CHAPTER TWELVE The Great Depression: Secrets of the Federal Reserve by Eustace Mullins from archive.org

CHAPTER TWELVE 

The Great Depression 

R.G. Hawtrey, the English economist, said, in the March, 1926 American 
Economic Review: 

"When external investment outstrips the supply of general savings the 
investment market must 

carry the excess with money borrowed from the banks. A remedy is control 
of credit by a rise in 

bank rate." 

The Federal Reserve Board applied this control of credit, but not in 1926, 
nor as a remedial measure. It was not applied until 1929, and then the rate 
was raised as a punitive measure, to freeze out everybody but the big trusts. 

Professor Cassel, in the Quarterly Journal of Economics, August 1928, wrote 
that: 

"The fact that a central bank fails to raise its bank rate in accordance with 
the actual situation of 

the capital market very much increases the strength of the cyclical movement 
of trade, with all its 

pernicious effects on social economy. A rational regulation of the bank rate 
lies in our hands, and 

may be accomplished only if we perceive its importance and decide to go in 
for such a policy. 

With a bank rate regulated on these lines the conditions for the development 
of trade cycles 

would be radically altered, and indeed, our familiar trade cycles would be a 
thing of the past." 

This is the most authoritative premise yet made relating that our business 
depressions are artificially precipitated. The occurrence of the Panic of 1907, 
the Agricultural Depression of 1920, and the Great Depression of 1929, all 
three in good crop years and in periods of national prosperity, suggests that 
premise is not guesswork. Lord Maynard Keynes pointed out that most 
theories of the business cycle failed to relate their analysis adequately to the 
money mechanism. Any survey or study of a depression which failed to list 



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such factors as gold movements and pressures on foreign exchange would be 
worthless, yet American economists have always dodged this issue. 

The League of Nations had achieved its goal of getting the nations of Europe 
back on the gold standard by 1928, but three-fourths of the world's gold was 
in France and the United States. The problem was how to get that gold to 
countries which needed it as a basis for money and credit. The answer was 
action by the Federal Reserve System. 

Following the secret meeting of the Federal Reserve Board and the heads of 

the foreign central banks in 1927, the Federal Reserve Banks in a few months 

doubled their holdings of Government securities and acceptances, which 

resulted in the exportation of five hundred million dollars in gold in that 

year. The System's market activities forced the rates of call money down on 

the Stock Exchange, and forced gold out of the country. Foreigners also took 

this opportunity to purchase heavily in Government securities because of the 

low call money rate. 

"The agreement between the Bank of England and the Washington Federal 
Reserve authorities 

many months ago was that we would force the export of 725 million of gold 
by reducing the bank 

rates here, thus helping the stabilization of France and Europe and putting 
France on a gold 

basis."89 (April 20, 1928) 

On February 6, 1929, Mr. Montagu Norman, Governor of the Bank of 
England, came to Washington and had a conference with Andrew Mellon, 
Secretary of the Treasury. Immediately after that mysterious visit, the 
Federal Reserve Board abruptly changed its policy and pursued a high 
discount rate policy, abandoning the cheap money policy which it had 
inaugurated in 1927 after Mr. Norman's other visit. The stock market crash 
and the deflation of the American people's financial structure was scheduled 
to take place in March. To get the ball rolling, Paul Warburg gave the official 
warning to the traders to get out of the market. In his annual report to the 
stockholders of his International Acceptance Bank, in March, 1929, Mr. 
Warburg said: 

"If the orgies of unrestrained speculation are permitted to spread, the 
ultimate collapse is certain 

not only to affect the speculators themselves, but to bring about a general 
depression involving 

the entire country." 



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During three years of "unrestrained speculation", Mr. Warburg had not seen fit 
to make any remarks about the condition of the Stock Exchange. A friendly 
organ, The New York Times, not only gave the report two columns on its 
editorial page, but editorially commented on the wisdom and profundity of 
Mr. Warburg's observations. Mr. Warburg's concern was genuine, for the 
stock market bubble had gone much farther than it had been intended to go, 
and the bankers feared the consequences if the people realized what was 
going on. When this report in The New York Times started a sudden wave of 
selling on the Exchange, the bankers grew panicky, and it was decided to 
ease the market somewhat. Accordingly, Warburg's National City Bank 
rushed twenty-five million dollars in cash to the call money market, and 
postponed the day of the crash. 

The revelation of the Federal Reserve Board's final decision to trigger the 
Crash of 1929 appears, amazingly enough, in The New York Times. On April 
20, 1929, the Times headlined, "Federal Advisory Council Mystery 



89 Clarence W. Barron, They Told Barron, Harpers, New York, 1930, p. 353 

Meeting in Washington. Resolutions were adopted by the council and 

transmitted to the board, but their purpose was closely guarded. An 

atmosphere of deep mystery was thrown about the proceedings both by the 

board and the council. Every effort was made to guard the proceedings of 

this extraordinary session. Evasive replies were given to newspaper 

correspondents." 

