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US actions against Russian diplomatic and consular property are illegal–here’s why

US actions against consular and diplomatic property in the United States violate the letter and spirit of the Vienna Conventions. The Vienna Conventions are clearly codified, internationally recognised laws which the UN has sanctioned to prevent the unwarranted molestation of diplomatic and consular property and the individuals working therein.

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The United States has once again seized diplomatic and consular properties belonging to the Russia Federation and is in the process of conducting raid style searches of the properties which are set to formally begin on the 4th of September.

These actions which first took place in the final full month of Barack Obama’s Presidency and are now taking place at additional Russian diplomatic and consular facilities in the United States under Donald Trump’s Presidency, violate clearly codified international laws which are contained in documents known as the Vienna Conventions.

The following are the provisions of the Vienna Conventions that are presently being violated by the United States.

From the Vienna Convention on Diplomatic Relations

Article 22

1. The premises of the mission shall be inviolable. The agents
of the receiving State may not enter them, except with the consent of
the head of the mission.

2. The receiving State is under a special duty to take all
appropriate steps to protect the premises of the mission against any
intrusion or damage and to prevent any disturbance of the peace of the
mission or impairment of its dignity.

3. The premises of the mission, their furnishings and other
property thereon and the means of transport of the mission shall be
immune from search, requisition, attachment or execution.

From the Vienna Convention on Consular Relations

Article 31

Inviolability of the consular premises

1.Consular premises shall be inviolable to the extent provided in this article.

2.The authorities of the receiving State shall not enter that part of the consular premises which is
used exclusively for the purpose of the work of the consular post except with the consent of the head of the consular post or of his designee or of the head of the diplomatic mission of the sending State. The consent of the head of the consular post may, however, be assumed in case of fire or other disaster requiring prompt protective action.

3.Subject to the provisions of paragraph 2 of this article, the receiving State is under a special
duty to take all appropriate steps to protect the consular premises against any intrusion or damage and to prevent any disturbance of the peace of the consular post or impairment of its dignity.

4.The consular premises, their furnishings, the property of the consular post and its means of
transport shall be immune from any form of requisition for purposes of national defence or public utility.

If expropriation is necessary for such purposes, all possible steps shall be taken to avoid impeding the performance of consular functions, and prompt, adequate and effective compensation shall be paid to the sending State.

In summary, these statues of international law codified by the United Nations in 1961 (Diplomatic) and 1963 (Consular) mean that irrespective of the condition of relations between the sending state (in this case Russia) and the receiving state (in this case the US), the diplomatic and consular properties in question must remain free from any kind of molestation including searches, raids, property seizures and the infringement of normal and dignified working practices.

Each of these items of law has been clearly violated by the United States. The US has prohibited diplomatic and consular workers from pursuing their work under normal circumstances. The US molested the peace and freedom of such workers and their families on a personal level and the US is in the process of preparing raid the diplomatic and consular properties which the law states are clearly inviolable.

Even in times of conflict that run much deeper than the current political disputes between Washington and Moscow, the Vienna Conventions have a precedent of being adhered to.

In 1984, an individual inside the Libyan Embassy in London shot and killed a UK police officer. The shots were fired from inside the embassy onto the street below.

Although many  called for the suspect to be brought to trail in an English court, the UK government at the time, a government that had generally poor relations Libya in any case, observed the Vienna Conventions and allowed the embassy workers to return to Libya safely after being named persona-non-grata, something which is sanctioned by the Vienna Conventions.

The US itself raised a claim in the International Court of Justice against the Islamic Republic of Iran over an incident involving the taking of US hostages at the US Embassy in Tehran in 1980.

In 2005, during the second term of George W. Bush, the United States withdrew from an optional provision of the Vienna Conventions allowing for disputes arising between states on matters involving diplomatic and consular facilities and individuals to be dealt with by the International Court of Justice.

This means that if Russia wanted to take legal action against the US for violating its protections under the Vienna Conventions, Russia would have to file the complaint in a US court which is subject to accusations of bias vis-a-vis an international court dealing with a dispute between sovereign states.

The aggregate effect of this means that the US is breaking international law with impunity while giving the victim of this anti-diplomatic aggression few realistic options to deal with the issue, other than to attempt some sort of equivalent retaliation.

