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.
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 know, 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.
