The Bankster Diaries: Book I : The Federal Reserve

Yakov

Foreword

The world is now too dangerous to be anything less than a utopia.– Buckminster Fuller

Whether the average person today realizes it or not, humanity is presently faced with a collective imperative, outlined very succinctly in the above quote. It is obvious that our long-term survival hinges upon the question of whether or not we will collectively neutralize or transcend every trend that currently threatens our shared future. War must cease; slavery must be completely and permanently abolished across the globe; our forests and oceans require restoration and healing; and religious hatred must end. Is humanity ready to accomplish all of this? Ready or not, the choice point is now upon us.

If you are reading these words – if you have opened The Bankster Diaries and are prepared to digest its contents – then it is most likely the case that you belong to a small-but-rapidly-growing contingency of human beings who are actively addressing our collective imperative. Chances are that you are here because you sense that that there is more to our history than meets the eye, and you appreciate the inestimable value of knowing our true story. Indeed, how can we possibly address the pressing needs of our time if we do not recognize their source and nature? How can one fix, change, protest, or heal that which one cannot begin to describe? The answer is: it cannot be done.

Unfortunately, much of what passes for history in modern day education – regardless of where one is from, or when one was born – comprises of hearsay and propaganda, and this poses a very serious dilemma for each and each and every one of us today. (The same can also be said for modern journalism.) We know too many stories, but we have very little facts; and, to make matters extremely bizarre, the entire world also happens to live under the auspices of a parasitic, globally-scaled, corporate hegemony that has done a terrific job of obfuscating the very information we require to make sense of the societies we inhabit. However we need not worry! Such data may be tucked away in hard-to-reach places, but it is nonetheless there for whomever has the time and inkling to look.

The Bankster Diaries – the first instalment in a series – is the result of a 25-year long path of research into the history of international finance from the 1930’s Depression through the end of WWII. At times the narrative reads like an action/spy novel (albeit with an inordinate amount accounting information for said genre), yet the various situations and characters in this story are taken from real life. Indeed, this is a work of non-fiction, derived from official records, that outlines in painstaking detail numerous key geopolitical realities of the 20th century that hold deep significance to the present moment.

When you finally see – to give a few examples – who was behind the funding for the Nazi party; what motivated the attempted coup the Whitehouse under FDR; what businesses collaborated to manufacture arms to be sold to friends and enemies alike; and what individuals were responsible for maintaining and promoting the very conflicts of interest that made such scenarios possible; then it will help you see, with a high degree of clarity, our collective imperative.

Now… let us take a brief moment to outline a certain frame of mind that will help readers get an optimal value per time spent reading:

To begin, one must note that the information contained in this book comes from official records, as well as legal, military, and financial journals and reports. Thus, this book cannot be regarded as theoretical. That is to say, we are not being presented here with an argument, proposition, theory, etc., about what might be true – instead, we are being provided with hard data, and every reader is individually responsible for what he/she does with this information.

Secondly, the author wished for the sources to speak for themselves; thus, what you are about to read comprises – to a large degree – a collage built from said sources. Think of it as though, by reading this book, you are eavesdropping on a decisive insider conversation wherein matters of international high treason will be discussed, and real-world suspects will be named.

Lastly, this book is packed so tightly with information (with 700 notes embedded within a mere 250 pages) that some may at times find themselves dizzy trying to keep track of all the dates, events, names, institutions, etc. included within its narrative (and those readers who are new to the study of international finance may find The Bankster Diaries to be particularly challenging). If at any point you find yourself feeling dizzy or overwhelmed do not worry – it is perfectly natural, and there is nothing wrong with taking this at your own pace. The history of modern financial despotism is a dense subject, to say the least. However, rest assured that if you persist in reading, then you will soon be able to count yourself amongst a tiny minority of people alive today capable of truthfully articulating the facts of humanities predicament. And as such, you will become a true asset to your community and indeed, to humanity’s collective future.

When the facts are sufficiently known by a critical number of people, then it is highly feasible that humanity will be able to effectively abolish and transcend all forms of economic warfare and financial despotism – our collective imperative demands from us that we do just that. Education and knowledge are the keys that unlock this process, and those researchers willing to be pioneers in a world otherwise bogged down with hearsay and opinions stand to make the critical difference.