Only the innermost council of "The London Connection" knew that it had 
been decided at this "mystery meeting" to bring down the curtain on the 
greatest speculative boom in American history. Those in the know began to 
sell off all speculative stocks and put their money in government bonds. 
Those who were not privy to this secret information, and they included some 
of the wealthiest men in America, continued to hold their speculative stocks 
and lost everything they had. 

In FDR, My Exploited Father-in-Law, Col. Curtis B. Dall, who was a broker 
on Wall Street at that time, writes of the Crash, "Actually it was the 
calculated 'shearing' of the public by the World Money-Powers, triggered by 
the planned sudden shortage of the supply of call money in the New York 
money market. "90 Overnight, the Federal Reserve System had raised the call 
rate to twenty percent. Unable to meet this rate, the speculators' only 
alternative was to jump out of windows. 

The New York Federal Reserve Bank rate, which dictated the national 
interest rate, went to six percent on November 1, 1929. After the investors 
had been bankrupted, it dropped to one and one-half percent on May 8, 
1931. Congressman Wright Patman in "A Primer On Money", says that the 



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money supply decreased by eight billion dollars from 1929 to 1933, causing 
11,630 banks of the total of 26,401 in the United States to go bankrupt and 
close their doors. 

The Federal Reserve Board had already warned the stockholders of the 
Federal Reserve Banks to get out of the Market, on February 6, 1929, but it 
had not bothered to say anything to the rest of the people. Nobody knew 
what was going on except the Wall Street bankers who were running the 
show. Gold movements were completely unreliable. The Quarterly Journal of 
Economics noted that: 

"The question has been raised, not only in this country, but in several 
European 

countries, as to whether customs statistics record with accuracy the 
movements of 

precious metals, and, when investigation has been made, confidence in such 

figures has been weakened rather than strengthened. Any movement 
between 

France and England, for instance, should be recorded in each country, but 
such 

comparison shows an average yearly discrepancy of fifty million francs for 
France 

and eighty-five million francs for England. These enormous discrepancies are 
not 

accounted for." 

The Right Honorable Reginald McKenna stated that: 



90 Col. Curtis B. Dall, F.D.R., My Exploited Father-in- Law, Liberty Lobby, 
Wash., D.C. 1970 

"Study of the relations between changes in gold stock and movement in price 

levels shows what 

should be very obvious, but is by no means recognized, that the gold 
standard is in no sense 

automatic in operation. The gold standard can be, and is, usefully managed 
and controlled for the 

benefit of a small group of international traders." 



164 
In August 1929, the Federal Reserve Board raised the rate to six percent. The 
Bank of England in the next month raised its rate from five and one-half 
percent to six and one-half percent. Dr. Friday in the September, 1929, issue 
of Review of Reviews, could find no reason for the Board's action: 

"The Federal Reserve statement for August 7, 1929, shows that signs of 
inadequacy for autumn 

requirements do not exist. Gold resources are considerably more than the 
previous year, and gold 

continues to move in, to the financial embarrassment of Germany and 
England. The reasons for 

the Board's action must be sought elsewhere. The public has been given only 
the hint that 'This 

problem has presented difficulties because of certain peculiar conditions'. 
Every reason which 

Governor Young advanced for lowering the bank rate last year exists now. 
Increasing the rate 

means that not only is there danger of drawing gold from abroad, but 
imports of the yellow metal 

have been in progress for the last four months. To do anything to accentuate 
this is to take the 

responsibility for bringing on a world-wide credit deflation." 

Thus we find that not only was the Federal Reserve System responsible for 
the First World War, which it made possible by enabling the United States to 
finance the Allies, but its policies brought on the world-wide depression of 
1929-31. Governor Adolph C. Miller stated at the Senate Investigation of the 
Federal Reserve Board in 1931 that: 

"If we had had no Federal Reserve System, I do not think we would have had 
as bad a speculative 

situation as we had, to begin with." 

Carter Glass replied, "You have made it clear that the Federal Reserve 
Board provided a terrific credit expansion by these open market 
transactions." 

Emmanuel Goldenweiser said, "In 1928-29 the Federal Board was engaged 
in an attempt to restrain the rapid increase in security loans and in stock 
market speculation. The continuity of this policy of restraint, however, was 



165 
interrupted by reduction in bill rates in the autumn of 1928 and the summer of 
1929." 

