Attached is a short audio clip that may be played in Windows Media Player, RealPlayer and similar programs from Ellen Brown's interview dated April 2. Fair use is claimed. The full interview may be found on her website at
http://www.webofdebt.com/media/talkradiop1040209.phpIn the clip, Ms. Brown repeats two assertions that have become articles of faith in "right wing" and "monetary reformist" circles, elements of true belief rather than facts. These assertions are that the Federal Reserve is "privately owned" and that when banks lend they create the principal but not the money to pay the interest. This second assertion has been termed the "debt virus" hypothesis, after the book by the same name.
As to the first assertion, I refer you to an essay by G. Thomas Woodward of the Congressional Research Service Library of Congress, which is archived at
http://www.geocities.com/new_economics/woodward-money_and_the_federal_reserve_system.txt Mr. Woodward states that the Federal Reserve Board is a federal agency. Its Chairman and governors are appointed by the President of the United States subject to confirmation by the United States Senate. Its employees are government employees.
The twelve regional Federal Reserve Banks have aspects of being private corporations. But they are not "private" in the ordinary sense of the word. They have "stock" that is held by the member banks as a condition of membership in the Federal Reserve regional bank. The stock may not be sold but must be returned when a bank leaves the system. The stock does not pay a dividend based on the regional bank's profits but conveys a fixed six percent dividend on invested capital, which is determined by the size of each bank. Each regional bank has nine directors. Six of them are elected by the member banks, with each bank getting one vote, regardless of the amount of stock it might hold. Three of the directors are appointed by the Federal Reserve Board. The Chairman and Vice Chairman of each regional bank is appointed by the Federal Reserve Board, which is a government agency.
The second "debt virus" assertion has been addressed previously on this list. Banks in fact not only create money when they extend loans, but also when they spend for any purpose whatsoever. Banks spend for ordinary business expenses and salaries and wages. They also spend when they pay dividends to their stockholders. When they spend they do exactly what they do when they extend loans, they credit transaction accounts throughout the economy. That money becomes available to pay interest back to the banks.
This fallacy deflects attention from the analytically correct explanation for the shortage of purchasing power: the A + B theorem. Worse still, the fallacy suggest a dangerous "solution," the abolition of interest. It is dangerous because to the extent it is implemented, trade and commerce is impeded. The theorem, of course, suggests what are in effect macroeconomic accounting adjustments in the form of the National Dividend and Retail Discount. These adjustments would allow the economy to attain its full productive potential to the extent there is real demand.
Brock Moore
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