We are all very lucky that James Bernard Gilmore has put together this book. And the fact that you are now reading it is of tremendous importance.

Paul Conant

Prologue

It must have been a decade ago when I was first focused on writing about the Federal Reserve System as the subject of a book and I had begun writing a book with a working title of A History of the America’s Five Privately Owned Central Banks. When I was not writing, I focused on economics, investments and money management, and this is how I became an Ambassador at Large for and on behalf of the Republic of Liberia. When its former dictator, Mr. Taylor, left the country, he left it bereft of funds, very little government structure and absolutely no money nor any organised means of earning any.

Because I had had experience in West Africa through my contacts at the republic of Sierra Leone and became familiar with ECOWAS (Economic Community of West African States), I was introduced to the newly London appointed Liberian Charges d’affair, His Excellency Dorsey Hansford, who served as the Senior Diplomat in the United Kingdom until such time as a full-time Ambassador was appointed.

In January 2006 I wrote a pamphlet for use by the Republic in the reconstruction of business and economics of and for the Republic of Liberia. Since the Republic had no money to pay me, the Ministry of Foreign Affairs appointed me Ambassador-at-Large and Diplomatic Attaché to the Embassy of the Republic of Liberia.

During this time I had met Professor Trond Beravale, who was Chairman of World Fish, which promoted the development of fish farming in the third world in addition to his responsibilities as a Professor at the London School of Economics. As part of his developmental programme Professor Beravale often entertained at lunch at his private club Ambassadors from third-world nations and other dignitaries.

The day I was honoured with an invitation to lunch at the Athenaeum Club, I was fortunate enough to be seated next to Lord Reese-Mogg, the previous owner of the London Times newspaper and various other publishing enterprises. The Athenaeum Club in London is an exclusive club expressly for men of science, and when Lord-Reese-Mogg asked what I did when I was not a diplomat, I responded, I am writing a book on the history of the five privately owned banks of America. To which he responded, You must be mistaken. America’s central bank is owned by the U.S. government.

I replied, I beg your pardon, sir, Lord Reese-Mogg the Federal Reserve System in America is privately owned and has been since it was chartered in December 1913. For example, the shareholders of the Federal Reserve Bank of New York are: HSBC (USA), The Key Corporation, JPMorgan/Chase and Bank of NewYork/Mellon. It’s a Delaware corporation and I have a copy of its original charter. To which he responded, If that is true, I will publish your book through my book publishing company Pickering and Chatto. I thanked him profusely and told him that I would immediately focus only on the Federal Reserve System and when my manuscript was completed, I would submit it to Pickering and Chatto for publication, if he believed was good enough to publish.

Three years later I finished the first draft of my book, but Lord Reese-Mogg had died of a heart attack six months before I finished and when I wrote Pickering and Chatto that my manuscript was ready for a review, it was then that I was advised that now they only published children’s books, but they did offer me encouragement. So since I had written the book and no place to go, I went searching for opinions and I found this publisher as the option.

A Brief Preview of What’s To Come

The Fed system is privately owned consisting of twelve district banks throughout the USA. The private shareholders were privately owned commercial banks domiciled within the district. The Congress granted a twenty-year franchise to each of the twelve Federal Reserve banks since precedent had been set by each of the four former U.S. central banks. The Federal Reserve System was the four attempt by the USA at having a central bank and each of the former extinct predecessors functioned under a twenty-year term.

The facts cited in my book confirm how the Federal Reserve's twenty year franchise was extended in 1927 with the guidance and insistence of the Secretary of the Treasury, Andrew W. Mellon of the Mellon banking dynasty of Philadelphia. By manipulating the Chairman of the Congressional 'Ways and Means Committee' into amending the original Federal Reserve Association legislation to extinguish the original 20-year franchise provisional cap and substituting the term 'in-perpetuity', with the proviso that none of the twelve Federal Reserve district banks could be involved in any illegal activity permanently altered the legislation governing the Federal Reserve System. If any violation were proven, the charters would automatically be revoked. In order to accomplish this change, Mister Secretary Mellon orchestrated an incentive for the Chairman of the House Ways and Means Committee: a presidential judicial appointment for the Chairman as a Judge to a low level Federal Court that was a lifetime appointment.