Instead of scrutinising the United States for a flagrant violation of international law, the mainstream media is instead pontificating on why smoke is coming out of the chimney at the soon to be closed Russian Consulate in San Francisco, even though such a matter has no real legal implications. Until the premises is involuntarily vacated, the Russian consular staff have the right to use their facilities as they fit.

Russian Foreign Ministry Spokeswoman Maria Zakharova issued the following statement to the conspiracy theorists who have taken an interest in the smoke,

“Now in San Francisco, another circus begins – a new round of baiting called ‘What are you doing there?’.

After giving 2 days for the emergency conservation of the building and deciding to conduct a search in the premises, which had for many years had diplomatic immunity, a search involving FBI employees, the “host party” in the afternoon of September 1 “accidentally noticed” smoke above the building. The truth is that they also did not happen to notice that the was coming from a  pipe.

Immediately there were prepared photo reports about the “emergency situation”, and, as the top of sadism, fire protection was called. Just in case. Suddenly, Russians need help: they still had a couple of hours left to clear the premises.

And then the questions of American journalists poured down about what kind of trickle of smoke rose over the Russian consulate general.

I answer: measures are being taken to preserve the building. In this regard, the windows can be closed, the curtains can be lowered, the light may turn off, water may come down, the doors may be locked, garbage can be disposed of, heating devices must be switched off, life support systems switched on, and much more.

It is unbearably embarrassing to monitor the actions of the US authorities and the entire information campaign. Later everything will be like it always happens in the USA: there will be those who stood behind all this Russophobic hysteria, another mistake will be recognized, perhaps we will hear miserable apologies. But all this will be, as always, later. And now, at this very minute, instead of the celebrations on the occasion of September 1 and the labor routine for issuing passports and visas, the employees of the Consulate General professionally oriented towards the development of bilateral relations are engaged in the conservation of the building…

The wider truth of the matter is that the only thing up in flames is the American government’s respect for international law.

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K WalkerBased ✓ᴺᵃᵗᶦᵒᶰᵃˡᶦˢᵗgbardizbanianJonFranz Kafka Recent comment authors
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Daisy Adler
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Daisy Adler

“United States violate the letter and spirit of the Vienna Conventions”

Show me ONE international law signed and ratified by the United States, that they respect. ONE.

Franz Kafka
Guest
Franz Kafka

The Law of Unintended Consequences.

Tom Welsh
Guest
Tom Welsh

It seems to me that the US government has chosen to cease observing the Vienna Convention on Diplomatic Relations. That means, of course, that other nations no longer need to observe the Convention’s rules with regard to US government representatives and property.

Unless the US government chooses to explain to the international community why the Convention should apply to all other nations, but not to the USA.

Muriel Kuri
Guest
Muriel Kuri

We are acting totally against the law. This is despicable.

Voltaire
Guest
Voltaire

The United States proves that it is a Rogue State once again

The United States signs international Treaties and tears them up in public before telling the world that it believes in the Rule of Law….

The United States has gone barabarian….

Isabella Jones
Guest
Isabella Jones

The united states has never been anything else but barbarian and savage, from Day One, I’m afraid. It’s just that, for a while, it did a superb job of pulling the wool over the eyes of millions, and convincing them that it was a beacon of light on a hill.
Turns out the light was from the Bonfire of the Vanities.

Vera Gottlieb
Guest
Vera Gottlieb

And it continues to pull wool over their eyes. What I fail to understand how so many people continue in awe of the US…unless they are totally ignorant of what the US has been pulling.

Franz Kafka
Guest
Franz Kafka

The Scum of the Earth is in awe of the Untied Snakes.

Daisy Adler
Guest
Daisy Adler

It never stopped of being a rogue state, since its creation.
It is absolutely crazy to see the number of wars started by US in merely 240 years of existence.

“The United States has gone barabarian….”
Or better said in Oscar Wilde aphorism, “America is the only country , which jumped from barbarism to decadence, without civilization in between”.

seby
Guest
seby

Excuse me if I cannot take seriously someone protesting against rogue states who ignore international law and have what looks very much like a zionist symbol as their avatar.

Rastislav Veľká Morava
Member
Rastislav Veľká Morava

Hasbara Tactics.

Trauma2000
Guest
Trauma2000

Got to agree with you there Seby.

