TGCI 16: Truth behind the FED reserve. What is it really?

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Episode 16 – The Truth Behind Fed Reserve. What Is It Really?

Show #16 - G Edward Griffin - Episode Art (1)

Summary

In this episode, Pancham interviews G. Edward Griffin, writer and documentary film producer.  In today’s show we discuss Ed’s commendable work, “The Creature from Jekyll Island: A Second Look at the Federal Reserve”.

This show starts off with Ed explaining to listeners that the Federal Reserve is NOT a government body but a banking cartel. Listeners will learn how the Federal Reserve, formed in Jekyll Island years back is comprised of some of the most powerful banks in the world. 

How does the Fed create money? Does the Fed have limitless ability to create money? Ed also explains why he views inflation as a “hidden tax”. This show wraps up with our “Taking the Leap” round.

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Pancham Gupta
TGCI 16 - G Edward Griffin
G. Edward Griffin

 Tune in for some excellent nuggets!

Show #16 - Quote Art

Timestamped Shownotes:

  • 01:06 – Pancham introduces G. Edward Griffin to listeners
  • 02:33 – What is the Federal Reserve?
  • 03:48 – Ed explains that the Federal Reserve is not a government body but a banking cartel
  • 06:10 – How is money created by the Federal Reserve?
  • 08:20 – Ed defines inflation in simple terms
  • 10:16 – Why can inflation be termed as a “hidden tax”?
  • 11:38 – Was dollar backed by gold in the old days? Did this limit the ability to “create” new dollars?
  • 13:10 – Taking the Leap
  • 13:16 – When was the first time you invested outside of the Wall Street?
  • 14:08 – What fears had to overcome when first invested outside of the Wall Street?
  • 15:07 – Can you share one investment that did not go as expected?
  • 19:05 – What is one piece of advice that you should give to people thinking of investing in the Main Street?
  • 20:15 – Ed shares his contact information
  • 25:51 – Discover Top 6 reasons why you should NOT invest on the Wall Street
  • 27:02 – Got questions? Get in touch with Pancham
  • 3 Key Points:

    Read Full Transcript

    Welcome to the Gold Collar Investor podcast with your host, Pancham Gupta. This podcast is dedicated to helping the high paid professionals to break out of the Wall Street investments and create multiple income streams.

    Here’s your host, Pancham Gupta.

    Pancham: Have you ever thought about how the money is created? Where does it come from? Does Federal Reserve make it? Does US Treasury make it? And what is inflation? Really? Why a little bit of inflation is good but hyperinflation like in Zimbabwe is not good. Are you already lost with my above questions? If so do not worry. I spent a good amount of time in learning about these topics. One book that really made me understand money is called “The Creature from Jekyll Island”. It’s not an easy read. But I bet that it will be worth your time. Today I have the honor of having the author of the book, G. Edward Griffin on my show. Robert Kiyosaki, the best financial author on this planet calls him Sir G. Edward Griffin. Ed, welcome to the show.

    Edward: Well, thank you for inviting me.

    Pancham: Are you ready to fire up my listeners break out Wall Street investments?

    Edward: No, I’m not ready to fire them up. But I’m ready to tell them some things that they might want to consider. The reason I make that distinction is that I don’t think people should make investment decisions on the basis of enthusiasm or being fired up. I think it should be based on knowledge and facts, careful consideration, analysis. So but I’m prepared for that.

    Pancham: Okay, great. Great, great point. And thanks for mentioning that. So my first question is, I believe like most of my listeners have no idea what the Federal Reserve is, or what’s its role in the overall economy? Can you explain that for my listeners?

    Edward: Sure. And I know, we don’t have a lot of time, because to answer that question correctly, I mean, we could talk all day about it. You know, I’ve written this terribly big book, 600 pages to answer to that question. But of course, it can be summarized. So let’s get down to the nitty gritty. The first thing about the Federal Reserve to understand is that it is not a government agency. What a surprise that was for me to discover that it’s not a government agency. Anyway, what is it that? Yeah, well, the quick and direct and correct answer is, it’s a cartel. It is just the same as a banana cartel or an oil cartel. But it happens to be a banking cartel. Now, what does that mean? And good grief, how did that happen? 