Also in this book, you will find the details from the Hoover administration regarding the creation of the Bank for International Settlements [BIS] in Basel, Switzerland, and how the Federal Reserve Bank of New York became its largest and most dominant shareholder.... Sufficiently so as to warrant BIS becoming identified as a partially owned subsidiary of the FRBNY, which it remains so in 2015.

From the Depression to the End of WWII

This book also recounts the historic facts of the failed attempted assassination of FDR in Chicago in 1932 in the post-electoral, pre-inaugural victory parade; where, instead, an assassin mistakenly killed the Mayor of Chicago while they were being transported in an open top motor car. Later in 1934, FDR was the target of an attempted coup d’état, but the attempt was thwarted by the retired highly decorated Marine Corps General that was hired to orchestrate the coup d’état on behalf of private investors from Wall Street, who came forward to the Chairman of the House Un-American Activities Committee and reported the entire episode.

In 1934, FDR took personal control of the Federal Reserve System even though the Fed consisted of twelve privately owned district banks that functioned as the U.S. central bank. During this time-frame, FDR required all the gold in the U.S. to be sold to the U.S. government at market at the then market value (approximately $28oz), including all the gold owned by the twelve Federal Reserve district banks. The U.S. Treasury printed special gold backed currency denominated at $100,000.00 each to pay the district banks for use as a collateral replacement for banking purposes. (see attached photo) The purchase receipt designated a sum payable in US dollars and not the number of ounces purchased; hence, the value paid was calculated at $28 a troy ounce while in April 2015 a troy ounce is valued at or near $1,200 an ounce.

In 1934 the Federal Reserve System functioned as FDR's private piggy-bank under his control and at his direction during his entire tenure as President. Following the attempted coup d’état in 1934, FDR and his key cabinet advisors forced the Federal Reserve System to finance an international trading programme in order to mollify the financial backers of coup d’état whom in the past FDR knew, which was also why he halted the public Congressional investigation of the incident.

The Federal Reserve Produced Several Treasure Chests

At one point, the Federal Reserve banks (of which there were 12 district banks) were required to print bonds with coupons, having a face value of $3 trillion for each bank. These bonds were registered with the Securities and Exchange Commission, packaged by each individual bank into containers valued at $250 billion each, placed in a steamer trunk type unit, shipped to the FRBNY to be further shipped to BIS, Basel, Switzerland where the chest would be held in escrow for each of twelve sovereign state international trading partners of the USA.

These chests of capital were destined for use as collateral by central banks in order to stimulate the economies of the respective nation’s i.e. Quantitative Easing 1934 style. During the late 1930’s, some of the chests were physically moved from BIS to their respective state owned central banks.

The author has first-hand knowledge in 2015 of the location of four chests; Chicago, New York and Philadelphia, which are on deposit and in a high-security storage vault under the Zurich, Switzerland owned jointly by the City of Zurich, the Canton of Zurich, Union Bank of Switzerland and Credit Suisse. The Dallas chest has been seen in Indonesia and under secure deposit.

The records of the NYFRB for 1934 are sealed and not available for scrutiny, but one may logically presume that international banking in 1934 was consistent throughout the world. The reserve currency of the world was physical gold, so international banks would trade collateral between themselves via their respective central banks in the course of everyday business without bothering to actually move the gold since an electronic trail of information could be confirmed.

We do not know precisely who economically benefited from these steamer-trunks filled with Fed bonds, but it is logical and consistent with international banking that the most eligible nations were also shareholders of BIS along with the Fed. It is reasonable Bank originally designated to receive the use of a $3 trillion chest would have left the steamer trunks in escrow at BIS and drawn down credit lines for trading purposes as commerce required. When the threat of World War II became a reality, the central banks of the threatened nations would likely have moved its valuables out of the danger of capture.

