MEET
EDWARD FLAHERTY, CONSPIRACY POO-POOIST
A
response to a critic of The Creature from
Jekyll
Island
©
2004 by G. Edward Griffin
Edward
Flaherty is a Ph.D. of Economics who has been critical of my
book, The Creature from
Jekyll
Island
: A Second look at the Federal Reserve. Periodically I
receive inquiries from readers who have visited Flaherty's
web site, and they want to know if I can rebut what he says.
I put this off for a long time because, first, his critique
is lengthy and loaded with minutia that requires
considerable time to respond properly and, second, the
number of inquiries has been so small as to place the
importance of this task far down on my list of priorities.
Nevertheless, whenever I get an inquiry, I dread that my
reader may think that a lack of response is a sign of not
being able to defend my work; so, at last, I decided to step
up to the plate and swing at the ball that Flaherty has
thrown in my direction.
The
essence of Flaherty's critique is that anyone who opposes
the Federal Reserve must be some kind of a kook, totally
lacking in scholarship. He lumps all Fed critics together,
those who bring scholarship to the topic as well as those
who do not, and the mixture tends to discredit everyone. It
is an old tactic of dumping garbage into the grocery bag so
that it all smells like garbage and is rejected in total.
On
September 5, 2004, I received an email from a reader who had
compared comments made in my recorded lecture with what
Flaherty's web site says and asked for clarification. What
follows is his inquiry with my reply embedded at appropriate
locations.
My
reader begins by quoting from my recorded lecture, followed
by a quote from Eustace Mullins:
My
lecture: I came to the conclusion that the Federal Reserve
needed to be abolished for seven reasons. I’d like to read
them to you now just so that you get an idea of where I’m
coming from, as they say. I put these into the most concise
phrasing that I can to make them somewhat shocking so that,
hopefully, you’ll remember them:
1.
The Fed is incapable of accomplishing its stated objectives.
2.
It is a cartel operating against the public interest.
3.
It is the supreme instrument of usury.
4.
It generates our most unfair tax through inflation and
bailouts.
5.
It encourages war.
6.
It destabilizes the economy.
7.
It discourages private capital formation.
Eustace
Mullins, Secrets of the Federal Reserve: “...the increase
in the assets of the Federal Reserve banks from 143 million
dollars in 1913 to 45 BILLION dollars in 1949 went directly
to the private stockholders of the [federal reserve]
banks.”
My
reply: I stand firmly behind my seven points but I do not
agree with Mullins on this. Please do not lump my work with
other writers. Flaherty does this a lot. Guilt by
association is a ploy that must be challenged and rejected.
Flaherty:
It would be a mistake to examine these conspiracy
theories....
My
reply: Stop right there. There is nothing about my work that
merits being classified as a conspiracy theory. In modern
context, it is customary to associate the phrase
“conspiracy theory” with those who are intellectually
handicapped or ill informed. Using emotionally loaded words
and phrases to discredit the work of others is to be
rejected. If I am to be called a conspiracy theorist, then
Flaherty cannot object if I were to call him a conspiracy
poo-pooist. The later group is a ridiculous bunch, indeed,
in view of the fact that conspiracies are so common
throughout history. Very few major events of the past have
occurred in the absence of conspiracies. To think that our
modern age must be an exception is not rational. Facts are
either true or false. If we disagree with a fact, our job is
to explain why, not to use emotionally-loaded labels to
discredit those who disagree with us.
Flaherty
continued: ... outside the context in which they were
written.
My
reply: I try hard not to present text outside its context.
When searching through hundreds of documents and thousands
of pages, it is inevitable that some subtleties of context
may be missed, but so far I have not yet been advised of any
instances of this. I welcome any corrections; but, until
specifics are brought to my attention, I stand firm on
everything I have written. Furthermore, I resent the
implication that my work could not stand without taking text
out of context.
Flaherty:
All the conspiracy authors whose work I study here profess a
belief in the alleged ‘New World Order’ conspiracy, or
some variant thereof.
