What is the Federal Reserve?
The Federal Reserve System, commonly known as the Fed, is the central banking system of the United States. Established by the Federal Reserve Act of 1913, it was created in response to a series of financial panics, particularly the Panic of 1907, to provide a more stable and flexible monetary system. The Fed consists of a Board of Governors in Washington, D.C., and twelve regional Federal Reserve Banks. It performs five key functions: conducting monetary policy, promoting financial system stability, supervising and regulating banks, fostering payment and settlement system safety, and promoting consumer protection and community development.
However, critics argue that the Fed is not truly "federal" but a private cartel of bankers designed to control the money supply for their own benefit. According to G. Edward Griffin in his book "The Creature from Jekyll Island," the Fed was born out of a secret meeting on Jekyll Island in 1910, where powerful bankers drafted the plan for what would become the Federal Reserve Act, masquerading as government reform while consolidating power in private hands.
The Mandrake Mechanism
The Mandrake Mechanism is a term coined by G. Edward Griffin to describe how the Federal Reserve and the banking system create money out of nothing, much like the comic strip character Mandrake the Magician, who could conjure illusions and make things appear from thin air. This process relies on fractional reserve banking and the Fed's ability to monetize debt.
Here's how it works: When the government needs money, it issues bonds. The Fed "buys" these bonds by creating new money electronically and crediting the government's account. Banks then lend out multiples of their deposits through fractional reserves—keeping only a fraction in reserve and lending the rest, which is essentially created out of thin air. This expands the money supply, leading to inflation. Griffin argues this mechanism allows banks to profit immensely while devaluing the currency held by ordinary people.
Implications of The Creature from Jekyll Island
In "The Creature from Jekyll Island: A Second Look at the Federal Reserve," G. Edward Griffin exposes what he sees as the dark underbelly of the Fed. The book claims that the Federal Reserve is a banking cartel that manipulates the economy for the gain of a select elite, leading to several dire implications:
- Inflation as a Hidden Tax: By expanding the money supply, the Fed causes inflation, eroding the purchasing power of savings and acting as an invisible tax on the public.
- Funding Endless Wars: The ability to create money out of nothing enables governments to finance wars without direct taxation, prolonging conflicts for profit.
- Boom-Bust Cycles: Manipulating interest rates and money supply creates artificial economic booms followed by devastating busts, benefiting insiders who can predict and exploit these cycles.
- Loss of Economic Freedom: Central control over money centralizes power, reducing individual liberty and fostering dependency on the system.
- Global Implications: The Fed's policies contribute to international instability, including funding foreign debts and influencing global finance through institutions like the IMF and World Bank.
Griffin calls for auditing and ultimately abolishing the Fed, returning to a sound money system like the gold standard to prevent these abuses. While mainstream economists dismiss many of these claims as conspiracy theories, the book highlights real concerns about transparency and accountability in central banking.