The UK would have kept its chest at the Bank of England. The central bank of the Netherlands would have dispatched its chest to the Dutch East Indies i.e. Indonesia where the Dallas chest currently resides. Germany and Italy most likely left their chests at BIS for use in their respective trading purposes. Wars are expensive and both of these nations developed trade throughout South America and Scandinavia. France dispatched some of it central bank possessions to Central Africa and Martinique. China would have taken physical possession, which Japan would likely capture. Austria, Poland, Romania, Bulgaria, Yugoslavia, Czechoslovakia would likely have lost control of their chests to either Germany or Russia. Russia did not receive a Fed chest since it was the depository for most of the Spanish gold stored with them during the Spanish Civil War, which was never returned.

Hidden Hands Guiding the Course of WWII

In 1933 a Russian spy in the U.S. Treasury guided the orchestration of US foreign policy with Japan in such a manner so as to embargo petroleum products against Japan, which later resulted in the Japanese attacking Pearl Harbour in December 1941, and brought the USA in a war against Japan. Four days later, this led Germany to declare war on the USA, which brought the USA into WWII.

World War II was the most costly war in American history at $360 billion. It changed the American tax system from a narrow citizen base to a broader base, which is now the basis of our current tax system. FDR and Morgenthau, his Secretary of the Treasury, wanted to finance the war with taxes that came mostly from business and upper-income groups inasmuch as nearly half of America's GDP went to war. With lend-lease programmes, the treasury designed and implemented a foreign funds control in 1940 to protect the assets of invaded countries and to keep them from the enemies.

In the U.S., foreign funds control froze Axis assets in 1941, regulated international financial transactions, administered wartime trade restrictions (Trading with the Enemy Act), and froze $8.5 billion of assets belonging to thirty-five different countries by war's end. Although these assets were liquidated in 1948, the foreign funds control was re-established in 1950 with the outbreak of the Korean War, as Foreign Assets Control.

Production of military invasion currency was among the Treasury's most highly secret work since any knowledge of production would reveal Allied invasion plans. The Russian spy inside the U.S. Treasury, saw to it that funds printed expressly for use in Europe, were also provided the Russian’s who paid its army with these specialised funds.

Key Events Concerning the U.S. Treasury

The treasury loaned 14,000 tons of silver to help produce uranium for the atomic bomb and financed the top-secret Manhattan Project while Morgenthau and a group of Treasury attorneys persuaded Roosevelt to establish the War Refugee Board (1944), the only government effort to save European Jews.

Secretary of the Treasury, Morgenthau, was persuaded by the Russian spy with whom he worked, to convince FDR that the U.S. policy in Europe was, from the beginning, to destroy Germany’s industrial capability. This way, Germany could never again become a military power, and could only be an agrarian society. It was not until late in 1944 that the U.S. policy was changed when they were advised that the policy was counterproductive inasmuch as the German soldiers were strengthened in their resolve when German propaganda emphasised each soldier had the responsibility to preserve Deutschland as it was before the war began.

When the war in Europe ended, German administration was divided among the UK, France, and parties including German nationals. A Russian spy in the U.S. Treasury saw to it that the Russian army and government were well supplied with the currency, far and away above and beyond what was authorised the U.S. Some of the physical evidence of these funds was found later to be in circulation in China, courtesy of the Russian spy within the U.S. Treasury. He was not discovered until the early 50’s when he was arrested, tried and convicted.

The World of Intelligence Had Changed Dramatically after WWII

A key event that shaped the future of the USA was the dissolution of the OSS at the end of the war by President Harry S. Truman, which was replaced it with the creation of the Central Intelligence Agency. The OSS was part of the U.S. Army while the CIA was a subsidiary of the President. Under the U.S. Constitution, the President is empowered as the Commander and Chief of the all military units of the USA and assigned the exclusive right to the foreign policy of the USA. And when the CIA became an instrument of foreign policy answerable only to the President, one can only imagine how that played out for the balance of power in the twentieth and twenty-first centuries. The Bankster Diaries will have a sequel that addresses this subject.

President Roosevelt died in office in 1945 and was succeeded by his Vice-President, Harry S. Truman, Independence, Missouri, a product of the Pendergrass political-gang of Kansas City, Missouri. President Harry Truman inherited control of both the Fed and CIA upon FDR’s death. The management structure of the Federal Reserve from the FDR years continued until 1951 under President Harry S. Truman when he signed The 1951 Accord, which returned the Federal Reserve Banking System once again to the control of its shareholders that became a self regulated central bank, but still remaining as a privately owned institution.