    Pancham: Exactly. 

    Edward: Well, what that means is that the Federal Reserve System is a group of banks. The biggest banks in the United States dominate it like any other cartel. Like the oil cartel is always dominated by the biggest oil companies that come together. And these are independent companies, which on the surface, at least, appear to be competitors. But when they come together to form a cartel, what they are basically doing is to reduce or eliminate competition between themselves so that they can control the market and not have to compete and therefore make higher profits without competition. 

    Pancham: So you mentioned profits. But isn’t this a government agency? So does that mean that it’s not a government agency, but it’s in for profit and profit for the main six or seven, eight, whatever the number of banks is? 

    Edward: That’s exactly what I’m saying. It is not a government agency. That’s the whole point. And it was hard for me to get my brain around that at first. No, it’s a cartel of private companies, big companies, the Big Bang, you know. Citibank and the Bank of America, you know. I mean, these are big banks. And they formed a cartel back in 1910. It was passed into law in 1913. The reason for the title of my book, which is the, “Creature from Jekyll Island: A second look at the Federal Reserve”. It sounds like it’s a mystery story. Well, in a way it is. But there’s meaning to it, because this whole cartel was put together at a secret meeting that took place back in 1910 on Jekyll Island. It’s a real Island, off the coast of Georgia. And it was on that island that the heads of the largest banks in the United States and or their agents came together and they plotted for a whole week on this island in the beautiful hotel. They called it the Jekyll Island Club is still there. You can go visit. It’s a lot of history there. And then the Federal Reserve was hammered out by bankers. At the secret meeting on Jekyll Island where there were no reporters, nobody see who was at work, and so forth. And this is a matter of history. You can dig it out from the words and the documents, the biographies, the news stories, mostly written by the people themselves who participated in this event. Now, they didn’t admit it at the time, you know, they said, Oh, no, nothing like that ever took place. Oh, yeah, we did go to the meeting. But we went there to do some duck hunting and so forth. But it was only after the Fed was created and became a cherished as a great national institution. Everybody thought it was the government agency, then they began to talk openly about it and write their books and all that sort of thing. So now you can go to the historic records, and you find out exactly what it is. And what it is, is a banking cartel. These are private banks.

    Pancham: Right? So listeners when I first read Ed’s book, which is “The creature from Jekyll Island”, it was a revelation to me on what the Federal Reserve is. And it’s just mind blowing stuff. It’s not really a history book. It’s a detective story, which reads like a suspense thriller. Okay, let’s move on. And you mentioned in the book, their money is created, and it’s smoke and mirrors, right? Can you explain how is the money created by the Federal Reserve?

    Edward: Well, it’s created out of debt. Now, if we always say it created out of nothing, which is true. If you define nothing is nothing material like, like Gold, or silver, or wood, or food or anything that’s has tangible value. It’s created out of debt. In other words, it comes into being when the bank loans the money to you and me. They don’t have anything to loan it for the money. They may have a little tiny bit what they call reserves. But because of the rules of the Federal Reserve, they made the rules to govern their own operations. So they made very generous rules. According to the rules, they can create $9 or more for every $1 that’s actually in deposit in their bank as the reserve. They call it a reserve. Right? So every dollar that you put in, as you know, your deposit, or say, “Take care of this dollar for me”. They say, “Oh, yes, sir, we will guard it very carefully”. They turn around and they put that dollar aside, they call it a reserve, and they loan $9 based on your $1. And if you say, well, where did the other nine come from? From nowhere. It’s dead. They say you owe us now $10. And we only have $1 that we didn’t even loan that to you. We put it in something called reserve, but we loan to you. We created out of nothing. But you’re going to have to turn it back to us at some time. So we put that that newly created money into our books as an asset because you’re going to pay it to us. 

    Pancham: And you pay interest on top of that. 

    Edward: Yeah, it’s an amazing deal. When you finally understand it, you know. First time I realized this, I thought to myself, why didn’t I think of that? Yeah. So the idea is that the banks make interest on nothing. 