Both J.P. Morgan and Kuhn, Loeb Co. had "preferred lists" of men to whom 
they sent advance announcements of profitable stocks. The men on these 
preferred lists were allowed to purchase these stocks at cost, that is, 
anywhere from 2 to 15 points a share less than they were sold to the public. 
The men on these lists were fellow bankers, prominent industrialists, 
powerful city politicians, national Committeemen of the Republican and 
Democratic Parties, and rulers of foreign countries. The men on these lists 
were notified of the coming crash, and sold all but so-called gilt-edged stocks, 
General Motors, Dupont, etc. The prices on these stocks also sank to record 
lows, but they came up soon afterwards. How the big bankers operated in 

1929 is revealed by a Newsweek story on May 30, 1936, when a Roosevelt 
appointee, Ralph W. Morrison, resigned from the Federal Reserve Board: 

"The consensus of opinion is that the Federal Reserve Board has lost an able 
man. He sold his 

Texas utilities stock to Insull for ten million dollars, and in 1929 called a 
meeting and ordered 

his banks to close out all security loans by September 1. As a result, they rode 
through the 

depression with flying colors." 

Predictably enough, all of the big bankers rode through the depression "with 
flying colors." The people who suffered were the workers and farmers who 
had invested their money in get-rich stocks, after the President of the United 
States, Calvin Coolidge, and the Secretary of the Treasury, Andrew Mellon, 
had persuaded them to do it. 

There had been some warnings of the approaching crash in England, which 
American newspapers never saw. The London Statist on May 25, 1929 said: 

"The banking authorities in the United States apparently want a business 
panic to curb 

speculation." 

The London Economist on May 11, 1929, said: 

"The events of the past year have seen the beginnings of a new technique, 
which, if maintained 

and developed, may succeed in 'rationing the speculator without injuring the 
trader.'" 



166 
Governor Charles S. Hamlin quoted this statement at the Senate hearings in 1931 
and said, in corroboration of it: 

"That was the feeling of certain members of the Board, to remove Federal 
Reserve credit from the 

speculator without injuring the trader." 

Governor Hamlin did not bother to point out that the "speculators" he was 
out to break were the school-teachers and small town merchants who had put 
their savings into the stock market, or that the "traders" he was trying to 
protect were the big Wall Street operators, Bernard Baruch and Paul 
Warburg. 

When the Federal Reserve Bank of New York raised its rate to six percent on 
August 9, 1929, market conditions began which culminated in tremendous 
selling orders from October 24 into November, which wiped out a hundred 
and sixty billion dollars worth of security values. That was a hundred and 
sixty billions which the American citizens had one month and did not have 
the next. Some idea of the calamity may be had if we remember that our 
enormous outlay of money and goods in the Second World War amounted to 
not much more than two hundred billions of dollars, and a great deal of that 
remained as negotiable securities in the national debt. The stock market 
crash is the greatest misfortune which the United States has ever suffered. 

The Academy of Political Science of Columbia University in its annual 
meeting in January, 1930, held a post-mortem on the Crash of 1929. Vice- 
President Paul Warburg was to have presided, and Director Ogden Mills was 
to have played an important part in the discussion. However, these two 
gentlemen did not show up. Professor Oliver M.W. Sprague of Harvard 
University remarked of the crash: 

"We have here a beautiful laboratory case of the stock market's dropping 
apparently from its own 

weight." 

It was pointed out that there was no exhaustion of credit, as in 1893, nor any 
currency famine, as in the Panic of 1907, when clearing-house certificates 
were resorted to, nor a collapse of commodity prices, as in 1920. What then, 
had caused the crash? The people had purchased stocks at high prices and 
expected the prices to continue to rise. The prices had to come down, and 
they did. It was obvious to the economists and bankers gathered over their 
brandy and cigars at the Hotel Astor that the people were at fault. Certainly 
the people had made a mistake in buying over-priced securities, but they had 
been talked into it by every leading citizen from the President of the United 
States on down. Every magazine of national circulation, every big 



167 
newspaper, and every prominent banker, economist, and politician, had joined in 
the big confidence game of urging people to buy those over-priced securities. 
When the Federal Reserve Bank of New York raised its rate to six percent, in 
August 1929, people began to get out of the market, and it turned into a 
panic which drove the prices of securities down far below their natural levels. 
As in previous panics, this enabled both Wall Street and foreign operators in 
the know to pickup "blue-chip" and gilt-edged" securities for a fraction of 
their real value. 

The Crash of 1929 also saw the formation of giant holding companies which 
picked up these cheap bonds and securities, such as the Marine Midland 
Corporation, the Lehman Corporation, and the Equity Corporation. In 1929 
J.P. Morgan Company organized the giant food trust, Standard Brands. 
There was an unequaled opportunity for trust operators to enlarge and 
consolidate their holdings. 