The reluctance of the Federal Reserve in 1951 to continue monetizing the U.S. deficit became so great that 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 Federal Reserve, replacing McCabe.

Getting to the Heart of the Matter

From this seemingly innocent arrangement came the world’s biggest and most dangerous Ponzi scheme, allowing the Fed buying U.S. government debt while the U.S. printed the money for the Fed so to do. This was done without regard for substance of physical collateral backing the bonds and/or currency. The Full Faith and Credit was the guarantee for the reserve currency of the world, the nation who issued it and for its privately owned central bank insofar as interest rates were solely satisfactory for the Federal Reserve System as agreed by said system.

Chapter 1: Introduction

I want to tell you a story…

I assure you, this book presents a true and accurate story even though sometimes the events read like fiction! It’s an academic study complete with references to hundreds of footnotes, comprising a twenty-five year assembly of facts that, when assembled, expose and detail the amazing evolution of the Federal Reserve System, the central bank of the United States of America. Herein we will also learn how the Federal Reserve Bank of New York, became the most important shareholder of the Bank for International Settlements (BIS) in Basel, Switzerland, a private Swiss corporation.

I will begin my story with events in 1927 and ‘28 that were likely to have caused the Wall Street Crash of 1929. As British economist Lionel Robbins noted, following the crash: The policy succeeded . . . The reflation succeeded. But from that date, the situation got completely out of control. The situation in question is the banking sector.

To properly contextualize our narrative, the reader should note that the Federal Reserve banks are all privately – not publicly – owned and that there are twelve of them that comprise the Federal Reserve System. The largest of the twelve is the Federal Reserve Bank of New York, which filed its corporate documents in Delaware in 1914 (attached in the footnotes is a copy of the original incorporation document). In the beginning, all of the Federal Reserve banks were granted 20-year franchises, mimicking the franchise scenario utilised in the eighteenth and nineteenth centuries by the Congress for the first two privately owned central banks

During the Hoover/Mellon years of 1927, the twenty-year franchise of the Federal Reserve System was extended into perpetuity. And in ‘29, ‘30, ‘31 and ’32, the Federal Reserve System would change in ways never considered in 1913 by Congress when it was initially formed. In February 1929 at the Young Conference in Genoa,¹ American attendees suggested that the Central Banks of Europe might be linked together in some such way as the different districts were in the United States;² and then, at the Hague Conference in January 1930 and other conferences leading to the formation of the Bank for International Settlements, the great international bank was openly referred to as a subsidiary of the Federal Reserve Bank of New York.

The Federal Reserve Bank of New York, the First National Bank of Chicago, the First National Bank of New York and JP Morgan, were among the original shareholders of the Bank for International Settlements (BIS), which controlled both the Board of Directors and the corporation. One should be reminded that there was no reserve currency for world trade at this time. Gold was the medium of exchange for international trade by all nations with the exception of China who used silver as its trading currency.

Placing Our Narrative Within the Tapestry of Our Recent Past

In 1934 the Chancellor of the German Republic was Adolph Hitler; the Prime Minister of Italy was Benito Mussolini; Hideki Tōjō was a general in the Imperial Japanese Army and the 40th Prime Minister of Japan; Joseph Stalin was the General Secretary of the Communist Party of the Soviet Union's Central Committee and the leader of the Soviet Union; Francisco Franco was the Dictator of Spain and both the Leader of Spain (Caudillo de España) and the Supreme General (el generalissimo), Franco was the de facto regent of Spain until his death. Chiang Kai-shek, who was known as Generalissimo Chiang, led the Chinese army against Japanese invaders in Manchuria (1937) and was designated by the Allies as the supreme commander of the China theatre for the length of the World War II; and also to Mao Zedong after World War II who was the Chinese Communist leader who led the Communist Party of China (CPC) to victory against Chiang Kai-shek of the Kuomintang (KMT) in the Chinese Civil War, and who was the leader of the People’s Republic of China (PRC) until his death in 1976.

