. This was the purpose and this is the ideal.
Pray tell, what were these mysterious 'irregularities' in money flows? Panics usually are very closely associated with wars and the sudden lurches in monetary output and policies associated with wars. The Great Depression's panic was special. It was not due directly to wars. But thanks to the huge overhang of financing created by the Federal Reserve for England and France to fight WWI, the flow of all this Funny Money™ overseas took a few years for this tsunami to come back home. Then it wiped out our economy! The heavy weight of this massive global debt was dealt with by Germany ripping it all up and refusing to pay it and forcing England and France to do the same. Then the US fell apart since this is like seeing all the Alt A loans in the universe vanish at once. A huge change in the status of the money supply!
The Fed dearly would love us to believe that they had NOTHING to do with all this! All they did was supply credit to the allies in WWI. They didn't plow the fields for the Great Depression. Now, after WWII and a huge overhang of even more debt looming, with the Korean War causing wild gyrations in spending and credit, Martin Jr. had to reassure everyone, the Fed had a handle on things...HAHAHA. Like earlier. His speeches, by the way, are often very defensive because there were many a Congress person and media reporter who remembered very vividly, the founding of the Fed and the subsequent problems this caused. There was a lot more skepticism back then!
Martin Jr's 1951 first Fed speech:
Central banking in the United States has been adapted to the requirements of a free people with a minimum of Government interference. The genius of the framers of the Federal Reserve Act lies in the creation of regional banks, knit together by a national governing body in Washington rather than in the establishment of a central institution with authoritarian powers.Each Federal Reserve Bank and each branch office is a regional and local institution as well as part of a nation-wide system. Through their boards of directors, the banks are in a position to represent the views and interests of the particular region to which they belong and, at the same time, they are the administrators of nation-wide banking and credit policies.
Instead of functioning from the center outward, we function through an interdependence of all our parts. The life blood of the Federal Reserve System is in its members. The health of each member affects the whole and it is only through the work, and the conviction, and the determination of the members that the whole has life. No dictatorial powers were accorded it when it was set up. No dictatorial powers should it usurp. Within the framework carefully outlined by law, the Federal Reserve Board is charged with the responsibility for formulating national credit policies and supervising their execution.
HAHAHA. I love it when people lie like this. No power was usurped by the Jekkyl Island conspirators! Perish the thought! Daddy must have beamed when Junior told this outrageous lie. Of course, Fed chiefs don't do as they please, they do....as they please! Wait! Who controls them? Do we get to vote for them? Do they run for office? Congress gets to question them but not order them around. They do whatever they want and keep whatever secrets they want. I am glad they are releasing some information they kept secret for so long. But this doesn't change their character as despots who get to do whatever they wish behind closed doors like, say, suddenly hand Bear Stearns to JP Morgan, one of the founding entities of the Federal Reserve.
These are challenging times. These are times when strange voices would lead us down roads alien to the concepts of our founders. If our institutions do not serve us well, let us revamp them. On the other hand, if, given the imperfections of all things human, they are the best servants of the common good which we can fashion, and if they can adapt themselves to the changing needs of the people they serve, let us see to it that they are preserved. I call upon you as bankers, and as leaders in your community, to ever be conscious of the measure of freedom we have enjoyed in every sphere of our life, to be concerned with any attempt to deprive us of this freedom and to be vociferous in preserving those rights which we have obtained. Whatever changes we make, let us not betray the foresight of those who have struggled so valiantly to maintain our self-government and the security of our democracy.In the next few years the bankers of America will be called upon to meet severe tests. They are already meeting successfully, in the Voluntary Credit Restraint Program in which they are so actively participating, one of the demands placed upon them. In this program, they have organized the managerial resources of the banking community in an educational program of benefit to borrower and lender alike. This has confounded the cynics and those who sneer at self-regulation. It will require real courage, vision, toughness, and stamina to continue this laudatory fight against inflation.
This plan was to ration credit! The government was demanding more and more credit for the possibility of WWIII. Rationing was very unpopular in 1951. People were sick and tired of wars. The drumming for wars was incessant but the consumers wanted to have fun, not fight forever. So this new fake system was set into motion: the bankers would conspire with the Fed to not take advantage of super-cheap interest rates and lend to Americans. See? They would VOLUNTARILY refuse to pass on this cheap credit to the parents of the baby boom which was just starting. I was in the earliest ranks of the BB.
