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hand. The meetings between Norman and Strong were very secre-
tive, but the evidence suggests that in February 1929, they concluded
that a collapse in the market was inevitable and that the best course
was to let it correct “naturally” (naturally, that is, with a little help
from the Fed). They sent advisory warnings to lists of preferred cus-
tomers, including wealthy industrialists, politicians, and high foreign
officials, telling them to get out of the market. Then the Fed began
selling government securities in the open market, reducing the money
supply by reducing the reserves available for backing loans. The bank-
loan rate was also increased, causing rates on brokers™ loans to jump
to 20 percent.5
The result was a huge liquidity squeeze “ a lack of available money.
Short-term loans suddenly became available only at much higher in-
terest rates, making buying stock on margin much less attractive. As
fewer people bought, stock prices fell, removing the incentive for new
buyers to purchase the stocks bought by earlier buyers on margin.
Many investors were forced to sell at a loss by “margin calls” (calls by
brokers for investors to bring the cash in their margin accounts up to a
certain level after the value of their stocks had fallen). The panic was
on, as investors rushed to dump their stocks for whatever they could
get for them. The stock market crashed overnight. People withdrew

Chapter 15 - Reaping the Whirlwind

their savings from the banks and foreigners withdrew their gold, fur-
ther depleting the reserves on which the money stock was built. From
1929 to 1933, the money stock fell by a third, and a third of the nation™s
banks closed their doors. Strong said privately that the problem could
easily be corrected by adding money to the shrinking money supply;
but unfortunately for the country, he died suddenly without passing
this bit of wisdom on.6 It was dramatic evidence of the dangers of
delegating the power to control the money supply to a single auto-
cratic head of an autonomous agency.
A vicious cyclone of debt wound up dragging all in its path into
hunger, poverty and despair. Little money was available to buy goods,
so workers got laid off. Small-town bankers like George Bailey were
lucky if they escaped bankruptcy, but the big banks made out quite
well. Many wealthy insiders also did quite well, quietly pulling out of
the stock market just before the crash, then jumping back in when
they could buy up companies for pennies on the dollar. While small
investors were going under and jumping from windows, the Big Money
Boys were accumulating the stocks that had been sold at distressed
prices and the real estate that had been mortgaged to buy the stocks.
The country™s wealth was systematically being transferred from the
Great American Middle Class to Big Money.
The Homestead Laws were established in the days of Abraham
Lincoln to encourage settlers to move onto the land and develop it.
The country had been built by these homesteaders, who staked out
their plots of land, farmed them, and defended them. That was the
basis of capitalism and the American dream, the “level playing field”
on which the players all had a fair start and something to work with.
The field was level until the country was swept by depression, when
homes and farms that had been in the family since the Civil War or
the Revolution were sucked up in a cyclone of debt and delivered into
the hands of the banks and financial elite.

Austerity for the Poor,
Welfare for the International Bankers

The Federal Reserve scheme had failed, but Congress did not shut
down the shell game and prosecute the perpetrators. Rather, the Fed-
eral Deposit Insurance Corporation (FDIC) was instituted, ostensibly
to prevent the Great Depression from ever happening again. It would
do this by having the federal government provide backup money to