Let Us Take a Deep Look into the Depression

The collapse of the world economy from 1929 to 1933 was the seminal economic event of the twentieth century. No country escaped its clutches; for more than ten years the malaise that was brought in its wake hung over the world, poisoning every aspect of social and material life and crippling the future of a whole generation.³

Many people presented explanations and ideas on how to recover. Milton Friedman’s work on the Great Depression was flawed even though he was a Nobel Prize winner. [His] general principle was correct – that the government that governs the markets least governs best. But when he got into the mechanics of ‘monetarism,’ he got lost. He believed that if the Fed kept its eye on the money supply; the free market would take care of everything else. But the free market didn’t take care of everything, at least not as people hoped.⁴

But the ghost of Milton Friedman haunts every central bank. Friedman is quoted as saying he’d even ‘drop money from helicopters,’ if necessary, to prevent deflation. All that he guarantees is that Big Government will play a larger role in the economy ... and that Milton Friedman’s history of the Great Depression will turn out to be prophecy: ‘The Fed was largely responsible for converting what might have been a garden-variety recession ... into a major catastrophe’.⁵

Economist Murray Rothbard explained: ‘You cannot expect the free market to function perfectly if you leave in the hands of the government the power to control money. Either markets are free or they aren’t… If they’re not free, you can’t blame freedom when they fail’.⁶

The Pre-Crash Situation

Unlike the boom times in America in the 1920s, one should note that people living in Europe, especially Germany and Austria, suffered massive hyperinflation that destroyed the wealth of the middle class and led to political and economic turmoil in both of the affected countries.

However, with respect to the crowing credit bubble in the U.S., By 1928 the authorities were thoroughly frightened, [since] the forces they had released were too strong for them. In vain they issued secret warnings. In vain they pushed up their own rates of discount. The velocity of circulation, the frenzied anticipation of speculators and company promoters, had now taken control. With resignation the best men in the system looked forward to the inevitable smash.⁷

Between July 1928 and February, 1929, the New York Fed lending rate was 5% - half a point higher than the 4.5% that was the going rate at the Bank of England. About this, Robbins comments, two years ago [in early 1927] no one would have believed New York could remain half a point above London for more than a few weeks without London being forced to follow suit.⁸

The Background Drama’s of Gold and Credit

All during the autumn of 1928 the Bank of England haemorrhaged gold to Manhattan, as British pounds hurried to cash in on the 12% annual interest rates to be had in the Wall Street brokers' call loan market. Even in January and February of 1929, months when the Bank of England could normally expect to take in gold, the gold outflow continued.⁹

The demand for gold increased as countries returned to the gold standard. Because the franc was undervalued when France returned to the gold standard in June 1928, France began to receive gold inflows. The undervalued franc made French exports less expensive in foreign countries’ currencies and made foreign imports into France more expensive in francs. As French exports rose and French imports fell, their international accounts were balanced by gold shipped to France. France’s government, contrary to the tenets of the gold standard, did not use these inflows to expand its money supply.¹⁰ In 1928, the Federal Reserve System raised its discount rate — that is, the rate it charged on loans to member banks — in order to raise interest rates in the United States, which would stem the outflow of American gold and dampen the booming stock market. As a result, the United States began to receive shipments of gold.¹¹

Mr. Miller, of the Federal Reserve Board, states that the easy credit policy of 1927, which was father and mother to the subsequent 1929 collapse, was originated by Governor Strong, of the New York Federal Reserve Bank, and that it did not represent a policy either developed or imposed by the Board on the Reserve Banks against their will.¹² In other words, to issue easy credit aligned with the general mode conduct adopted by the Board in the past … The policy was the result of a visit to this country of the Governors of foreign central banks who unequivocally stated in New York that unless the United States did adopt it, there would be an economic collapse in Europe. It was a European policy, adopted by the United States.¹³

By 1929, as countries around the world lost gold to France and the United States, these countries’ Governments initiated deflationary policies to stem their gold outflows and remain on the gold standard. These deflationary policies were designed to restrict economic activity and reduce price levels, and that is exactly what they did. Thus began the worldwide Great Depression.¹⁴

Lionel Robbins contends that the Wall Street bubble of 1925-1929 was built on top of an economy that was sinking into recession in 1925. The Norman-Strong [central bank bankers] bubble masked that recession until the panic exploded in 1929.¹⁵ Robbins places the responsibility for the crash at the door of the Federal Reserve and its European counterparts: ‘thus, in the last analysis, it was deliberate co-operation between Central bankers and deliberate 'reflation' on the part of the Federal Reserve authorities, which produced the worst phase of this stupendous inflation’.¹⁶

