History of Our Financial System — How Banks Ended Up in the Federal Reserve

During Abraham Lincoln’s reign, America’s national bank went bankrupt.

Was our economic system better before? And how did the bankers get so invested in the Federal Reserve?

 

History of American Economy

In 1913, the Federal government created the Federal Reserve to stabilize the American economy in history. It was America’s first central bank, and before long it brought major restructuring to the lending laws in the country. Only ten years after it was created, the Feds moved the dollar to a fractional gold reserve, making it far easier to lend more freely.

But was our economic system better before? And how did the bankers get so invested in the Federal Reserve? Here is a brief history of our financial system:

The Lincoln Presidency and Bankruptcy

The merchant class was generally opposed to Lincoln because he supported the abolition of slavery.

The northern industrialists did have their way after all, as the ending of slavery produced a cheap labor class looking for work in the free states — exactly the kind of push factory owners needed to meet increasing demand.

During Abraham Lincoln’s reign, America’s national bank went bankrupt. It was due to a number of factors that Lincoln, in some cases, exacerbated.

In the 1860s the Union economy grew as train lines and roads were being constructed farther into the Midwest and the South. These projects required plenty of support from the banks, which were thus not prepared to deal with the economics of an encroaching Civil War.

The merchant class was generally opposed to Lincoln because he supported the abolition of slavery, an industry which was producing huge material profits for a large portion of society at that point.

The northern industrialists did have their way after all, as the ending of slavery produced a cheap labor class looking for work in the free states — exactly the kind of push factory owners needed to meet increasing demand. The industrial revolution flourished and economic growth was consistent for decades.

The End of the Industrial Revolution

By 1907, the industrial revolution had brought prosperity to whole segments of the population previously living in poverty.

JP Morgan personally financed all the outstanding debt that the government owed. In exchange, the government gave up control of the financial system by 1913.

By 1907, the industrial revolution had brought prosperity to whole segments of the population previously living in poverty. However, the government had outspent itself and found itself bankrupt once again. This time it was due to a lack of gold in their reserves, and since the dollar was tied to gold, the government could no longer lend money out to maintain consistent growth. It was at this point that the commercial banks stepped in. JP Morgan personally financed all the outstanding debt that the government owed. In exchange, the government gave up control of the financial system by 1913.

World War I and the Fractional Gold Reserve

Introducing a fractional gold reserve was the major contribution made by the Federal Reserve in its early years-consequences of which are being felt, even today.

In this new monetary environment, the government was powerless to stop the commercial banks from doing as they pleased. The newly formed Federal Reserve was incentivised to increase lending so they moved the dollar to a fractional gold reserve. Previously, the government was only allowed to print currency if they had the full gold amount in their possession.

In a fractional gold reserve system, the fed only needed a small percentage of gold in their possession relative to the amount of money they lend. A period of massive lending began, and tons of paper money was printed to help service loans. Introducing a fractional gold reserve was the major contribution made by the Federal Reserve in its early years-consequences of which are being felt, even today.

Nixon and the Floating Currency Exchange

Nixon decided to remove the gold standard entirely and create a floating exchange rate system.

Nixon decided to remove the gold standard entirely and create a floating exchange rate system.

By the time Nixon took office, the disparity between lending practices and gold reserves was beyond repair. Given the economic fluctuations of the late 1960s, and the impetus to fund the Vietnam War without restraint, Nixon decided to remove the gold standard entirely and create a floating exchange rate system. It was undoubtedly a decision influenced by the demands of the banks, who had always been unhappy with the gold standard — a standard that limited lending opportunities.

A Rigged System Without Enough Controls

The middle class and poor see almost no benefits which can be observed by the wealth disparity emerging in America and all over the world.

The unfortunate downside of the floating exchange system is asset prices such as housing and real estate increase taking up more and more of peoples pay check.

The cost of living has increased tremendously since the 1970s, while wages has remained stagnant. This works for the banks — who make their money from lending to businesses and the wealthy — but for most Americans having to work harder despite the advances in technology it seems almost cruel.

The gold standard provided a top limit to the amount of money that could be printed to fund loans even if it was extremely fractionalized. Today’s limitless lending creates tremendous benefits for banks and the wealthy. The middle class and poor see almost no benefits which can be observed by the wealth disparity emerging in America and all over the world. Therefore, we can say the system is rigged because only a select few benefit from it.

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