My
reply: An informed reader would not waste time beyond this
point. It is absurd to claim that a blueprint for a New
World Order based on the model of collectivism is merely
“alleged.” The evidence that this is a demonstrable fact
of modern history abounds. Some of that evidence is
presented in my work, The Future Is Calling, found in the
Issues section of this web site.
Flaherty:
Hypothesis: Each of the 12 Federal Reserve banks is a
privately owned corporation. Like any firm, their main
objective is to maximize profits. They do so by lending the
government money and charging interest. They manipulate
monetary policy for their own gain, not for the public good.
Facts: Yes, the Federal Reserve banks are privately owned,
but they are controlled by the publicly-appointed Board of
Governors. The Federal Reserve banks merely execute the
monetary policy choices made by the Board.
My
reply: Basically, Flaherty is correct as far as he goes.
But, as we shall see in so many of his statements, he stops
short of the entire truth. A half-truth is just as much of a
deception as an outright lie. Flaherty says that the Board
of Governors is politically appointed. This is true and it
is supposed to make us feel safe in the thought that the
President responds to the will of the people and that he
selects only those who have the public interest at heart.
The part of the story omitted by Flaherty is that the
President does not select these people from his own personal
address book, nor does he ask the public to submit
nominations. With few exceptions, he makes appointments from
lists given to him by the staffs of banking committees of
Congress and from private sources that have been influential
in his election campaign. The most powerful of all these
groups are the financial institutions (including prominent
members of the Fed itself) and the media corporations over
which they have effective control. One does not have to be a
so-called conspiracy theorist to recognize the tremendous
influence that these institutions have over the outcome of
presidential campaigns, and anyone with knowledge of how our
current political system works will understand why the
President makes exactly the appointments that the banks want
him to make. All one has to do to see the accuracy of this
appraisal is to examine the backgrounds and attitudes of the
men who receive the appointments. While there is an
occasional token individual who appears to come from the
consumer sector of society, the majority are bankers deeply
committed to the perpetuation of the system that sustains
them. Anyone who would seriously challenge the power of the
banking cartel would never be appointed. So, while Flaherty
is correct in what he says, the implication of what he says
(that the Fed is subject to control of the people through
the political process) is entirely false.
Flaherty:
Nearly all the interest the Federal Reserve collects on
government bonds is rebated to the Treasury each year, so
the government does not pay any net interest to the Fed.
My
reply: Here is another half-truth that is a whopper
deception. It is true that most of the money paid by the
government for interest on the national debt is returned to
the government. That is because the Fed’s charter requires
any interest payments in excess of the Fed’s actual
operating expenses to be refunded. However, before we jump
to the conclusion that this is a wonderful benefit, we must
remember that the banking cartel is able to use tax dollars
to pay 100% of its operating expenses with few questions
asked about the nature of those expenses. After all of those
expenses are paid, what is left over is rebated to the
Treasury, as Flaherty says. There is no secret about this,
and you will find an explanation of it in my book.
Technically, there is no “profit” on this money.
However, remember that creating money for the government is
only one of the functions of the Fed. The real bonanza
comes, not from money created out of nothing for the
government, but from money created out of nothing by the
commercial banks for loans to the private sector. That’s
where the real action is. This is the famous slight-of-hand
trick. Distract attention with one hand while the coin is
retrieved by the other. By focusing on the supposed
generosity of the Fed by returning unused interest to the
Treasury, we are supposed to overlook the much larger river
of gold flowing into the member banks in the form of
interest on nothing as a result of consumer and commercial
loans.
Flaherty:
Hypothesis: Bankers and senators met in secret on
Jekyll Island
,
Georgia
in 1910 to design a central bank that would give
New York City
banks control over the nation’s money supply. Facts: The
meeting did take place, but plans for a return to central
banking were already widely known. Regardless, the proposal
that came out of the
Jekyll
Island
meeting never passed Congress. The one that did, the Federal
Reserve Act, placed control over monetary policy with a
public body, the Federal Reserve Board, not with commercial
banks.
