by G. Edward Griffin


from RealityZone Website

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.



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.



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.



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.



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.



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.



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



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.





  • "A superb analysis deserving serious attention by all Americans. Be prepared for one heck of a journey through time and mind."
    Ron Paul
    Publisher/Editor, Ron Paul Report
    Member, House Banking Committee

  • "What every American needs to know about central bank power. A gripping adventure into the secret world of the international banking cartel."
    Mark Thornton
    Asst. Professor of Economics, Auburn Univ.
    Coordinator Academic Affairs,
    Ludwig von Mises Institute

  • "A magnificent accomplishment — a train load of heavy history, organized so well and written in such a relaxed and easy style that it captivated me. I hated to put it down."
    Dan Smoot
    Publisher/Editor, Dan Smoot Report




Comments from some of our readers:

"...I have just finished reading your book, The Creature from Jekyll Island. Without a doubt, your book has to be the absolute best book that I have ever read. I have read books about money, banking and of the Federal Reserve, such as The Ron Paul Money Book by Ron Paul; The Case Against the Fed by Murray N. Rothbard; Age of Inflation by Hans F. Sennholz, as well as other books on the "Free Enterprise system".


As good as these books are, none of them can compare to your book. ....I have classified your book as a "must read" for anyone interested in learning about the monetary system."
Ontario, Canada.

"...Thank you for your time and efforts authoring (this book).... I learned more about economics from your single book than I did pursuing a BBA at a state college. Fractional reserve banking and fiat money were mentioned, but their history and effects upon our economy were not. A majority of the time was devoted to the derivation of economic formulas, (educated the masses to be productive, not thinkers)."
Poynette, Wisconsin.

"...I have just finished reading your marvelous book, and must declare that the information you presented has cleared more sleep from my eyes than any other printed information, with exception to the Holy Bible. And I recognize that the Holy Spirit of GOD is with you in your investigative journey."
Charlotte, North Carolina