The Crash was International in Scope

International influences were evidently at work to help bring about the most destructive crash possible: The evolution of the Montague Norman's [Governor of the Bank of England] tactics shows clearly enough that he did not provoke a crash in New York out of creating a legitimate self-defence, to protect the Bank of England's gold from being exported to Manhattan. Norman was willing to sacrifice massive quantities of gold in order to feed the New York bubble and thus be sure that when panic finally came, it would be as devastating as possible.¹⁷

Too little was done to counteract the credit contraction caused by banking failures. This problem had already surfaced several months before the stock market crash, when commercial banks with deposits of more than $80 million suspended [their] payments. However, it reach critical mass in November and December 1930, when 608 banks failed, with deposits of $550 million, among them the Bank of the United States, which accounted for more than a third of the total deposits lost. The failure of merger talks that might have saved the Bank was a critical moment in the history of the Depression.¹⁸

The next wave of bank failures, between February and August 1931, saw commercial bank deposits fall by $2.7 billion, 9% of the total. When Britain abandoned the gold standard in September 1931, precipitating a rush by foreign banks to convert dollar holdings into gold, the Fed raised its discount rate in two steps to 3.5%. This halted the external drain, but drove yet more U.S. banks over the edge: the period of August 1931 to January 1932 saw 1,860 banks fail with deposits of $1.45 billion. Yet the Fed was in no danger of running out of gold. At the time, U.S. gold stock was at an all-time high of $4.7 billion – 40% of the world’s total. Even at its lowest point that October, the Fed’s gold reserves exceeded its legal requirements for cover by more than $1 billion.¹⁹

In the years 1930–1932, more than 5,000 banks failed; in 1933, 4,000 more failed. Whether the Federal Reserve should have made credit easier than it did is still debatable. Businessmen were not in a borrowing mood, and banks gave loans close scrutiny.

The bank disaster was a $1 billion loss to depositors that brought on congressional investigations and revelations as well as demands for reforms and measures to promote recovery. Congress subsequently overhauled the Federal Reserve System. By the act of 27 February 1932, Congress temporarily permitted the Federal Reserve to use federal government obligations as well as gold and commercial paper to back Federal Reserve notes and deposits. A dearth of commercial paper during the depression, along with bank failures, stimulated hoarding, thereby created a currency shortage. A new backing for the bank notes was essential. However justified at the moment, the law soon became permanent and made inflation in the future easier.

The impact of the crash was far reaching. In December 1930, the Bank of the United States, which was a private bank with no official status, went down in the largest single bank failure in U.S. history, leaving frozen some $200 million in depositor’s funds. In May 1931, the biggest bank in Austria, the Creditanstalt, owned by the Rothschild’s no less, with $250 million in assets, closed its doors. On June 20, President Herbert Hoover announced a one-year moratorium on all payments of debt and reparations stemming from the war.²⁰

In July, the Danat-bank, the third largest in Germany, foundered, precipitating a run on the whole German banking system and a tidal wave of capital out of the country. Later that month the crisis spread to the City of London, which, having lent heavily to Germany, found these claims now frozen. The Bank of England was forced to borrow $650 million from banks in France and the United States, including the Banque de France and the New York Federal Reserve [district] Bank, to prevent its gold reserves from being completely depleted.²¹

Reactions to the Crash

In the U.S.A. the GNP fell another 8.5%; unemployment rises to 15.9%. This and the next year are the worst years of the Great Depression. For in 1932, GNP falls a record 13.4%; unemployment rises to 23.6%; Industrial stocks had lost 80% of their value since 1930; 10,000 banks had failed or 40% of the 1929 total; $2 billion in deposits had been lost; the money supply contracted 31%; GNP fell 31%; 13 million Americans lost their jobs; capital growth investments dropped from $16.2 billion to 1/3 of one billion; farm prices fell 53%; international trade fell by two-thirds; the Fed made its first major expansion of the money supply since February 1930; Congress passes the Glass-Steagall Act of 1932; the top tax rate was raised from 25 to 63%; and