    Pancham: Exactly. You know, I had a finance professor. When I actually first went into Finance 101, he said, if you want to make money, do not rob the bank. Own a bank.

    Edward: Yeah. Right. And when he said make money, he was using the double meaning on the word “Make money”. That’s how you make money. By creating it. 

    Pancham: Yes, exactly. All right. Great. You know, in your book, you called inflation as a hidden tax. Right? Can you explain why that is a hidden tax?

    Edward: Well, sure. First of all, we have to define inflation with the expansion of the money supply which, obviously, if you can create money out of nothing and collect interest on it…

    Pancham: Right. 

    Edward: What is your motive? You going to create as much of it as you can in finance, and loan it into society. However, you have to do it, and you can charge very low interest rates. You don’t have to charge a lot of interest if what you’re selling or renting, it costs you nothing. So you can make a profit on a 1.5% interest rate. So whenever you have a system like that, the bank’s always create money, and then create more money and more money and as much as they can, because that’s how they make their profits. So under those circumstances, the money supply always expands at a rate faster than the expansion of goods and services in society. Now, if the money were pegged to something that took human effort to create, like gold, or silver, or wine, or rubber tires, or anything, the amount of labor that goes into the creation of the money would be measured by society against the amount of effort that would be used to create anything else. 

    Pancham: Right 

    Edward: And so wherever the attractive ratio was, that’s where the human effort would go. And when you have a system where money is backed by something that takes human effort to create the purchasing power of the dollar, or whatever unit you call, it always remains very stable. I mean, it lasts for thousands of years. Back in the times of ancient Rome, if you had a gold coin, one ounce gold coin, that would buy for you a very nice toga, a handcrafted belt, and a pair of sandals. And now over 1000 years later, if you have a one ounce gold coin, and you converted it into spendable money, you could go to a nice clothing store, you buy a very nice suit, a pair of shoes, handcrafted belt, and there you have it. The value of money. When it’s in terms of something that takes human effort, it always holds its value. Now, when they created out of nothing, of course, the quantity of the money expands very rapidly. And you have all these, these dollars floating around. It is so easy to come by, because they’re just making them and they’re dropping from the sky practically. Interest rates are so low, and they loan it into existence. Well, then the cost of everything seems to go up…up…up…up. What we bought something last year for $5. And this year at $7. And next year it is going to be $12. And how does that happen? How did these prices keep going up? Well, the fact of the matter is the prices do not go up. What’s happening is the value of the dollar is going down. That’s the phenomena. The real price in terms of human effort hasn’t changed at all. So the people lose their purchasing power. Now they have to work harder, harder and longer and longer to be able to buy that same loaf of bread or a gallon of gas or whatever it was. And so their purchasing power is being taken from them and it is taxed. They’re being taxed. They don’t see it as the tax. But it’s the loss of being able to buy things with the same amount of money. So it is a tax, it’s a hidden tax. And most people have no idea how it came about, or even that they’re paying it.

    Pancham Right. And you know, one interesting fact is that since 1971, dollar is no longer backed by gold, backed by gold. And after that it’s been just a free ride. It’s just been printing money before that, would you say it was money?

    Edward: Yes, as long as there’s something behind it. Now at that time, the dollar wasn’t 100% backed by gold. It was a percent he’s they keep fiddling with the percentage. They keep dropping it dropping. And then next year, they drop it some more than Finally, as you say in 1971. They said, okay, it’s zero. Let’s get let’s be honest about it. Get rid of all connections. But yeah, as long as there is something behind it, that limits the ability to create new dollars. Even if it’s only 25% backed by gold, you still can’t just create as many as you want, for every one ounce of gold, then you can create the equivalent of four times that if the reserve ratio is only 25%. Right? So yet, but there’s still a limit. There’s some kind of a limit. But once you get to the point where we have been since 1971, there is no connection at all. No ratio. So the sky is the limit.

    Pancham: Right? Great. Thanks for explaining that, Ed. It sounds like a scam to me.