My
reply: Here again we have a half-truth that functions as a
deception. Plans for a return to central banking, indeed,
were already known, but they were unpopular with the voters
and large blocks of Congress. That was the very problem that
led to the great secrecy. Frank Vanderlip, one of the
participants at the
Jekyll
Island
meeting, later confirmed that, if the public had known that
the bankers were the ones creating legislation to supposedly
“break the grip of the money trust,” the bill would
never have been passed into law. The facts presented in my
book, and fully documented by references from original
sources, show that my version is historical fact. Flaherty
attempts to minimize these facts by implying that the
original, secret meeting was not important because the first
draft of the legislation was rejected. What he does not say
is that the second draft that was passed into law was
essentially the same as the first. The primary difference
was that Senator Aldrich’s name was removed from the title
of the bill and replaced by the names of Carter Glass and
Robert Owen. This was to remove the stigma of Aldrich as an
icon for “big-business Republicans” and replace it with
the more popular image of Democrats, “defenders of the
working man.” It was a strategy advocated by Paul Warburg,
one of the participants at the
Jekyll
Island
meeting. The fact that Flaherty makes no mention of this
suggests that he has not made an objective analysis but,
instead, has presented a biased critique in the guise of
scholarship. His statement that “the Federal Reserve Act,
placed control over monetary policy with a public body, the
Federal Reserve Board, not with commercial banks” cannot
be taken seriously. The Federal Reserve is not a public body
in any meaningful sense of the phrase.
Flaherty:
Hypothesis: Through fractional reserve banking and
double-entry accounting, banks are able to create new money
with the stroke of a pen (or a computer keystroke). The
money they lend costs them nothing to produce, yet they
charge interest on it. Facts: The banking system is indeed
able to create money with a mere computer keystroke.
However, a bank’s ability to create money is tied directly
to the amount of reserves customers have deposited there. A
bank must pay a competitive interest rate on those deposits
to keep them from leaving to other banks. This interest
expense alone is a substantial portion of a bank’s
operating costs and is de facto proof a bank cannot
costlessly create money.
My
reply: Flaherty presents facts that in no way contradict
what I said in my book. I speak of rotten apples, and he
speaks of sweet oranges. My book makes it clear that the
bank’s ability to create money is tied to its reserves.
The current average ratio (it varies depending on the bank)
is about ten-to-one. In other words, for every one dollar on
deposit and held in reserve, the bank can create up to an
additional nine dollars out of nothing for the purpose of
lending. The statement that the banks must pay a competitive
interest rate on those deposits is humorous when one
considers the math. For example, let us assume for the sake
of illustration that the bank pays 1.5% interest. Then it
turns around and charges, let’s say 6.5% interest.
That’s a spread of 5%. Although that’s a pretty good
brokerage commission, it doesn’t sound exorbitant. But,
here is another of those half-truths. Don’t forget that
the bank uses each deposited dollar as a so-called reserve
for creating up to an additional nine dollars in loans. It
collects interest on these loans as well. Let us assume that
the bank is not fully loaned up, as they call it, and has an
average of only eight dollars in magic-money loans for every
one dollar on deposit. In that case, it will collect 6.5%
interest on all eight of those dollars. That means, based on
each dollar placed on deposit, the bank will collect 52% in
interest. After paying the original depositor the generous
“competitive” amount of 1.5%, the bank actually receives
a brokerage fee of approximately 50%. When Flaherty says
that “This interest expense alone is a substantial portion
of a bank’s operating costs and is de facto proof a bank
cannot costlessly create money,” one can only wonder what
banking system he is describing. It certainly is not the one
in the
United States
.
Flaherty:
Hypothesis: Supporters of the Federal Reserve Act knew they
did not have the votes to win, so they waited to vote until
its opponents left for Christmas vacation. Since a majority
of senators were not present to vote on the bill, its
passage is not constitutionally valid. Facts: The voting
record clearly shows that a majority of the senate did vote
on the bill. Although some senators had left
Washington
for the holiday, the Congressional Record shows their
respective positions on the legislation. Even if all
opponents had all been present to vote, the Federal Reserve
Act still would have passed easily.
My
reply: I agree with Flaherty on this issue and often have
said so in the Q&A portions of my lectures. Please note
that this is not contradictory to what I wrote in The
Creature. What I said there is an accurate historical fact.