Web of Debt

cover bank failures, furnishing a form of insurance for the banks at
the expense of the taxpayers. The FDIC was prepared to rescue some
banks but not all. It was designed to favor rich and powerful banks.
Ed Griffin writes in The Creature from Jekyll Island:
The FDIC has three options when bailing out an insolvent bank.
The first is called a payoff. It involves simply paying off the
insured depositors [those with deposits under $100,000] and then
letting the bank fall to the mercy of the liquidators. This is the
option usually chosen for small banks with no political clout.
The second possibility is called a sell off, and it involves making
arrangements for a larger bank to assume all the real assets and
liabilities of the failing bank. Banking services are uninterrupted
and, aside from a change in name, most customers are unaware
of the transaction. This option is generally selected for small
and medium banks. In both a payoff and a sell off, the FDIC
takes over the bad loans of the failed bank and supplies the money
to pay back the insured depositors. The third option is called
bailout . . . . Irvine Sprague, a former director of the FDIC,
explains: “In a bailout, the bank does not close, and everyone “
insured or not “ is fully protected. . . . Such privileged treatment
is accorded by FDIC only rarely to an elect few.”
The “elect few” are the wealthy and powerful banks that are
considered “too big to fail” without doing irreparable harm to the
community. In a bailout, the FDIC covers all of the bank™s deposits,
even those over $100,000. Wealthy investors, including wealthy foreign
investors, are fully protected. Griffin observes:
Favoritism toward the large banks is obvious at many levels. . . .
[T]he large banks get a whopping free ride when they are bailed
out. Their uninsured accounts are paid by FDIC, and the cost of
that benefit is passed to the smaller banks and to the taxpayer.
This is not an oversight. Part of the plan at Jekyll Island was to give
a competitive edge to the large banks.7
The FDIC shielded the bankers both from losses to themselves and
from prosecution for the losses of others. Later, the International
Monetary Fund was devised to serve the same backup function when
whole countries defaulted. Austerity measures and belt-tightening
were imposed on the poor while welfare was provided for the rich,
saving the moneyed class from the consequences of their own risky

Chapter 15 - Reaping the Whirlwind

The Blame Game

Who was to blame for this decade-long cyclone of debt and
devastation? Milton Friedman, professor of economics at the University
of Chicago and winner of a Nobel Prize in economics, stated:
The Federal Reserve definitely caused the Great Depression by
contracting the amount of currency in circulation by one-third
from 1929 to 1933.
The Honorable Louis T. McFadden, Chairman of the House Bank-
ing and Currency Committee, went further. He charged:
[The depression] was not accidental. It was a carefully contrived
occurrence. . . . The international bankers sought to bring about a
condition of despair here so that they might emerge as rulers of us
Representative McFadden could not be accused of partisan politics.
He had been elected by the citizens of Pennsylvania on both the
Democratic and Republican tickets, and he had served as Chairman
of the Banking and Currency Committee for more than ten years,
putting him in a position to speak with authority on the vast
ramifications of the gigantic private credit monopoly of the Federal
Reserve. In 1934, he filed a Petition for Articles of Impeachment against
the Federal Reserve Board, charging fraud, conspiracy, unlawful
conversion and treason. He told Congress:
This evil institution has impoverished and ruined the people of
these United States, has bankrupted itself, and has practically
bankrupted our Government. It has done this through the defects
of the law under which it operates, through the maladministration
of that law by the Fed and through the corrupt practices of the
moneyed vultures who control it.
. . . From the Atlantic to the Pacific, our Country has been
ravaged and laid waste by the evil practices of the Fed and the
interests which control them. At no time in our history, has the
general welfare of the people been at a lower level or the minds of
the people so full of despair. . . .
Recently in one of our States, 60,000 dwelling houses and farms
were brought under the hammer in a single day. 71,000 houses and
farms in Oakland County, Michigan, were sold and their erstwhile
owners dispossessed. The people who have thus been driven out
are the wastage of the Fed. They are the victims of the Fed. Their

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children are the new slaves of the auction blocks in the revival of the
institution of human slavery.9
A document called “The Bankers Manifesto of 1934” added weight
to these charges. An update of “The Bankers Manifesto of 1892,” it
was reportedly published in The Civil Servants™ Yearbook in January
1934 and in The New American in February 1934, and was circulated
privately among leading bankers. It read in part:
Capital must protect itself in every way, through combination
[monopoly] and through legislation. Debts must be collected
and loans and mortgages foreclosed as soon as possible. When
through a process of law, the common people have lost their
homes, they will be more tractable and more easily governed by
the strong arm of the law applied by the central power of wealth,
under control of leading financiers. People without homes will
not quarrel with their leaders. This is well known among our
principal men now engaged in forming an imperialism of capital
to govern the world.10
That was the sinister view of the Great Depression. The charitable
explanation was that the Fed had simply misjudged. Whatever had
happened, the monetary policy of the day had clearly failed. Change
was in the wind. Over 2,000 schemes for monetary reform were ad-
vanced, and populist organizations again developed large followings.