Franz Kafka
Guest
Franz Kafka

They say it was Clemenceau or someone like that. Not Wilde. I always hoped that it was De Tocqueville.

DarkEyes
Guest
DarkEyes

Never mind Who, it is about what is being said, Franz and I know that you know.

Franz Kafka
Guest
Franz Kafka

The devil is in the details. Facts matter.

Isabella Jones
Guest
Isabella Jones

Nice observation by Wilde – I hadn’t caught up with that one, thanks Daisy. As Sigmund Freud said “America is a mistake. A big big mistake”.

Seán Murphy
Guest
Seán Murphy

The USA “has gone barbarian”? It always was.

Trauma2000
Guest
Trauma2000

Yes… You are correct.

Jon
Guest
Jon

Run by Democrats/Communists for the past 60 years

Daisy Adler
Guest
Daisy Adler

Key provisions of Vienna Convention, regulating diplomatic exchanges between sovereign countries:
Article 31. The host nation may not enter the consular premises, and must protect the premises from intrusion or damage.
Article 35. Freedom of communication between the consul and their home country must be preserved. A consular bag must never be opened. A consular courier must never be detained.

Daisy Adler
Guest
Daisy Adler

“It is unbearably embarrassing to monitor the actions of the US authorities”

It is also mind boggling to know which international laws the US refused to ratify. Among them: Convention on Cluster Munitions, International Convention for the Protection of All Persons from Enforced Disappearance, Protocol to the Convention against Torture, Mine Ban Treaty …

louis robert
Guest
louis robert

Illegal?

Thanks for the detailed demonstration… but, but, but… the Empire has been constantly acting illegally and with impunity for decades upon decades. Illegality is the Empire’s very modus operandi! It respects absolutely nobody and absolutely nothing.

All that matters, really, is therefore how to prevent said Empire from making such a criminal, public nuisance of itself worldwide any longer. In a nutshell, the world must stop and neutralize that Empire asap.

Franz Kafka
Guest
Franz Kafka

Quarantine the USA.

louis robert
Guest
louis robert

You may be too lenient, Franz.

In this case, the disease being not merely a relatively minor contagious one, quarantine may not be quite in order. The disease in question is a major one of the mind, of the soul. Only confinement to one of the most renowned world mental institutions specialized in locking up and treating long, long term, the most violent compulsive criminals would seem to be appropriate, I’m afraid.

Trauma2000
Guest
Trauma2000

Boycott Brand America. Boycott them; one person, one company, on institution at a time: Boycott them all.

Sanctions begin with the individual; by the individual, against the individual. Boycott everything. Food, products, media, Hollywood, electronics, tourism: Choose something OTHER than ‘made in America.’

There is an ENTIRE PLANET of people who would like to do business with you, want to be friends and will treat you with the respect you deserve. Just Boycott Brand America.

This is how the individual Sanctions a Nation. Boycott Brand America.

Gonzogal
Guest
Gonzogal
Franz Kafka
Guest
Franz Kafka

Quis custodiet ipsos custodes? (Who will guard the guards themselves?) That the US Gestapo is 100% unreliable and an extension now of the proxy terrorists inflicted on the people of the multi-polar world is obvious. “What Goes Around Comes Around” as We the Pimple[sic] love to say. Relish the fact alone that Mueller of the FBI was the point man on the Cheney-Silverman/Silverstein WTC demolition. He is now in charge of the demolition of the Democracy in the United States – such as it was, like the WTC damaged beyond repair and full of asbestos. That Quarantine is now the… Read more »

Gonzogal
Guest
Gonzogal

“where will the people of the USA run to”

Only directly into the fire of the destruction from within of their country…their apathy and outright support towards their governments actions in breach of International Law and their support for its illegal wars of conquest “over there” for DECADES means they DO NOT DESERVE a place “to run to”

For those who are awake, aware and against their regimes actions….get out now if you can to a country willing to stand up to the hegemon and hope that your US passport will be accepted!

DarkEyes
Guest
DarkEyes

Houston, we have a problem! It is “America first”, so no way to go?
The American nationals should start to claim their name, properties and their land in their state where they were born, back. They are no property of the US INC. which is nearly bankrupt, so hurry up otherwise you all “have to” pay the debts of the federal government again! May be two hundred trillion Federal Reserve-paper dollars?
IMO, this Banksters trick is running since 1865.