    Edward: Well, it is a scam. And that’s why people have trouble understanding it. Because they keep thinking, well, this doesn’t make sense. Well, that doesn’t sound fair. No, that can’t be right. They wouldn’t do that. Would they? Of course, they do that once you understand that it is a scam. Then all of a sudden, it’s really easy to understand how the system works.

    Pancham: Right, right. So I was fascinated by your book, I would highly, highly recommend to everyone who wants to understand more about this subject to go and grab Ed’s book and read it. It’s not an easy read. But you will be glad that you did. So we’ll move on to the next section of our show, which I call Taking the Leap round. I ask these four questions to every guest on my show. So my first question for you Ed, is, when was the first time you invested outside of the Wall Street?

    Edward: This answer may surprise you. 

    Pancham: Okay. 

    Edward: I have never invested inside of Wall Street. 

    Pancham: Oh, great. You don’t have to…

    Edward: Worry about that. And my reason at first was because I didn’t have really disposable money for investment, or I didn’t think I did. I was raising a family. And I was trying to open up a business. I was trying to publish my books and had to save some money to pay for the printers and so forth. So I didn’t have disposable income. But I always thought, “Well, yeah, I got to get into the stock market eventually”. But by the time that finally came to pass, I had already understood what was going on in the money markets, the stock markets and so forth. I decided that is not for me. Great, great.

    Pancham: So second question is kind of not that relevant. But I still ask. What fears did you have to overcome when you first invested outside of the Wall Street?

    Edward: Well, I have to think back to the time when I didn’t understand what was going on and what my fears were. Well, probably my greatest fear and it wasn’t a big fear. But it was my concern that I didn’t really understand it. And I didn’t know what stocks were good. I didn’t know how to evaluate them. And I always thought, “Well, I’m going to have to study this, or I’ll just find myself a stockbroker that has a nice look, and maybe talks nice. And I’ll follow his advice”. 

    Pancham: A bit, like going to the doctor, you know. Right?

    Edward: Right, exactly. I didn’t have a responsibility to take care of my own health, do I? What I get sick, I go to the doctor. That’s nonsense, of course. But that’s the attitude I had. After all, when I’m ready to invest, I don’t have to understand anything. I can just go find an investment doctor say what do you recommend? That would be my fear that I didn’t understand what I was doing. Okay.

    Pancham: All right. Fair enough. Can you share with us one investment that did not go as expected anything since you started investing?

    Edward: Yes, it’s I’m in one right now, as a matter of fact, Oh, okay. I guess it was about 10, 11, 12 years ago, I decided it was time to get really serious about putting my money into gold and silver and precious metals. And I had an opportunity to buy a substantial share of a gold mine that had been out of operation for some time. But it was a very good gold mine. In fact, it had been has a great history of production, and so forth. And I looked at the price of gold, and I knew that the future somewhere in the future would be very good. You know, how can you go wrong buying a gold mine. Right? I mean, how can you go wrong? So I put a big chunk of my savings into that. And just about that time, of course, the market turned around, and the price of Gold went down. And at the same time, the environmentalist agencies in Montana, and at the federal level both had declared war on mining of all kinds. And they began to add more rules and regulations, supposedly to protect the environment, and safety and all that, but we knew that they just didn’t like us. They wanted us out of the picture. They don’t like the idea of private enterprise doing anything, whether it’s mining or building houses, or growing crops or anything because these guys came out of the university, you know. And they are… they’re taught collectivist, and all the states should rule and run everything. And so that was the mentality we were up against, but it was disguised as being environmentalism and so forth. So all these rules and regulations added a lot of cost to our investment and delays. We had to move the settling pond from where he had always been up the mountain because it might endanger some fish down there in the pond and was perfectly clean water, you could drink it. But anyway, the rules sad the head had to be so many feet from a running stream, and all that cost us all huge amounts of money, and then an extra escape tunnel. And how can you argue with that? You know, its safety. And so what I had not anticipated is the drop in price, drastic drop in price on gold for a while and had not anticipated this unknown expense. So none of us had. So we had to do cash calls and all that kind of put more money into it more money into it. And then we had somebody wanting to buy it at sort of a discounted rate. Well, maybe we should sell it. So we entered into a sales contract. And they made a very nice initial payment, and then reneged. So now that thing came back to us, and none of this I anticipated. Now, as we sit looking at it, 10-12 years later, it looks like it’s still a very good investment. Because gold, as you know, is getting ready to jump up again. We thought it would do that a long time ago. But now it looks like its ready. So it’s kind of a lesson in that because even though the investment did not go exactly the way we had anticipated it, we were investing in something which has intrinsic value, something historically, it’s always been able to weather all kinds of economic crises. And sure enough, it looks like if we just hang in there long enough, we’re not going to lose anything. And our original vision, I’m sure is going to be fulfilled.