Emmanuel Goldenweiser, director of research for the Federal Reserve 
System, said, in 1947: 

"It is clear in retrospect that the Board should have ignored the speculative 
expansion and 

allowed it to collapse of its own weight." 

This admission of error eighteen years after the event was small comfort to 
the people who lost their savings in the Crash. 

The Wall Street Crash of 1929 was the beginning of a world-wide credit 
deflation which lasted through 1932, and from which the Western 
democracies did not recover until they began to rearm for the Second World 
War. During this depression, the trust operators achieved further control by 
their backing of three international swindlers, The Van Sweringen brothers, 
Samuel Insull, and Ivar Kreuger. These men pyramided billions of dollars 
worth of securities to fantastic heights. The bankers who promoted 

them and floated their stock issue could have stopped them at any time, by 
calling loans of less than a million dollars, but they let these men go on until 
they had incorporated many industrial and financial properties into holding 

companies, which the banks then took over for nothing. Insull piled up 

public utility holdings throughout the Middle West, which the banks got for 

a fraction of their worth. Ivar Kreuger was backed by Lee Higginson 

Company, supposedly one of the nation's most reputable banking houses. 

The Saturday Evening Post called him "more than a financial titan", and the 

English review Fortnightly said, in an article written December 1931, under 

the title, "A Chapter in Constructive Finance": "It is as a financial irrigator 

that Kreuger has become of such vital importance to Europe."* 



168 
"Financial irrigator" we may remember, was the title bestowed upon Jacob 
Schiff by Newsweek Magazine, when it described how Schiff had bought up 
American railroads with Rothschild's money. 

The New Republic remarked on January 25th, 1933, when it commented on 
the fact that Lee Higginson Company had handled Kreuger and Toll 
Securities on the American market: 

"Three-quarters of a billion dollars was made away with. Who was able to 
dictate to the French 

police to keep secret the news of this extremely important suicide for some 
hours, during which 

somebody sold Kreuger securities in large amounts, thus getting out of the 
market before the 

debacle?" 

The Federal Reserve Board could have checked the enormous credit 
expansion of Insull and Kreuger by investigating the security on which their 
loans were being made, but the Governors never made any examination of 
the activities of these men. 

The modern bank with the credit facilities it affords, gives an opportunity 
which had not previously existed for such operators as Kreuger to make an 
appearance of abundant capital by the aid of borrowed capital. This enables 
the speculator to buy securities with securities. The only limit to the amount 
he can corner is the amount to which the banks will back him, and, if a 
speculator is being promoted by a reputable banking house, as Kreuger was 
promoted by Lee Higginson Company, the only way he could be stopped 
would be by an investigation of his actual financial resources, which in 
Kreuger' s case would have proved to be nil. 

The leader of the American people during the Crash of 1929 and the 
subsequent depression was Herbert Hoover. After the first break of the 



* NOTE: Ivar Kreuger, we may recall, was occasionally the personal guest of 
his old friend, President Herbert Hoover, at the White House. Hoover seems 
to have maintained a cordial relationship with many of the most prominent 
swindlers of the twentieth century, including his partner, Emile Francqui. 
The receivership of the billion dollar Kreuger Fraud was handled by Samuel 
Untermeyer, former counsel for Pujo Committee hearings. 

market (the five billion dollars in security values which disappeared on 
October 24, 1929) President Hoover said: 



169 
"The fundamental business of the country, that is, production and distribution of 
commodities, is 

on a sound and prosperous basis." 

His Secretary of the Treasury, Andrew Mellon, stated on December 25, 1929, 
that: 

"The Government's business is in sound condition." 

His own business, the Aluminum Company of America, apparently was not 
doing so well, for he had reduced the wages of all employees by ten percent. 

The New York Times reported on April 7, 1931, "Montagu Norman, 
Governor of the Bank of England, conferred with the Federal Reserve Board 
here today. Mellon, Meyer, and George L. Harrison, Governor of the Federal 
Reserve Bank of New York, were present." 

The London Connection had sent Norman over this time to ensure that the 
Great Depression was proceeding according to schedule. Congressman Louis 
McFadden had complained, as reported in The New York Times, July 4, 
1930, "Commodity prices are being reduced to 1913 levels. Wages are being 
reduced by the labor surplus of four million unemployed. The Morgan 
control of the Federal Reserve System is exercised through control of the 
Federal Reserve Bank of New York, the mediocre representation and 
acquiescence of the Federal Reserve Board in Washington." As the 
depression deepened, the trust's lock on the American economy 
strengthened, but no finger was pointed at the parties who were controlling 
the system. 



170 

CHAPTER THIRTEEN 

The 1930's