TS
Guest
TS

Perhaps it is better to base the Consulate on the water, a cruise ship [http://www.ships4ever.com/]. NYC property value is still high.

Vera Gottlieb
Guest
Vera Gottlieb

Vienna Convention? Where is Vienna or what is it? As long as the US’ favoured ‘level playing field’ tilts towards the US. The more I read about the US, the sicker I feel to my stomach.

Franz Kafka
Guest
Franz Kafka

The captive people of the US should ask for a ‘no-fly zone’ to be policed by Russia and China so they might have a hope in hell of finally making the only regime change that matters.

Franz Kafka
Guest
Franz Kafka

It is very simple. Nietzsche’s “People of consummate cant” have added Lavrov’s ‘agreement-incapability’ and handed it all over to Hussein’s and Ahmadinejad’s ‘Great Satan’.
If the AntiChrist has a locus, it is certainly on the axis between Tal Habib and Washington.

Franz Kafka
Guest
Franz Kafka

This is Mueller’s doing. The noose tightening around his neck has forced him into rash acts.
He plans to plant evidence. As the point man for the WTC demolition he has some experience in this sort of thing.

ghartwell
Guest

Children need to be taught the common courtesy of please and thank you. They can be disciplined and trained to align with social expectations. But what happens to the world’s peaceful existence when a large strong nation does not follow established law in international relations? Chaos, instability and uncertainty result.

Trust of America again goes down. Russia, China and the peace – loving nations have this counterfoil to display their tolerance and adherence to law.

Putin’s legal training and absolute firm adherence to international law now looks even more attractive.

Gonzogal
Guest
Gonzogal

VERY well said!

DarkEyes
Guest
DarkEyes

And of course his intelligence background and experience not to forget.
Which in these kind of situations is going into the direction of the survival for the world.

Russian Federation for the Nobel Peace Prize I’d say.

Franz Kafka
Guest
Franz Kafka

The US has now committed the one act which, by their own definition, makes them a rogue state desrving of sanctions and military retribution. Like the fetishized object of Anglo-Zionist hatred, Iran did almost half a century ago, The United States have seized an embassy.

Trauma2000
Guest
Trauma2000

Yes. They have “NOT YET” breached international law, but are about to do so.

Boycott Brand America. Boycott Brand America. What what you buy; and extract all your money, commerce and investments from the U.$. (For your own protection)

K Walker
Guest
K Walker

Sanction my country – the USA. The UN needs to set boundaries – better for the citizens here and better for the world.

Gonzogal
Guest
Gonzogal
Trauma2000
Guest
Trauma2000

It is sad, and unwarranted that someone as yourself may suffer as a result of something beyond your control; but unfortunately, America CLAIMS to be a democracy; and as such, the actions of the nation are a reflection on the individual.

Maybe it’s time for you to emigrate?

K Walker
Guest
K Walker

It claims is true but we are a Republic and allegedly governed by the rule of law.

DarkEyes
Guest
DarkEyes

UN? … Are you sure that you need the UN, K?

K Walker
Guest
K Walker

Who else would do it?

Feudal Peasant
Guest
Feudal Peasant

I venture to guess, all on behalf of Netanyahu who needs dirt in Putin

Shahna
Guest

“The wider truth of the matter is that the only thing up in flames is the American government’s respect for international law.”
——————

… and the wider world’s respect for the USA.

Gonzogal
Guest
Gonzogal

BIG difference….Russia followed International Law!
comment image

DarkEyes
Guest
DarkEyes

The US is learning fast from Ukraine how to turn the whole world against you and distrust you.
What the Deep State with her secret service is doing here will come back to hunt them, without a doubt.

To break into international diplomatic codes in this way is a blamage, unforegivable. It looks like a desperate Deep State act which is gearing into under niveau “street fighting”.

ColinNZ
Guest
ColinNZ

US government still trying to prove beyond any reasonable doubt that their ‘leaders’ are playground bullies in a school for children with learning disabilities and attention deficit disorders.

johnplatinumgoss
Guest
johnplatinumgoss

I suspect any country that would bring down skyscrapers and murder its own citizens to go to war all over the Middle East (9/11) would have no compunction in violating the Vienna Convention. Don’t they make decent people sick?

gbardizbanian
Guest
gbardizbanian

By acting this way the US behaves like a rogue state which has no respect for international law.

