What the Federal Reserve Actually Is
The Federal Reserve System — established by the Federal Reserve Act of December 23, 1913 — is not a government agency. It is a network of 12 regional Federal Reserve Banks, each of which is a privately owned corporation whose shareholders are the commercial banks operating in its region. The Board of Governors (a federal agency) sits atop this private banking network, but the system's operational decisions — interest rates, money supply, reserve requirements — are made by the Federal Open Market Committee (FOMC), which includes private bank presidents not subject to Senate confirmation or direct democratic oversight.
The Federal Reserve creates money. US dollars are Federal Reserve Notes — liabilities of the Federal Reserve, not of the US Treasury. When the government needs money beyond tax revenues, it issues Treasury bonds; the Fed creates dollars to buy those bonds; the government gets dollars; the government owes the Fed (and its private bank shareholders) the bond principal plus interest. Every dollar in circulation was created as debt — owed back to private banking interests with interest. The compounding nature of this debt ensures that the US government can never be debt-free under the current system.
Jekyll Island — The Secret Meeting
In November 1910, Senator Nelson Aldrich (Republican Senate Majority Leader, father-in-law of John D. Rockefeller Jr.) invited six men to a secret meeting at the private Jekyll Island Club in Georgia. The men who attended — using first names only to maintain secrecy — were: Frank Vanderlip (National City Bank, representing Rockefeller interests), Henry P. Davison (J.P. Morgan partner), Charles D. Norton (First National Bank of New York), Benjamin Strong (J.P. Morgan associate, later first president of the Federal Reserve Bank of New York), A. Piatt Andrew (Treasury official), and Paul Warburg (Kuhn, Loeb & Co., representing European Rothschild interests).
Over 10 days at Jekyll Island, these seven men — representing approximately one-quarter of the entire world's wealth — drafted what became the Federal Reserve Act. The secrecy of the meeting was maintained for decades. Frank Vanderlip confirmed it in a 1935 magazine article: "I was as secretive — indeed, as furtive — as any conspirator... Discovery, we knew, simply must not happen, or else all our hard work would be naught."
The Panic of 1907 — triggered by a run on Knickerbocker Trust Company — was engineered (according to congressman Charles Lindbergh Sr.) by J.P. Morgan to create the public demand for a central bank. Morgan announced he would personally guarantee New York banks during the panic — acting as an unofficial central bank. Within months, Congress began serious discussion of formalising a central banking system. The Panic of 1907 created the political will for the Federal Reserve Act of 1913. Morgan had served as the instrument of the panic and then presented the solution.
The 1913 Congressional Vote
The Federal Reserve Act passed the House on December 22, 1913 — when most congressmen had already left Washington for the Christmas recess. It passed the Senate on December 23 with minimal debate. President Woodrow Wilson signed it the same day. Wilson later expressed regret: "I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men."
The Audit Question
Congressman Ron Paul's "Audit the Fed" bill — introduced every congressional session from 1983 to 2012 — never passed to a full Senate vote. A partial audit conducted in 2011 (under the Dodd-Frank Act) revealed that the Federal Reserve had secretly loaned out $16 trillion to financial institutions, including $6.7 trillion to foreign banks, during the 2008 financial crisis — without congressional approval or public knowledge. This was larger than the entire US GDP at the time. The figures were buried in a 251-page GAO report and received minimal mainstream press coverage.
Interest on Nothing
When the Fed creates money to buy government bonds, it creates the principal as new currency — but the interest owed on those bonds must come from somewhere. Since all dollars are created as debt, the interest can only be paid by creating more debt. The system is mathematically self-perpetuating: total debt in the system always exceeds total currency in circulation, because interest was never created — only the principal was. The entire system requires perpetual exponential debt growth to function.
Executive Orders & the Fed
President John F. Kennedy signed Executive Order 11110 on June 4, 1963 — authorising the US Treasury to issue silver certificates ("United States Notes") directly, bypassing the Federal Reserve. It was one of the few presidential actions that directly challenged the Fed's monopoly on currency creation. Kennedy was assassinated on November 22, 1963. President Johnson reversed the silver certificate programme within months. E.O. 11110 has never been rescinded but has never been used.