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Talk about confusing the issues ...
Here are, in our opinion, a bunch of lies and misdirection piled on top of fake, strawmen myths. (mrc)
Mr. Flaherty is basically an ardent supporter of the Federal Reserve (based on his writing here). My guess is that he is looking for a job and wants to prove to the Fed that he can write confusing explanations as well as anyone.
For the other side of the argument see See Wright Patman's scathing denouncement of the Fed when he was Chairman of the House Banking Committee in 1964. "A Primer on Money" -- published by the Government Printing Office in 1964. You can hardly call Patman's attack a "Myth". There is a link to Patman's book on the first page of our website. Here it is again -- Patman's "Primer On Money" -- a 141-page .pdf file / Patman's book (,a formal report to Congress) inspired this website.
Please note that Professor Flaherty, debunks these "myths" primarily by simply asserting they are myths and making statements that have little in the way of references to back up his assertions. Perhaps he is 100% correct -- but you can't tell until you do a lot more investigating. My guess is that he is fighting myths with his own myths -- or, at least, writing to confuse the issues. He certainly does not get a high mark for presenting a well-reasoned argument. (mrc) 7/20/2009.
Note that there is no attribution to the Myths -- I think they are essentially Strawmen that Mr. Flaherty is presenting out-of-context -- because they are easy to "debunk" and thereby show, by implication, (the weakest form of argument?) what Mr. Flaherty thinks are the strong points of the Federal Reserve.
Debunking the Debunking of the
Federal Reserve Conspiracy Theories
(and other financial myths) (undated)
Edward Flaherty, Ph.D. Department of Economics College of
Charleston, S.C., did the debunking of the Myths.
Marty Carbone did the debunking of Professor
Flaherty's debunking. (July 2009)
The myths are presented out of order -- as they appear in Professor Flaherty's report
Myth# 4: The Federal Reserve is a privately owned bank. (where is the attribution of this "myth"?)
Facts: Yes, the Federal Reserve banks are privately owned, but they are controlled by the publically-appointed Board of Governors. The Federal Reserve banks merely execute the monetary policy choices made by the Board. In addition, 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.
Analysis: This, in my opinion, is a cleverly intertwined strawman / smoke screen argument. Prof. Flaherty first sets up a strawman argument -- that the Fed is a privately owned bank and knocks that down by agreeing it is -- because the individual banks are owned by private people. But the original "Myth" is not that the individual banks are owned by private people. it is that the Federal Reserve itself is owned (or run) by private people. That charge is, in any event, a smokescreen and beside the point -- the issue should be, who manages the Fed, and who benefits mostly by the Fed's actions. Wright Patman convincingly argues that the Fed is managed by the Fed's Open Market Committee who are hand picked by Private Bankers who are under a legal obligation to run the banks for the benefit of their stockholders and only their stockholders -- immediately putting them at odds with the general public who obviously want the banks run for the good of the country and the public. (see http://www.primeronmoney.com/Patmansspeechof8-3-64.html) for more about the power of the "Open Market Committee"
Myth #5: The Federal Reserve is owned and controlled by foreigners. (where is the attribution of this "myth"?)
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.
Analysis: This is confusing. Mr. Flaherty says the Fed. is owned by banks and S&Ls (not individuals?). But can he guarantee no foreigners own those banks and S&Ls. How does he know that? Is there a law against foreigners owning banks -- I doubt it -- that is not the American way. And how does he define foreigners? Were my business-owning Grandmother and Grandfather considered foreigners just because they were born in Germany? Is "foreigner" a legal status -- or a worthless, meaningless discriminatory appellation?
Myth #6: The Federal Reserve has never been audited. (where is the attribution of this "myth"?)
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.
Analysis: (1) Are, or were the independent accounting firms paid by the Fed -- if they were, they were hardly "independent". (2) "Certain types of audits"? What does that mean -- was the audit simply to show that standard accounting practices were used -- and the numbers were ignored -- because that might infringe on the Fed's privacy or independence? You must tell us more if you want us to accept your "Facts" as meaningful. Where can we find copies of these audits?
Myth #8: If it were not for the Federal Reserve charging the government interest, the budget would be balanced and we would have no national debt. (where is the attribution of this "myth"?)
Facts: The Federal Reserve rebates its net earnings to the Treasury every year. Consequently, the interest the Treasury pays to the Fed is returned, so the money borrowed from the Fed has no net interest obligation for the Treasury. The government could print its own currency independent of the Fed, but there would be no effective safeguards against abuse of this power for political gain.
