“Fix the money, fix the world.”
- Investment manager Lawrence Lepard. (Our 2023 interview with Lawrence here.)
Get your Free
financial review
It may yet go down in financial market history as the shot that was heard around the world. On Sunday 11th January, US prosecutors launched a criminal investigation into the current chairman of the US Federal Reserve, Jay Powell, ostensibly connected to a $2.5 billion renovation of the Federal Reserve’s headquarters.
Financial market participants smelt a rat. Substacker ‘Quoth the raven’ responded as follows:
“The reported DOJ criminal investigation and grand jury subpoenas involving Federal Reserve Chair Jerome Powell appear to mark a serious and unprecedented test of the principle of Federal Reserve independence.
“Regardless of the eventual legal outcome of the renovation inquiry itself, the broader context is difficult to separate from years of political pressure on the central bank, repeated public threats to remove its leadership, and now the initiation of criminal proceedings by a Justice Department led by close allies of the president. Powell’s unusually direct response, in which he suggested the action is connected to monetary policy disagreements, underscores how destabilizing this moment may be for U.S. institutions.
“For financial markets, this development is not primarily a political story but an institutional one. Central bank independence has long been a cornerstone of confidence in the U.S. financial system and the dollar. When monetary policy begins to appear vulnerable to political or legal pressure, investors must reassess the risk framework governing U.S. assets. Policy outcomes are no longer viewed solely through the lens of economic data, but increasingly through the lens of political power and institutional confidence.
“The near-term implications therefore appear negative for both U.S. risk assets and the dollar. Even if the investigation ultimately proves limited in scope or effect, the mere existence of such pressure on the central bank introduces a new layer of uncertainty into Treasury markets and broader capital flows. It also weakens the perception of the United States as the issuer of a uniquely stable and rules-based reserve currency system.
“Beyond the immediate market reaction, the longer-term concern is structural. Once the boundary between monetary policy and political enforcement is blurred, restoring confidence becomes significantly more difficult. Future central bank decisions, regardless of merit, may be interpreted as products of pressure rather than policy, impairing the Fed’s effectiveness at precisely the moment when economic conditions require clear, credible guidance.
“Internationally, this episode risks accelerating a shift that is already underway. Foreign reserve managers, sovereign wealth funds, and large institutional investors have been slowly diversifying away from excessive reliance on U.S. assets. A visible erosion of Federal Reserve independence would likely reinforce that trend, encouraging broader exploration of alternative stores of value and reserve assets outside the traditional dollar-centric system.”
Given the systemic significance of the Federal Reserve, it is striking how much of its history and objectives are either not understood or are fundamentally misunderstood by financial market participants. G. Edward Griffin, in his book ‘The Creature from Jekyll Island’, explains how the US Federal Reserve was conceived – an ‘origin story’ of which many longstanding financial professionals may themselves well be unaware. On a cold November night in 1910, a handful of financiers boarded a private railway car in conditions of extreme secrecy in New Jersey. The passengers included the Republican whip in the Senate and a business associate of the banker J.P. Morgan; the Assistant Secretary of the US Treasury; the president of the National City Bank of New York, the most powerful bank of the time; a senior partner of the J.P. Morgan Company; the head of J.P. Morgan’s Bankers Trust Company; and a representative of the Rothschild banking dynasty in England and France. In other words, of the six passengers, five of them were representatives of private banks.
Those financiers would go on to meet in secret at a hideaway owned by J.P. Morgan and several of his business associates, where visitors would gather in the winter to hunt ducks. The name of this remote retreat: Jekyll Island.
This group met in order to tackle five pressing issues:
- How to reverse the growing influence of small commercial banking rivals and concentrate financial power among themselves.
- How to allow the money supply to expand so that they could retake control of the industrial loan market.
- How to consolidate the modest reserves of the country’s banks into one large reserve and standardise each bank’s loan-to-deposit ratios, thus protecting themselves from the possibility of bank runs.
- How to shift any ultimate losses incurred by the banks onto taxpayers.
- How to convince the US government that the scheme was established to protect the public – as opposed to protecting the interests of a private banking cartel.
Perhaps most cynically of all, to address this fifth problem, the group decided to adopt the structure of a central bank and, furthermore, ditch the use of the word bank altogether, in favour of a coinage that would evoke the image of the federal government instead. Three years later, after the passing of the resultant bill in Congress on 23 December 1913, the US Federal Reserve was born.