    Pancham: Right. Good luck with your Gold mine, I’m sure it is going to go well.

    Edward: But another thing I might add it back sort of advice. I should have learned more about gold mining before I did this, I sort of did that Dr. routine, you know, it’s like, oh, these guys have got an operating gold mine. They know all about it. Right? Yeah. So all I had to do is trust them to make the right decisions. And I knew nothing about mining gold. So I’ve learned a lot since that you. And so I would advise if anybody’s listening to me, in terms of Oh, this guy knows what he’s talking about. You understand what I’m saying? It is that you should understand your investment before you put money into it. Yeah, I didn’t do that.

    Pancham: Got it. So I think you answered my last question, which is, what is the one piece of advice would you give to people who are thinking of investing in the Main Street that is outside of the Wall Street?

    Edward: Well, that would be it. Yeah, I’m not saying don’t trust other people. But brokers are brokers, you know? 

    Pancham: Correct 

    Edward: Their business is to sell their products. And you and I both have talked to enough brokers. They say that they hate their job. Because they can’t really say exactly what they want to say, right. But that doesn’t mean that that their advice is wrong, it just means you have a responsible I have, we all have our personal responsibility to be informed and not just take this at the surface level. If you’re not prepared to do that, then don’t expect to be making a lot of money and investments. In fact, you might even lose it. But the only way you can make money without understanding your investment fields, is to invest in very dull, uninteresting low yield type investments, like utilities or something like that. Right, right. But you can hardly go wrong. But you could also cannot make a lot of money either.

    Pancham: Great. Thank you Ed for sharing all of that. You’ve added ton of value to my listeners today. How can the listeners reach you? And also, do you want to talk about your Red Pill Expo that you do every year? 

    Edward: I’d love to talk about that. Yeah. The Red Pill Expo. I guess most of your listeners…Well, maybe they don’t know. But everybody should know that there’s a movie that came out about 20 years ago, a science fiction movie, called the Matrix. And the theme of the matrix in the movie was that all of mankind was living in, in a machine, their bodies had been tapped into for energy. And they didn’t know that they weren’t living a normal life. They’ve had this illusion, forced into their brains by this giant computerized matrix. And they all thought they were living normal lives, going to work, getting married, having kids, you know, going to church paying the taxes, all that stuff. But in reality, they’re lying. They’re like zombies, and they’re all wired up. So the goal was to get out of that matrix and get into the real world and see what the real world is really like. And a couple of humans had managed to do that. And now they were trying to save the rest of mankind and one at a time, you know. But in order to make that transition, they had to make a choice between taking a red pill, or a blue pill. Now they take the red pill that allows them to get out of the matrix there. It’s a sci-fi movie, right? Yeah, they make it seem almost plausible in the movie. But so you take the red pill, and they can save you and pull you out of that machine. But now you have to fight the machine. And the machine is everywhere. But the whole battle actually takes place in your mind. So the idea though, of course, getting it down to the bottom line is that to see reality and break out of the illusion. You should take the red pill. And that’s the goal that we all should have. But it’s made very clear in the movie that some people really would rather take the blue pill, because reality is harsh. 

    Pancham: Exactly. 

    Edward: And so they’d rather go into a dream world even though they know it’s not real, because they don’t want to face the harsh harshness of reality. So I thought that was a wonderful analogy for our real life. Because we have to make that choice. 

    Pancham: Right? 