Analysis: Net earnings mean nothing, zero, nada , zip if the books are not completely audited by an Independent Auditing Agency that makes those audits Public. You must show income and all expenses for us to judge whether or not the Fed is looting the Government. See Wright Patman's scathing denouncement of the Fed when he was Chairman of the House Banking Committee in 1964. "A Primer on Money" -- published by the Government Printing Office in 1964. You can hardly call Patman's attack a "Myth". There is a link to Patman's book on the first page of our website. Here it is again -- Patman's "Primer On Money" -- a 141-page .pdf file / Patman's book ( a formal report to Congress) inspired this website.
Myth #7: The Federal Reserve charges interest on the currency we use. (where is the attribution of this "myth"?)
Facts: The Federal Reserve banks have only a small share of the total national debt (about 7%). Therefore, only a small share of the interest on the debt goes to the Fed. Regardless, the Fed rebates that interest to the Treasury every year, so the debt held by the Fed carries no net interest obligation for the government. In addition, it is Congress, not the Federal Reserve, who is responsible for the federal budget and the national debt.
Analysis: Only 7%? Why should it be more than zero? isn't it true that (A) a major part of your income is from the interest you earn from the government and (B) you are free to spend that interest any way you want -- including outrageous salaries -- trips around the world an lavish offices? And (C) that nobody outside your management knows where your income goes?
Myth #9: President Kennedy was assassinated because he tried to usurp the Federal Reserve’s power. Executive Order 11,110 proves it (where is the attribution of this "myth"?)
Facts: Kennedy wrote E.O. 11,110 to phase out silver certificate currency, not to issue more of it. Records show Kennedy and the Federal Reserve were almost always in agreement on policy matters. He even signed legislation to give the Fed more authority to issue currency.
Analysis: Tell us where we can find the data that Kennedy and the Fed were "almost always in agreement on policy matters". And only on "policy matters"? What about operational matters, quantitative matters, strategic matters and international matters?
The Legendary Tirade of Louis T. McFadden ( Is this a myth? Did he not deliver a 'tirade"? What in his "tirade" is a myth?)
Facts: McFadden was incorrect regarding the Fed costing the government money. However, later economic analysis agrees with him that Federal Reserve policy blunders had a substantial role in causing the Depression. However, his implication that this was done deliberately has no basis in fact. Moreover, for a dozen years prior to his rant, McFadden had been the chairman of the House subcommittee that oversaw the Federal Reserve. Why didn’t he do anything to reform or abolish the Fed while he had the chance?
Analysis: Does the Fed work for peanuts? If anyone at the Fed is paid -- that means they cost the government money! And your Tit-For-Tat charge against McFadden is hardly convincing that the Fed is beyond reproach. In my opinion, Tit-For-Tatting is the type of tactic guilty people use when they can't legitimately deflect or rise above criticism.
Note by Martin Carbone: After matching the "Myths" with Mr. Flaherty's "Facts" we had 3 Myths and 2 Facts left over which did not seem to match. Does that mean (A) that the 3 "myths" below are not debunked here and (B) the 2 "Facts" are gratuitous remarks that do not "Debunk" anything.
Does that mean those three Myths are actually true -- or does that mean Mr. Flaherty did not dig deep enough to find "Debunking Facts"?
Can you match the following?
Here is what was left over
Myth #1: The Federal Reserve Act of 1913 was crafted by Wall Street bankers and a few senators in a secret meeting. (where is the attribution of this "myth"?)
Myth #2: The Federal Reserve Act never actually passed Congress. The Senate voted on the bill without a quorum, so the Act is null and void. (where is the attribution of this "myth"?)
Myth# 3: The Federal Reserve Act and paper money are unconstitutional (where is the attribution of this "myth"?)
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.
Fact: The term ‘lawful money’ does not refer to gold or silver coin, but to types of money which the government would permit banks to use when tabulating their reserves. These types of money included, but were not limited to, gold and silver coin.
I am of the opinion that Mr. Flaherty purposely set out the Myths and Facts separated from each other in his article (see link below) -- so the reader would have a hard time matching them and would assume that Mr. Flaherty "Debunked" each "Myth". Shame, shame. (mrc)
See his article at: http://hidhist.wordpress.com/banksters/debunking-the-federal-reserve-conspiracy-theories-and-other-financial-myths/
BY: Edward Flaherty, Ph.D. Department of Economics College of Charleston, S.C.