Based ✓ᴺᵃᵗᶦᵒᶰᵃˡᶦˢᵗ
Guest
Based ✓ᴺᵃᵗᶦᵒᶰᵃˡᶦˢᵗ

USA has been spying on that consulate for decades. I used to live up there in the 70s-80s and every single day there were white vans, PGE trucks, UPS trucks, phone trucks parked across the street from the consulate all day long.

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Macron pisses off Merkel as he tries to sabotage Nord Stream 2 pipeline (Video)

The Duran – News in Review – Episode 177.

Alex Christoforou

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The Duran’s Alex Christoforou and Editor-in-Chief Alexander Mercouris discuss an EU compromise for Nord Stream 2 where EU member states, the EU Parliament, and its Commission will give the bloc more oversight on gas pipelines, with one caveat…the Nord Stream 2 project with Russia will not be threatened by the new regulations in the agreement.

Macron pushed hard to have the new regulations include (and derail) Nord Stream 2, an action which annoyed Angela Merkel, who eventually got her way and delivered another blow to Macron’s failing French presidency.

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Via The Express UK

Angela Merkel hit back at Emmanuel Macron over Russia and Germany’s pipeline project, declaring it would “not be a one-sided dependency”. The German Chancellor explained that Germany will expand its gas terminals with “liquified gas”. Speaking at a press conference, Ms Merkel declared: “Do we become dependent on Russia because of this second gas pipeline? I say no, if we diversify. Germany will expand its gas terminals with liquefied gas.

“This means that we do not want to depend only on Russia, but Russia was a source of gas in the Cold War and will remain one.

“But it would not be one-sided dependency.”

Via DW

The EU parliament and its Council are set to adopt new regulations on gas pipelines connecting the bloc members with non-EU countries, the EU Commission announced early on Wednesday.

The upcoming directive is based on a compromise between EU member states and EU officials in Brussels. The bloc leaders agreed to tighten Brussels’ oversight of gas delivery and expand its rules to all pipelines plugging into the EU’s gas distribution network.

“The new rules ensure that… everyone interested in selling gas to Europe must respect European energy law,” EU Energy Commissioner Miguel Arias Canete said in a statement.

For example, owners of pipelines linking EU and non-EU countries would also be required to allow access for their competitors. Brussels would also have more power regarding transparency and tariff regulations.

Russian ambassador slams US

Brussels has repeatedly expressed concern over the controversial Nord Stream 2 project which would deliver Russian gas directly to Germany through a pipeline under the Baltic Sea. Many EU states oppose the mammoth project, and the US claims it would allow Moscow to tighten its grip on the EU’s energy policy.

Berlin has insisted that the pipeline is a “purely economic” issue.

Speaking to Neue Osnabrücker Zeitung daily, Russian ambassador to Berlin, Sergey Nechayev, slammed the US’ opposition as an attempt to “push its competition aside” and clear the way for American suppliers of liquefied gas.

“It’s hard to believe that a country that is destroying the rules of free and fair trade, that is imposing import tariffs on its competition, that is flying slogans like ‘America First’ on its flags and often threatens biggest European concerns with illegal sanctions, is now really concerned about European interests,” the Russian envoy said in remarks published in German on Wednesday.

Last week, France unexpectedly rebelled against the project, but Berlin and Paris soon reached a compromise. Thanks to their agreement, the latest deal is not expected to impede the ongoing construction of Nord Stream 2.

Citing sources from negotiators’ circles, German public broadcaster ARD reported that the deal left room for Germany to approve exceptions from the EU-wide rules.

According to the EU Commission, however, exceptions are “only possible under strict procedures in which the Commission plays a decisive role.”

The Gazprom-backed pipeline is set to be completed by the end of the year.

 

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UK Defence Secretary looking for a fight with both China and Russia (Video)

The Duran Quick Take: Episode 87.

Alex Christoforou

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The Duran’s Alex Christoforou and Editor-in-Chief Alexander Mercouris discuss UK Defence Secretary Gavin Williamson’s idea to deploy hard power against China and Russia, starting with plans to send Britain’s new aircraft carrier to the tense sea routes in the South China Sea.