Most Americans didn't understand that credit was being rationed. All sorts of excuses were made concerning credit and why people couldn't get it. The VA housing bill for GIs who were starting families was a problem. This annoyed the Fed, by the way. Here is a speech a year later:
February 6, 1952.
During 1952 the defense effort will generate a heavy demand for financing on the part of the Federal Government and on the part of private borrowers. Continued maintenance of economic stability will depend on whether total demands on the credit and capital market can be substantially limited to the supply of genuine savings.In 1951, the economy's aggregate savings were at a very high level. This entire amount of savings was absorbed in financing private and State and local government capital expansion, including inventory accumulations, plant and equipment outlays, and residential and commercial construction. Even so, total credit and capital demands were so great that the savings supply was supplemented by an expansion of bank credit large enough to threaten resumption of inflationary trends. This situation obtained, moreover, with a Federal cash surplus of about 1 billion dollars.
Oops! The attempt at rationing credit failed! Too much savings pushed into being too much expansion of finances. Only the government was allowed to pour money out like crazy. Inflation was growing! In an earlier story today, I noted the business about Burns, the next Fed chief, talking about how inflation took off during and right after the Korean war. He correctly correlated war spending with inflation.
One important new factor in the market which is very disturbing to us at the Federal Reserve is the tax-exempt bonds which are being issued to finance public housing. Some $328,000,000 of such issues were floated in the last half of 1951--together with $45,000,000 of six-months' notes — and the market anticipates total issues for 1952 in the neighborhood of $750,000,000. Not only do such issues absorb some of the funds that would otherwise supply a market for Government bonds or for mortgages generated by new private construction, but they afford an opportunity for wealthy individuals and corporations to reduce legally their income tax payments in a period when it is essential that tax revenues be as large as possible. The issuance of these bonds at this time has been of special concern to the Federal Reserve since the Voluntary Credit Restraint Program Committee, organized under the Defense Production Act, has been exerting strenuous efforts to keep down the volume of such tax exempt securities otherwise originated.
There was a massive housing shortage thanks to the baby boom and the troops moving into cities to take advantage of the fact that the US was the only major industrial nation left standing intact after WWII. Note that the Fed is worried that money from savings won't flow to the Government bonds! Which supports the Cold War spending. Which was all about preparing for WWIII. Which would destroy all this lovely housing that annoyed this member of the Ten. Let's move forwards to 1957. This is when I saw at the Chicago Airport a newspaper with the headlines, 'Cold War Heats Up' which made such an impression on my young mind:
Wednesday, September 25, 1957
That world today is characterized generally on the one hand by great prosperity, great activity, and great vitality, and on the other by pervasive inflationary pressures.There are some who say that these two aspects of the current scene are not only related to each other, but are indissolubly linked — that we cannot enjoy the blessings of vital and active economic progress without incurring in some degree the ravages of inflation, that a progressive erosion of the value of our savings is a necessary price, and a not unreasonable one that must be paid for economic progress.
I wish to enter a firm dissent. I do not believe that either the jobs or the internal growth and development purchased by inflation afford a firm basis for either sustained employment or development. I refuse to adopt the defeatist position that inflation is the alternative to unemployment or to take refuge in the cynical rationalization that the pursuit of sound fiscal and monetary policies is impossible in a democracy.
There are others who point out that there are many novel features in today's generalized inflationary pressures. Most of us are now experiencing pressures that stem from unduly heavy defense expenditures, from growth in population, from demands for higher wages, from widespread resort to so-called escalator clauses in collective bargaining contracts, and from the prevalence in the modern world of cost-plus contracts which act to accelerate operations of the inflationary spiral.
*snip*
It is fundamental that growth must be financed out of saving.
It is very funny that Martin Jr. is an anti-Kenysian. Yet he is big on pushing for government spending for WWIII. Figure that out! He probably would have put us all on a war diet if he could. But Eisenhower knew that would not play well in America that was getting rather fed up about wars if they interfered with raising a pack of Baby Boomer Brats. And we wanted to have fun in the sun and grow up to be hippies! Heh. Already, the idea that unions were making inflation worse by asking for pay hikes was becoming a major point of irritation for the central bankers. The historic tension between 'inflation versus jobs' was the focus here. A false focus, I might add.
The US was running out of patience with war spending. Kennedy offered tax cuts. Nixon lost because of this. Nixon and the entire GOP swore they would never make that mistake again. After 1968, all GOP elections were all about tax cuts and the US budget deficit began to grow insidiously until modern times when it is now utterly out of control.