In short, the Fed is not federal, and it has no reserves. It is plainly and simply a private banking cartel masquerading as a government agency.
The political and financial analyst James Rickards makes the following observations:
“Central bankers control the price of money and therefore indirectly influence every market in the world. Given this immense power, the ideal central banker would be humble, cautious and deferential to market signals. Instead, modern central bankers are both bold and arrogant in their efforts to bend markets to their will. Top-down central planning, dictating resource allocation and industrial output based on supposedly superior knowledge of needs and wants, is an impulse that has infected political players throughout history. It is both ironic and tragic that Western central banks have embraced central planning with gusto in the early twenty-first century, not long after the Soviet Union and Communist China abandoned it in the late twentieth. The Soviet Union and Communist China engaged in extreme central planning over the world’s two largest countries and one-third of the world’s population for more than one hundred years combined. The result was a conspicuous and dismal failure. Today’s central planners, especially the Federal Reserve, will encounter the same failure in time. The open issues are, when and at what cost to society ?”
Source: James Rickards, ‘The Death of Money: the coming collapse of the international monetary system’, 2014.
In short, the foundational ‘accepted wisdom’ with regard to central banking in general, and with regard to the Federal Reserve in particular, is entirely mythological. Established in part to manage inflation, the Fed has overseen a decline in the purchasing power of the US dollar amounting to roughly 99% since its establishment just over a century ago.
In the remarkable book ‘180 degrees: unlearn the lies you’ve been taught to believe’, the pseudonymous author Feargus O’Connor Greenwood (our 2023 interview with the author here) goes further in his assessment of central banks:
“Why just be any old bank when you can be a central bank? A central bank controls all the other banks because as everyone knows, “you just can’t trust a bank.” Being a central bank is marvellous because whilst your first loyalty is to the private banking industry you can hide that simple truth just by regurgitating spurious narratives. The best ones include ‘helping the economy’ and ‘stabilising the monetary system’ by being ‘the lender of last resort’, when in fact your main purpose is to be ‘the manipulator of first resort.’ This allows you to vastly enrich shareholders and those in other banks by siphoning off future generational wealth via ‘money’ printing and other activities whilst appearing to be the benefactor of mankind.
“You may think people would be suspicious about a central bank’s motives given its nomenclature (it’s a bank and it’s at the centre), but, amazingly, most people are not. The absurdity of central banks overseeing the banking industry has been swallowed whole over multiple generations. There are some other minor drawbacks to contend with when it comes to dealing with the banking industry.
“When a government is dependent upon bankers, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.”*
* – Attributed to Napoleon Bonaparte
“Until recently, banking has been kept in the shadows – and for good reason.
“And the bookkeeper can be king if the public can be kept ignorant of the methodology of the bookkeeping.” – Anon, ‘Silent Weapons for Quiet Wars’.
“This all started a long time ago. If you control the money supply (or a paper currency/digital debt based leveraged system that you have convinced the rest of society is real money) you can eventually control everything and everyone else. That has to be a prize worth conniving for.”
But as Voltaire reminds us, all unbacked paper currencies ultimately end up at their intrinsic value, which is zero. This is really the problem facing Jay Powell – an existential crisis facing all central banks and all central bankers, in a system wherein the unsustainability of government debt burdens makes the fiat currency world system unsustainable too. We are living through the terminal stages of an unbacked paper currency world, in which the limits of unconstrained inflationism have triggered a monumental return to hard assets beyond the control of any individual state. Gold and silver will outlive Jay Powell. With luck they will also outlive the Fed itself, and all the world’s other central banks. What we are really living through is a reckoning. As Robert Louis Stevenson is credited as having observed,
“Sooner or later everyone sits down to a banquet of consequences.”
Eat up, gentlemen.
………….
As you may know, we also manage bespoke investment portfolios for private clients internationally. We would be delighted to help you too. Because of the current heightened market volatility we are offering a completely free financial review, with no strings attached, to see if our value-oriented approach might benefit your portfolio – with no obligation at all:
Get your Free
financial review
…………
Tim Price is co-manager of the VT Price Value Portfolio and author of ‘Investing through the Looking Glass: a rational guide to irrational financial markets’. You can access a full archive of these weekly investment commentaries here. You can listen to our regular ‘State of the Markets’ podcasts, with Paul Rodriguez of ThinkTrading.com, here. Email us: info@pricevaluepartners.com.
