Who Does The Federal Reserve Serve?

Here’s a 12 minute video lecture concerning the Federal Reserve by G. Edward Griffin, an outspoken critic of the Federal Reserve and author of the book The Creature from Jekyll Island. I highly recommend Griffin’s book to anyone who’d like a better understanding of American history in the context of money, banking and economics.

Griffin’s bias against central banking is front and center in his book and it’s distracting at times, but overall it’s well written, well researched, entertaining, and enlightening. It’s also interesting to learn that two of our most admired founding fathers, Thomas Jefferson and Andrew Jackson, were also highly critical of central banking, so Griffin is at least in good company.

The twelve short minutes of this video is only time enough to scratch the surface and raise the question “who does the Federal Reserve serve?” but if you’d like to see more of Griffin’s work you can do so here.


In the video Griffin says, “The Federal Reserve creates money (federal reserve notes actually) out of nothing.” But having read his book, I know he knows better than that. His simplification is hyperbole and obscures an important point. Namely, that federal reserve notes are created out of debt.

“It is difficult for Americans to come to grips with the fact that their total money supply is backed by nothing but debt, and it is even more mind boggling to visualize that, if everyone paid back all that was borrowed, there would be no money left in existence.

That’s right, there would not be one penny in circulation — all coins and all paper currency would be returned to bank vaults — and there would be not one dollar in any one’s checking account. In short, all money would disappear.”

– G. Edward Griffin

It’s hard to believe, but when you consider Fed Chairman Bernanke’s recent efforts to “expand credit” to ward off monetary deflation, and the ballooning federal debt which just recently surpassed $16 trillion, it all starts making sense. New federal reserve notes must constantly be borrowed into existence in order to replace the federal reserve notes that are extinguished through debt service, otherwise the supply of federal reserve notes will deflate and the scheme collapse.

Since consumers aren’t borrowing like they used to, government deficit spending really does have a purpose; to expand the supply of federal reserve notes!

Now that it’s clear our current debt-based monetary system requires perpetually expanding debt in order to function, what’s the solution? We can begin by thinking of money in terms other than federal reserve notes. As recently as the 1960’s there were actually three kinds of paper currency in circulation in the United States:

  • United States Notes, issued from 1862 until 1971. This type of currency was issued into circulation directly by the United States Treasury, debt free. Make no mistake, these “legal tender” notes are money printing, pure and simple, and critics of resuming an issuance of United States Notes claim it will ruin the value of the dollar, but at this point I doubt it would be any worse than the perpetual debt game we’re playing now.

Debt Free legal tender United States Note

  • Silver Certificates, issued from 1878 until 1964. Silver certificates were also issued directly by the United States Treasury and they were our last example of the oldest form of paper money; a receipt redeemable for a commodity. Back when silver certificates were issued circulating United States coinage (dimes, quarters, and halves) were 90% silver and a dollars worth of coin contained .72 ounces of silver. Today the treasury will not honor and redeem a silver certificate for silver but it’s still legal tender and “worth” a “dollar”. Note however that the .72 ounces of silver the silver certificate once represented is now worth $24.50 in todays dollars. The coin has held its value but the paper has not.

  • Federal Reserve Notes have been issued since 1913 until present. The Federal Reserve Act was passed into law in 1913 giving the Federal Reserve it’s charter (permission to operate) and they’ve been lending federal reserve notes into existence ever since.

It’s also important to realize that coin is a type of money in use today that isn’t created out of debt by the federal reserve, it’s issued directly by the United States treasury. Coin is sovereign money and I do wonder if a more permanent and lasting monetary base could be created through the expanded issuance of coin to include $5, $10, $20, $50 and $100 dollar denominations, but the problem with coin has always been the public’s reluctance to use them. Perhaps if the high denomination coins contained a few drops of silver to give them a little intrinsic value, maybe then coin could make a come back.

In any case, the solution to the problem of debt is to stop thinking of money exclusively as federal reserve notes. There are alternatives.

This entry was posted in History, Money and Banking, Richard C Gessford and tagged , , , , , , , , . Bookmark the permalink.

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