How did the United States end its last central bank?

Source: profstonge; Compiled by: Block unicorn

There are a total of 4 central banks in the United States, 3 of which are closed and 1 is still operating. The last central bank we closed was Andrew Jackson’s Second Bank of the United States in 1836, giving us a roadmap to ending the Federal Reserve.

##Second Bank of the United States

The Second Bank was founded in 1816. Like all central banks, it aims to finance government debt at the expense of issuing counterfeit currency.

Buying government debt is standard practice for central banks: it’s a bribe they pay to the government for a license to counterfeit currency. They use these counterfeit notes to buy government bonds at low interest rates, allowing the government to run deficit spending cheaply.

Governments typically pass legal tender bills that stipulate that ordinary people must use these counterfeit bills, otherwise the entire system will collapse: the government will be left with a pile of paper that cannot be spent.

In addition to profiting for central bank sponsors, flooding counterfeit money is popular with politicians because it triggers a short-term economic boom: counterfeiting boosts real savings by a large margin, making borrowing cheap.

Cheap loans triggered an artificial boom, a frenzied hiring, building and investment boom. It’s like cocaine for politicians, who take credit for the flourishing of an organizational fire that burns brightly but is short-lived.

But it will eventually end in a recession or depression. At this point, governments will scapegoat the market—the “animal spirits” of those mysterious Keynesian “mass hallucinations.” Or they will lay the blame on an external crisis, such as a war, or a financial collapse caused by an overextended boom, caused by the recession itself.

So, here’s the central bank package: empowered counterfeiters to provide governments with cheap money, and a short-lived boom that’s best ended after the elections.

Establishment of the Second Bank of the United States

Now back in 1816, the printing of money during the War of 1812 caused regional banks to refuse to exchange their paper notes for gold, which amounted to the banking version of default.

Remember, at that time one dollar actually represented gold—about 1/20th of an ounce. So refusing to exchange in kind (gold and silver coins) is tantamount to bankruptcy. Like a pawn shop refusing to return your guitar.

The banks wanted a bailout, and the central bank — the Second Bank of the United States — was their tool.

Created by Congress, the Second Bank would hold deposits from the federal government and process their payments—so it would act as a normal bank for the federal government. What’s more, the Second Bank will help market government debt.

In return, the Second Bank was allowed to print paper money and make loans, much like fiat reserve banks do today: they pretended to have a million dollars and then drafted an IOU for the borrower in exchange for a promise to pay the million dollars plus interest. . That IOU — the paper money — legally has the disposable character of legal tender, and thanks to legal tender laws, it is illegal to refuse to accept legal tender.

Unlike today’s Federal Reserve, the Second Bank did not set interest rates. But currency counterfeiting drove down interest rates, leading to a brief but violent boom that ended in the Panic of 1819, one of the worst recessions in U.S. history.

By the way, Murray Rothbard once wrote an entire book about this crash—in fact, it was his doctoral thesis.

Public Antipathy to Banks

In 1819, the public blamed the Second Bank for the collapse. But the printing press can buy a lot of friends, so the banks still have support in Congress.

As a result, the banks triggered panics in succession, including 1822 and 1825, every three years.

The events sparked public outrage and led Jackson, a fiery populist, to make bank abolition a focus of his campaign.

Jackson was the Donald Trump of his day — despised by the establishment, and he resented the establishment. He was a war hero who despised the elite. In fact, Donald Trump has a bust of Jackson prominently displayed in the Oval Office.

Jackson himself hated paper money, as he once nearly went bankrupt accepting paper money that had become worthless. He believed that only gold and silver were real money. Additionally, Jackson expressed sympathy for states’ rights, which he believed were trampled upon by the federal bank.

Jackson abolished the Second Bank

Jackson was elected in 1828, but the bank’s charter did not expire until 1836, and he began preparations to withdraw federal deposits from the Second Bank.

Bank Two fought back, hoping to trigger a bank collapse—a “panic” that would be blamed on Jackson—by halting lending to state banks.

However, this move backfired, and the public became even more dissatisfied with the Second Bank. They see him as a plutocratic manipulator, which is exactly what he is.

Faced with this outrage, the House failed to renew the Second Bank’s charter in 1834, closing it.

What happened next? Jackson stepped up land sales and paid off the federal debt for the first and only time in American history.

Initially, these sales were made in paper money, which the State Bank continued to issue, taking over from the printing of the Second Bank. This sparked a land speculation boom, which Jackson countered with the Gold and Silver Order of 1836, requiring that land purchases be paid in gold or silver.

This finally put an end to inflationary banks: the end of cheap money bankrupted nearly half of all banks in the United States—about 400 in total.

The vast majority were new “wildcat” state banks founded to profit from the land craze. But even major New York banks stopped cashing out gold and silver, effectively declaring bankruptcy.

From Second National Bank to Fed

Now, the United States has all the ingredients to return to a healthy currency. The Second National Bank had been closed, the speculative banks had been liquidated, and the national debt had even been repaid.

If the government does nothing at that point, the surviving conservative bankers will replace the speculators. We would have a sound banking system, a sound dollar, and an end to the boom-bust cycle of inflation and bust.

Unfortunately, at that time, Andrew Jackson was out of office. Political friends in the government returned, and President Van Buren allowed the banks to operate while gold and silver redemptions ceased, which amounted to a bank bailout similar to the bank bailouts of the 1800s.

This continued for another 40 years, boom-bust cycle after boom. More often than not, the railroads played the extravagance bubble, while Lincoln sparked true hyperinflation.

Those who insisted on the view of hard currency won a victory during this period, and brought the country back to the gold standard in 1879, ushering in the most glorious golden age in the history of the United States and even in the history of the world. By the way, my article about that golden era is here .

However, this golden age only lasted until 1907. When a group of banks tried to manipulate the copper market, it failed, triggering one of the nation’s largest banking collapses. This collapse was almost single-handedly saved by Morgan, the largest oligarch in the United States.

The bailout cost Morgan a lot of money, so he and other bankers immediately institutionalized the bailout and passed the costs on to the public. Eventually, the Second National Bank was resurrected, now Orwellianly named the “Federal Reserve.” The name was carefully chosen to evoke safety and trust in the banking bailout mechanism, effectively resurrecting the dirty bank bailout machine.

Thus, the Federal Reserve, the creature of Jackell Island (the author likens it to a creature to emphasize its impact on the U.S. financial system and the context in which it emerged), was born.

in conclusion

To me, the most important lesson from the second bank is that we can absolutely end the Fed. This has happened three times and may continue.

But the key is to educate ordinary people—voters—to understand what exactly the Fed does, and what all central banks do.

Help them understand that inflation, recessions, and even bank crashes are not caused by so-called “animal spirits.” They are not greedy workers, or even market private sector failures that require the wise hand of government to intervene. They are a creation of the Federal Reserve, its vocation, and its reason for being.