Price Value Partners manage investment portfolios for private clients. We also manage the VT Price Value Portfolio, an unconstrained global fund investing in Benjamin Graham-style value stocks and real assets, and also in systematic trend-following funds.
“Fix the money, fix the world.”
Get your Free
financial review
It may yet go down in financial market history as the shot that was heard around the world. On Sunday 11th January, US prosecutors launched a criminal investigation into the current chairman of the US Federal Reserve, Jay Powell, ostensibly connected to a $2.5 billion renovation of the Federal Reserve’s headquarters.
Financial market participants smelt a rat. Substacker ‘Quoth the raven’ responded as follows:
“The reported DOJ criminal investigation and grand jury subpoenas involving Federal Reserve Chair Jerome Powell appear to mark a serious and unprecedented test of the principle of Federal Reserve independence.
“Regardless of the eventual legal outcome of the renovation inquiry itself, the broader context is difficult to separate from years of political pressure on the central bank, repeated public threats to remove its leadership, and now the initiation of criminal proceedings by a Justice Department led by close allies of the president. Powell’s unusually direct response, in which he suggested the action is connected to monetary policy disagreements, underscores how destabilizing this moment may be for U.S. institutions.
“For financial markets, this development is not primarily a political story but an institutional one. Central bank independence has long been a cornerstone of confidence in the U.S. financial system and the dollar. When monetary policy begins to appear vulnerable to political or legal pressure, investors must reassess the risk framework governing U.S. assets. Policy outcomes are no longer viewed solely through the lens of economic data, but increasingly through the lens of political power and institutional confidence.
“The near-term implications therefore appear negative for both U.S. risk assets and the dollar. Even if the investigation ultimately proves limited in scope or effect, the mere existence of such pressure on the central bank introduces a new layer of uncertainty into Treasury markets and broader capital flows. It also weakens the perception of the United States as the issuer of a uniquely stable and rules-based reserve currency system.
“Beyond the immediate market reaction, the longer-term concern is structural. Once the boundary between monetary policy and political enforcement is blurred, restoring confidence becomes significantly more difficult. Future central bank decisions, regardless of merit, may be interpreted as products of pressure rather than policy, impairing the Fed’s effectiveness at precisely the moment when economic conditions require clear, credible guidance.
“Internationally, this episode risks accelerating a shift that is already underway. Foreign reserve managers, sovereign wealth funds, and large institutional investors have been slowly diversifying away from excessive reliance on U.S. assets. A visible erosion of Federal Reserve independence would likely reinforce that trend, encouraging broader exploration of alternative stores of value and reserve assets outside the traditional dollar-centric system.”
Given the systemic significance of the Federal Reserve, it is striking how much of its history and objectives are either not understood or are fundamentally misunderstood by financial market participants. G. Edward Griffin, in his book ‘The Creature from Jekyll Island’, explains how the US Federal Reserve was conceived – an ‘origin story’ of which many longstanding financial professionals may themselves well be unaware. On a cold November night in 1910, a handful of financiers boarded a private railway car in conditions of extreme secrecy in New Jersey. The passengers included the Republican whip in the Senate and a business associate of the banker J.P. Morgan; the Assistant Secretary of the US Treasury; the president of the National City Bank of New York, the most powerful bank of the time; a senior partner of the J.P. Morgan Company; the head of J.P. Morgan’s Bankers Trust Company; and a representative of the Rothschild banking dynasty in England and France. In other words, of the six passengers, five of them were representatives of private banks.
Those financiers would go on to meet in secret at a hideaway owned by J.P. Morgan and several of his business associates, where visitors would gather in the winter to hunt ducks. The name of this remote retreat: Jekyll Island.
This group met in order to tackle five pressing issues:
Perhaps most cynically of all, to address this fifth problem, the group decided to adopt the structure of a central bank and, furthermore, ditch the use of the word bank altogether, in favour of a coinage that would evoke the image of the federal government instead. Three years later, after the passing of the resultant bill in Congress on 23 December 1913, the US Federal Reserve was born.
In short, the Fed is not federal, and it has no reserves. It is plainly and simply a private banking cartel masquerading as a government agency.