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“Britain’s Gavin Williamson places Russia & China on notice, I’m not joking,” authored by John Wight, via RT

UK Defence Secretary Gavin Williamson is itching for conflict with Russia and China. He’s not mad. Not even slightly. But he is stupid. Very.

Unlike former fireplace salesman Gavin Williamson, I am no military expert. But then you do not need to be one to understand that while Britain going to war with Russia and China might work as a video game, the real thing would be an exceedingly bad idea.

So why then in a speech delivered to the Royal United Services Institute in London, did Mr Williamson’s argument on the feasibility of the real thing elicit applause rather than the shrieks of horror and demands he be sacked forthwith it should have? This is a serious question, by the way. It is one that cuts through British establishment verbiage to reveal a country ruled not by the sober and doughty political heavyweights of years gone by, but by foaming fanatics in expensive suits

Placing to one side for a moment the insanity of the very concept of Britain deploying hard power against Russia and/or China, the prospect of fighting a war against two designated enemies at the same time is a recipe for disaster. Not satisfied with that, though, Mr Williamson is actually contemplating a conflict with three different enemies at the same time – i.e. against Russia, China, and the millions of people in Britain his government is currently waging war against under the rubric of austerity.

“Today, Russia is resurgent,” Mr Williamson said, “rebuilding its military arsenal and seeking to bring the independent countries of the former Soviet Union, like Georgia and Ukraine, back into its orbit.”

For Mr Williamson and his ilk a resurgent Russia is a bad thing. Much better in their eyes if Russia, after the Soviet era in the 1990s, had remained on its knees as a free market desert; its state institutions in a state of near collapse and tens of millions of its citizens in the grip of immiseration. Yes, because in that scenario Western ideologues like him would have had free rein to rampage around the world as they saw fit, setting fire to country after country on the perverse grounds of ‘saving them’ for democracy.

As it is, he and his still managed to squeeze in a considerable amount of carnage and chaos in the years it did take Russia to recover. The indictment reads as follows: Yugoslavia destroyed; Afghanistan turned upside down; Iraq pushed into the abyss; Libya sent to hell.

By the time they turned their attention to Syria, intent on exploiting an Arab Spring that NATO in Libya transformed into an Arab Winter, Russia had recovered and was able to intervene. It did so in concert with the Syrian Arab Army, Iran and Hezbollah to save the day – much to the evident chagrin of those who, like Gavin Williamson, prefer to see countries in ashes rather than independent of Western hegemony.

As to the facile nonsense about Russia trying to bring Georgia and Ukraine back into its orbit, both countries happen to share a border with Russia and both countries, in recent years, have been used by the UK and its allies as cat’s paws with the eastward expansion of NATO in mind.

It gets worse though: “The Alliance must develop its ability to handle the kind of provocations that Russia is throwing at us. Such action from Russia must come at a cost.”

“Provocations,” the man said. Since British troops have been taking part in exercises on Russia’s doorstep, not the other way round, one wonders if Gavin Williamson wrote this speech while inebriated.

It is Russia that has been on the receiving end of repeated provocations from NATO member states such as the UK in recent times, and it is Russia that has been forced to respond to protect its own security and that of its people where necessary. Furthermore, not only in Russia but everywhere, including the UK, people understand that when you have political leaders intoxicated by their own national myths and propaganda to such an extent as Britain’s Defence Secretary, danger ensues.

The most enduring of those national myths where London is concerned is that the British Empire was a force for good rather than a vast criminal enterprise, that Britain and America won the Second World War together alone, that Iraq had WMDs, and that international law and international brigandage really are one and the same thing.

Perhaps the most preposterous section of the speech came when Mr Williamson tried to fashion a connection between Brexit and Britain’s military strength: “Brexit has brought us to a moment. A great moment in our history. A moment when we must strengthen our global presence, enhance our lethality, and increase our mass.”

Reading this, you can almost hear Churchill turning in his grave. Britain’s wartime prime minister had such as Gavin Williamson in mind when he famously said, “He has all the virtues I dislike, and none of the vices I admire.”

Mr Williamson obviously misread the memo talking up not the opportunity for increased conflict with China after Brexit but trade.

This was not a speech it was a linguistic car crash, one that will forever command an honoured place in compendiums of the worst political speeches ever made. As for Gavin Williamson, just as no responsible parent would ever dream of putting an 10-year old behind the wheel of car to drive unsupervised, no responsible British government would ever appoint a man like him as its Defence Secretary.