Now here are two conflicting tales about the 1960's both of which are totally wrong. First, the conspiracy theory:
President John F.Kennedy,
The Federal Reserve
And Executive Order 11110
On June 4, 1963, a little known attempt was made to strip the Federal Reserve Bank of its power to loan money to the government at interest. On that day President John F. Kennedy signed Executive Order No. 11110 that returned to the U.S. government the power to issue currency, without going through the Federal Reserve. Mr. Kennedy's order gave the Treasury the power "to issue silver certificates against any silver bullion, silver, or standard silver dollars in the Treasury." This meant that for every ounce of silver in the U.S. Treasury's vault, the government could introduce new money into circulation. In all, Kennedy brought nearly $4.3 billion in U.S. notes into circulation. The ramifications of this bill are enormous.With the stroke of a pen, Mr. Kennedy was on his way to putting the Federal Reserve Bank of New York out of business. If enough of these silver certificats were to come into circulation they would have eliminated the demand for Federal Reserve notes. This is because the silver certificates are backed by silver and the Federal Reserve notes are not backed by anything. Executive Order 11110 could have prevented the national debt from reaching its current level, because it would have given the gevernment the ability to repay its debt without going to the Federal Reserve and being charged interest in order to create the new money. Executive Order 11110 gave the U.S. the ability to create its own money backed by silver.
Now here is the official response from the US Senate:
BY: Edward Flaherty, Ph.D. Department of Economics College of Charleston, S.C.
E.O. 11,110 did not create authority to issue new silver certificates, it only affected who could give the order. The purpose of the order was to facilitate the reduction of certificates in circulation, not to increase them. In October 1964 the Treasury ceased issuing them entirely. The Coinage Act of 1965 (PL 89-81) ended the practice of using silver in most U.S. coins, and in 1968 Congress ended the redeemability of silver certificates (PL 90-29). E.O. 11,110 was never reversed by President Johnson and remained on the books until 1987 when there was a general cleaning-up of executive orders (E.O. 12,608, 9/9/87). However, by this time the remaining legislative authority behind E.O. 11,110 had been repealed by Congress with PL 97-258 in 1982.2In summary, E.O. 11,110 did not create new authority to issue additional silver certificates. In fact, its intention was to ease the process for their removal so that small denomination Federal Reserve Notes could replace them in accordance with a law Kennedy himself signed. If Kennedy had really sought to reduce Federal Reserve power, then why did he sign a bill that gave the Fed still more power?
Marrs also makes some other factual errors in his conspiracy tale that suggest he is not very familiar with the Federal Reserve or the financial system. He writes that a source of tension between the Federal Reserve and the Kennedy Administration was the Treasury's desire to allow banks to underwrite state and local government bonds, thereby weakening the "dominant" Federal Reserve banks. However, such a move, which was later permitted by Congress, would not have affected the Federal Reserve system because it had never been involved in underwriting bond issues. Marrs also claims that Kennedy signed a bill that changed the backing of small denomination currency from silver to gold to "add strength to the weakened U.S. currency." This is completely false. U.S. currency has not been on the gold standard since 1934, and silver certificates, as their name suggests, had never been redeemable in anything but silver. In addition, U.S. currency was not "weak" during Kennedy's time: There had not been any significant inflation since the late forties, and the exchange rate value of the dollar was fixed according to the Bretton Woods agreement.
This deserves more time. What we do know for a fact is, soon after Kennedy was gunned down, LBJ took over. We immediately plunged into yet another hot war on top of the Cold War and military spending went through the roof yet again. And unlike in the Fifties, suddenly Martin Jr. opened the Fed barn doors wide and let all the horses out and silver coins were rapidly debased and are still being debased rapidly today. Gold began to flow out of Fort Knox like a river of gold, so to speak. The dollar/gold peg was being rapidly destroyed. This guns and butter business greased the tracks for the downward race of the dollar which collapsed in value vis a vis Germany and Japan! Of all things, eh? Our nation fought these two empires and now our dollars were worth pennies to them both? Gads.
Finally, the son of the founders of the Fed left office right before the whole thing collapsed and the new Floating Currency Regime was launched. This launched the US trade and budget deficits that plague us so hideously today. We learned nothing from all this. The present Fed chief glosses over all this history and thinks the only history that matters is from 1929-1933. He should look closer to home. Like, in his own bespotted lifetime!
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