Although its “baptismal certificate” says that it was created by law on December 23rd, 1913, and promulgated by President Woodrow Wilson, the truth is that there is a secret history of the Federal Reserve and its birth, which dates back several years before that. The events that preceded the Fed’s existence today could be used for a film script. It was not easy to successfully create a central bank as the monetary entity of the whole country. It was necessary to travel a dark and winding road. The fathers of the idea were deemed brave, conspirators, and even elitist. That is why behind the secret history of the Federal Reserve, one of the pages of U.S. history is also engraved.
The background of the FED
Entrepreneurs, corporations and even the North American people, since their independence, were reluctant to the creation of organizations that would serve to strengthen the central power. The existence of a central bank that regulated monetary operations was part of the squad of strong rejections by those who defended at all costs the federal principles that gave birth to the nation.
The United States had already faced 2 previous attempts to create a centralized bank. The first was during George Washington’s presidency in 1791 and, despite Thomas Jefferson’s fierce opposition, the bank stood for 20 years.
The second attempt was rejected by Andrew Jackson, who in 1836 dismantled the central bank and ended all aspirations of having an entity in charge of regulating financial operations.
In this way, the United States revealed the deep distrust generated by the agencies in the hands of the central power.
Panic, a good teacher
The first years of the 20th century were marked by deep financial crises. The panic of investors was growing day by day. But it was the San Francisco earthquake in 1906 that finally confirmed that the U.S. financial system was fragile and unstable.
Many began to think that it was necessary to have an entity in charge of regulating the financial system, especially when the crises worsened. But of course, the mistrust of bankers and businessmen had to be defeated. That’s how the secret history of the Federal Reserve began to be woven.
The Jekyll Island meeting
In 1908, the United States Congress had passed the Aldrich-Vreeland Act and it, the creation of a National Monetary Commission. Nelson Aldrich, a Republican senator from Rhode Island, was given the task of collecting the information necessary for the country to have a central bank after the law passed.
How to avoid mistrust and the project being sacrificed before it was actually born? The excuse was a day of hunting. The place? A lost island in the state of Georgia: Jekyll Island. Transported by a ferry, the authors of the law arrived in secret, accompanied by the strongest men of finance. The objective was to “close a package” that could give definitive birth to a central bank. Jekyll Island will be deemed forever as the place where the secret history of the Federal Reserve was woven by the strongest men in the American economy.
Like any good story, this one, the secret history of the Federal Reserve, needs an epilogue that will keep being written.
The FED has survived 2 world wars, numerous financial and political crises, and has emerged unscathed from them, thus becoming one of the most important financial institutions in the world. It had to survive the distrust of its own blood parents and its structure reflects that distrust. The FOMC, the FED’s highest decision-making body, is made up of 12 regional central bank presidents and 7 governors.
Its litmus test, the 2008 crisis, had Ben Bernanke as its storm pilot. The crisis threatened to take the entire global financial system into the underworld. Bernanke recalled the Federal Reserve’s wrong path in the 1930 crisis and got down to work.
The secret history of the Federal Reserve was written with the same strokes as the entire history of the American people.