Return to Oz: Coxey Runs for President

Nearly four decades after he had led the march on Washington
that inspired the march on Oz, Jacob Coxey reappeared on the scene
to run on the Farmer-Labor Party ticket for President. Coxey, who
was nothing if not persistent, actually ran for office thirteen times
between 1894 and 1936. He was elected only twice, as mayor of
Massillon, Ohio, in 1932 and 1933; but he did succeed in winning a
majority in the Ohio presidential primary in 1932.11
Franklin Roosevelt came from banking and railroad money and
had the support of big business along with the general public. He
easily won the presidential election. But Coxey maintained that it
was his own plan for government-financed public works that was the
blueprint for the “New Deal,” the program widely credited with
pulling the country out of the Depression.12 It was the same plan
Coxey had proposed in the 1890s: Congress could jump-start the
economy by “priming the pump” with various public projects that
Chapter 15 - Reaping the Whirlwind

would put the unemployed to work, using government-issued, debt-
free money to pay for the labor and materials. Roosevelt adopted the
pump-priming part but not the proposal to finance it with debt-free
Greenbacks. A bill called the Thomas Amendment was passed during
his tenure that actually authorized new issues of government
Greenbacks, but no Greenbacks were issued under it. Instead,
Roosevelt financed the New Deal with deficit spending and tax
In 1944, Coxey was honored for his work by being allowed to
deliver a speech on the Capitol steps, with the formal blessing of the
Vice President and the Speaker of the House. It was the same speech
he had been barred from giving there half a century before. In 1946,
at the age of 92, he published a new plan to avoid unemployment and
future wars. He died in 1951, at the age of 97.13

Another Aging Populist Returns

Another blast from the past on the presidential campaign trail was
William Hope Harvey, author of Coin™s Financial School and economic
adviser to William Jennings Bryan in the 1890s. Harvey ran for Presi-
dent in 1932 on the Liberty Party ticket. Like Coxey, he was an ob-
scure candidate who was later lost to history; but his insights would
prove to be prophetic. Harvey stressed that people who took out loans
at a bank were not actually borrowing “money.” They were borrow-
ing debt; and the commercial oligarchy to whom it was owed would
eventually end up running the country. The workers would live on
credit and buy at the company store, becoming wage-slaves who
owned nothing of their own.
Harvey considered money to be a direct representation of a man™s
labor, and usury and debt to be a scheme to put middleman bankers
between a man™s labor and his property. Even efficient farmers
operating on the debt-money system would eventually have some bad
years, and some would default on their loans. Every year there would
be a certain number of foreclosures and the banks would get the land,
which would be sold to the larger farm owners. The country™s property
would thus gradually become concentrated in fewer and fewer hands.
The farms, factories and businesses would wind up owned by a few
individuals and corporations that were controlled by the bankers who
controlled the money supply. At the heart of the problem, said Harvey,
was the Federal Reserve System, which allowed banks to issue debt

Web of Debt

and pretend it was money. This sleight of hand was what had allowed
the bankers to slowly foreclose on the country, moving ownership to
the Wall Street banks, brokerage houses and insurance companies.
The ultimate culprit was the English banking system, which had
infected and corrupted America™s banking system. It was the English
who had first demonetized silver in 1816, and who had decreased the
value of everything else by hoarding gold. Debts to English banks had
to be paid in gold, and countries that did not produce gold had to buy
it to pay their debts to England. The result was to drive down the
value of the goods those countries did produce, indenturing them to
the English bankers. In a fictionalized book called A Tale of Two
Countries, Harvey wrote of a fat English banker named Baron Rothe,
who undertook to corrupt the American economy and government in
order to place the reins of the country in the hands of his worldwide
banking system.
Harvey™s solution was to return the Money Power to the people,
something he proposed doing by nationalizing the banks. He would
have nationalized other essential industries as well “ those that oper-
ated on a large scale and produced basic commodities, including pub-
lic utilities, transportation, and steel. The profits would have gone
into the public coffers, replacing taxes, which Harvey thought should
be abolished. The Populists of the 1890s had campaigned to expand
the money supply by adding silver to the gold that backed paper money,
but Harvey now felt that both gold and silver should be de-monetized.
The national currency did not need precious metal backing. It could
be what Franklin and Lincoln said it was “ simply a receipt for labor.
Paper money could be backed by government services. That is a novel
idea today, but it has a familiar precedent: the postage stamp is a kind


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