The political and financial analyst James Rickards makes the following observations:
“Central bankers control the price of money and therefore indirectly influence every market in the world. Given this immense power, the ideal central banker would be humble, cautious and deferential to market signals. Instead, modern central bankers are both bold and arrogant in their efforts to bend markets to their will. Top-down central planning, dictating resource allocation and industrial output based on supposedly superior knowledge of needs and wants, is an impulse that has infected political players throughout history. It is both ironic and tragic that Western central banks have embraced central planning with gusto in the early twenty-first century, not long after the Soviet Union and Communist China abandoned it in the late twentieth. The Soviet Union and Communist China engaged in extreme central planning over the world’s two largest countries and one-third of the world’s population for more than one hundred years combined. The result was a conspicuous and dismal failure. Today’s central planners, especially the Federal Reserve, will encounter the same failure in time. The open issues are, when and at what cost to society ?”
Source: James Rickards, ‘The Death of Money: the coming collapse of the international monetary system’, 2014.
In short, the foundational ‘accepted wisdom’ with regard to central banking in general, and with regard to the Federal Reserve in particular, is entirely mythological. Established in part to manage inflation, the Fed has overseen a decline in the purchasing power of the US dollar amounting to roughly 99% since its establishment just over a century ago.
In the remarkable book ‘180 degrees: unlearn the lies you’ve been taught to believe’, the pseudonymous author Feargus O’Connor Greenwood (our 2023 interview with the author here) goes further in his assessment of central banks:
“Why just be any old bank when you can be a central bank? A central bank controls all the other banks because as everyone knows, “you just can’t trust a bank.” Being a central bank is marvellous because whilst your first loyalty is to the private banking industry you can hide that simple truth just by regurgitating spurious narratives. The best ones include ‘helping the economy’ and ‘stabilising the monetary system’ by being ‘the lender of last resort’, when in fact your main purpose is to be ‘the manipulator of first resort.’ This allows you to vastly enrich shareholders and those in other banks by siphoning off future generational wealth via ‘money’ printing and other activities whilst appearing to be the benefactor of mankind.
“You may think people would be suspicious about a central bank’s motives given its nomenclature (it’s a bank and it’s at the centre), but, amazingly, most people are not. The absurdity of central banks overseeing the banking industry has been swallowed whole over multiple generations. There are some other minor drawbacks to contend with when it comes to dealing with the banking industry.
“When a government is dependent upon bankers, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.”*
* – Attributed to Napoleon Bonaparte
“Until recently, banking has been kept in the shadows – and for good reason.
“And the bookkeeper can be king if the public can be kept ignorant of the methodology of the bookkeeping.” – Anon, ‘Silent Weapons for Quiet Wars’.
“This all started a long time ago. If you control the money supply (or a paper currency/digital debt based leveraged system that you have convinced the rest of society is real money) you can eventually control everything and everyone else. That has to be a prize worth conniving for.”
But as Voltaire reminds us, all unbacked paper currencies ultimately end up at their intrinsic value, which is zero. This is really the problem facing Jay Powell – an existential crisis facing all central banks and all central bankers, in a system wherein the unsustainability of government debt burdens makes the fiat currency world system unsustainable too. We are living through the terminal stages of an unbacked paper currency world, in which the limits of unconstrained inflationism have triggered a monumental return to hard assets beyond the control of any individual state. Gold and silver will outlive Jay Powell. With luck they will also outlive the Fed itself, and all the world’s other central banks. What we are really living through is a reckoning. As Robert Louis Stevenson is credited as having observed,
“Sooner or later everyone sits down to a banquet of consequences.”
Eat up, gentlemen.
………….
As you may know, we also manage bespoke investment portfolios for private clients internationally. We would be delighted to help you too. Because of the current heightened market volatility we are offering a completely free financial review, with no strings attached, to see if our value-oriented approach might benefit your portfolio – with no obligation at all:
Get your Free
financial review
…………
Tim Price is co-manager of the VT Price Value Portfolio and author of ‘Investing through the Looking Glass: a rational guide to irrational financial markets’. You can access a full archive of these weekly investment commentaries here. You can listen to our regular ‘State of the Markets’ podcasts, with Paul Rodriguez of ThinkTrading.com, here. Email us: info@pricevaluepartners.com.
Price Value Partners manage investment portfolios for private clients. We also manage the VT Price Value Portfolio, an unconstrained global fund investing in Benjamin Graham-style value stocks and real assets, and also in systematic trend-following funds.
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