    Edward: Most of us and I’m certainly in that group, I used to live in all kinds of illusions about the real world. Take the Federal Reserve System, for example. I thought it was a government agency. I thought it was here to help me. And I said, No, it was a banking cartel here to rip me off. And so that’s a red pill. I wrote another book on cancer therapies and so forth. I used to think that the cancer industry was all about curing cancer. And then, Oh, my gosh, no. If they cured cancer, there’d be no more money coming in their goal. Their goal is to treat cancer extensively. By the way, yeah, and just keep you on treatments forever, but never cure the darn thing. And that was another red pill. How many more red pills do I need to take? You know? I thought, let’s pull together all of the people that have gone red pill that they’ve taken. They want to tell us how to pull us out of the matrix. So we decided to put on a show call it the Red Pill Expo. And this is our third one coming up. The first two have been wildly successful. And the next one is scheduled for June seven, eight and nine, in Hartford, Connecticut. So if anybody wants to know about who’s speaking there, I’ll be speaking there. Robert Kiyosaki, and we got a lot of red pill dispensers. Robert Kiyosaki, by the way is the guy that wrote the book, Rich Dad, Poor Dad.

    Pancham: Right. 

    Edward: And he’s the guy that says, don’t work for money. Yes? Have the money work for you. And then he goes into a lot of red pills and investments, and so forth. So if you’re interested, and I hope you are, come to red pillexpo.net. Redpillexpo.net. You’ll see all about it. You can sign up to come to the event. If you can’t make it to the event, which of course most people can’t, there’s a very inexpensive livestream that you can watch the whole thing on your computer or on your TV, and watch it live. And then it’ll be replayed for a whole week afterwards. So you can go back and watch it again. Or if you missed some of the sessions, you can go back and see it again. So that’s our big event right now. And I’m really excited about it. I have a newsletter. All right? I call it “Need to know”. 

    Pancham: Need to know. Okay. 

    Edward: And it’s free. We do have advertisers, but they pay the bill. But I do my best to search the world news every day, and find stories where there’s a red pill. What you’re reading is not the whole story. And what I try to do is show the complete story in a summary. So make it easy to go through the day’s news. And maybe you know, 10 minutes just reading the summaries, or five minutes even. And if you find a story that’s particularly interesting then it will send you to the original source. And you can spend all day you know, searching down to going down the rabbit hole, so to speak, I need to know dot news. Then we have an online bookstore called Realityzone…reality zone.com as the commercial site. And then of course, behind all of this, we have Freedom Force International, which is kind of our Think Tank. We have nothing to sell there except ideas, and explain to people why we’re doing all this. And if we don’t like the world as we see it now, what would we do that’s different. You know, what’s a better plan? All of that kind of ivory tower thinking is at freedomforceinternational.org.

    Pancham: Okay, great. Thank you for your time today. And really, really appreciate all the wisdom that you shared my listeners.

    Edward: Well, thank you. It’s a delight and an honor to be invited on.

    Pancham: Good luck. That is mine. Thanks. If you want to know the top six reasons on why you should consider diversifying outside of the Wall Street, then you are in the right place. I have written a free report for you. It goes into not just a top six reasons why investing in stocks for one case may not be the sound strategy, but also what are the alternatives? Get your free report today on the goldcollar investor.com/download. I repeat the goldcollarinvestor.com/download. I hope that this show made some of you very curious on learning more. My goal for this show was to make you aware of the things you may never think about, let alone question them.

    At first part of your brain will go and say it’s another conspiracy theory. Trust me. That opinion will change after reading the book. I will leave you with this. Understanding money is important if you want to become a good investor. Thanks for listening. If you have questions email me at p@thegold collarinvestor.com. That’s p as in Paul@thegoldcollarinvestor.com. This is Pancham signing off. Until next time, take care. 

    Thank you for listening to the Gold Collar Investor podcast. If you love what you’ve heard and you want more of Pancham Gupta. Visit us at www.thegoldcollarinvestor.com and follow us on Facebook at the Gold Collar investor. The information on this podcast our opinions as always. Please consult your own financial team before investing




    Show #16 - G Edward Griffin - Episode Art

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