There is little doubt in my mind that the vote would have
passed eventually, but by slipping it through as they did,
it circumvented the possibility of challenges and debate. I
have never commented on the Constitutionality question,
although I tend to think that a strict interpretation would
have made this vote invalid. The problem here, however, has
nothing to do with the Federal Reserve Act but with the
rules of Congress.
Flaherty:
Hypothesis: All money is created only when someone takes out
a loan. Therefore, there can never be enough of this
debt-money in circulation to repay all principal and
interest. This imbalance causes inflation, financial crises,
social maladies, and will eventually destroy the economy
unless there is a massive injection of “debt-free”
money. This idea is from Dr. Jacques Jaikaran’s book, The
Debt Virus. Facts: The hypothesis shows an incomplete view
of how the banking system interacts with the economy. The
system necessarily creates an amount of “debt-free”
money equal to the interest on its loans. It does this
whenever it pays operating expenses, dividends, or purchases
assets. As a result, there is more than enough money in
circulation to retire all bank-related debt.
My
reply: I object to being lumped together with other analysts
on this issue. I did not write The Debt Virus, I wrote The
Creature from
Jekyll
Island
. On page 191, I explained why I consider the claim that
there is not enough money to pay off interest to be a myth
Flaherty:
Hypothesis: The Federal Reserve consistently resists
attempts to audit its books. This is because any independent
inspection would reveal the Fed’s treachery. Fact:
Independent accounting firms conduct full financial audits
of the Federal Reserve banks and the Board of Governors
every year. The Fed is also subject to certain types of
audits from the Government Accounting Office.
My
reply: I never wrote or implied, as Flaherty says, that
“any independent inspection would reveal the Fed’s
treachery.” What I wrote is: (1) The Fed resists external
audit; (2) If it were audited by an independent party, I
suspect there would be nothing illegal found; (3) The
problem is not that it steals from the American people
illegally but that it does so legally; (4) Therefore, we do
not need to audit the Fed, we need to abolish it.
Flaherty:
Hypothesis: Major European banks and investment houses own
the Federal Reserve. From across the
Atlantic
they dictate monetary policy for their own benefit. Facts:
No foreigners own any part of the Fed. Each Federal Reserve
bank is owned exclusively by the participating commercial
banks and S&Ls operating within the Federal Reserve
bank’s district. Individuals and non-bank firms, be they
foreign or domestic, are not permitted by law to own any
shares of a Federal Reserve bank. Moreover, monetary policy
is controlled by the publicly-appointed Board of Governors,
not by the Federal Reserve banks.
My
reply: Flaherty is basically correct, and I have never
claimed in my book or in my lectures that it was otherwise.
I do not appreciate being lumped together with those who
claim foreign control over the Fed. The real danger in this
line of reasoning is that it is often coupled with the
argument that, if we could only get control away from
foreigners and put it into the hands of Congress or the
Treasury, then everything would be all right. In truth, even
if the Fed were in the hands of foreigners, placing it into
the hands of American bankers and politician would make
little difference. The Fed does not need to be converted
into a government agency. It needs to be abolished.
--------------------------------------------------------------------------------
The
Creature from
Jekyll
Island
A
Second Look at the Federal Reserve
by
G. Edward Griffin
Where
does money come from? Where does it go? Who makes it? The
money magicians' secrets are unveiled. We get a close look
at their mirrors and smoke machines, their pulleys, cogs,
and wheels that create the grand illusion called money. A
dry and boring subject? Just wait! You'll be hooked in five
minutes. Reads like a detective story — which it really
is. But it's all true. This book is about the most blatant
scam of all history. It's all here: the cause of wars,
boom-bust cycles, inflation, depression, prosperity. The
Creature from
Jekyll
Island
is a "must read." Your world view will definitely
change. You'll never trust a politician again — or a
banker. Available from The Reality Zone at
www.realityzone.com/creature.html.
Link:
http://www.freedom-force.org/freedomcontent.cfm?fuseaction=meetflaherty&refpage=issues