In years past, he would have struggled to find employment polishing the brass plate outside the building.

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The Birth Of A Monster

The banking establishment welcomed the Fed with open arms. What gives?

The Duran

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Authored by David Howden via The Mises Institute:


The Federal Reserve’s doors have been open for “business” for one hundred years. In explaining the creation of this money-making machine (pun intended – the Fed remits nearly $100 bn. in profits each year to Congress) most people fall into one of two camps.

Those inclined to view the Fed as a helpful institution, fostering financial stability in a world of error-prone capitalists, explain the creation of the Fed as a natural and healthy outgrowth of the troubled National Banking System. How helpful the Fed has been is questionable at best, and in a recent book edited by Joe Salerno and me — The Fed at One Hundred — various contributors outline many (though by no means all) of the Fed’s shortcomings over the past century.

Others, mostly those with a skeptical view of the Fed, treat its creation as an exercise in secretive government meddling (as in G. Edward Griffin’s The Creature from Jekyll Island) or crony capitalism run amok (as in Murray Rothbard’s The Case Against the Fed).

In my own chapter in The Fed at One Hundred I find sympathies with both groups (you can download the chapter pdf here). The actual creation of the Fed is a tragically beautiful case study in closed-door Congressional deals and big banking’s ultimate victory over the American public. Neither of these facts emerged from nowhere, however. The fateful events that transpired in 1910 on Jekyll Island were the evolutionary outcome of over fifty years of government meddling in money. As such, the Fed is a natural (though terribly unfortunate) outgrowth of an ever more flawed and repressive monetary system.

Before the Fed

Allow me to give a brief reverse biographical sketch of the events leading up to the creation of a monster in 1914.

Unlike many controversial laws and policies of the American government — such as the Affordable Care Act, the Troubled Asset Relief Program, or the War on Terror — the Federal Reserve Act passed with very little public outcry. Also strange for an industry effectively cartelized, the banking establishment welcomed the Fed with open arms. What gives?

By the early twentieth century, America’s banking system was in a shambles. Fractional-reserve banks faced with “runs” (which didn’t have to be runs with the pandemonium that usually accompanies them, but rather just banks having insufficient cash to meet daily withdrawal requests) frequently suspended cash redemptions or issued claims to “clearinghouse certificates.” These certificates were a money substitute making use of the whole banking system’s reserves held by large clearinghouses.

Both of these “solutions” to the common bank run were illegal as they allowed a bank to redefine the terms of the original deposit contract. This fact notwithstanding, the US government turned a blind eye as the alternative (widespread bank failures) was perceived to be far worse.

The creation of the Fed, the ensuing centralization of reserves, and the creation of a more elastic money supply was welcomed by the government as a way to eliminate those pesky and illegal (yet permitted) banking activities of redemption suspensions and the issuance of clearinghouse certificates. The Fed returned legitimacy to the laws of the land. That is, it addressed the government’s fear that non-enforcement of a law would raise broader questions about the general rule of law.

The Fed provided a quick fix to depositors by reducing cases of suspensions of their accounts. And the banking industry saw the Fed as a way to serve clients better without incurring a cost (fewer bank runs) and at the same time coordinate their activities to expand credit in unison and maximize their own profits.

In short, the Federal Reserve Act had a solution for everyone.

Taking a central role in this story are the private clearinghouses which provided for many of the Fed’s roles before 1914. Indeed, America’s private clearinghouses were viewed as having as many powers as European central banks of the day, and the creation of the Fed was really just an effort to make the illegal practices of the clearinghouses legal by government institutionalization.

Why Did Clearinghouses Have So Much Power?

Throughout the late nineteenth century, clearinghouses used each new banking crisis to introduce a new type of policy, bringing them ever closer in appearance to a central bank. I wouldn’t go so far as to say these are examples of power grabs by the clearinghouses, but rather rational responses to fundamental problems in a troubled American banking system.

When bank runs occurred, the clearinghouse certificate came into use, first in 1857, but confined to the interbank market to economize on reserves. Transactions could be cleared in specie, but lacking sufficient reserves, a troubled bank could make use of the certificates. These certificates were jointly guaranteed by all banks in the clearinghouse system through their pooled reserves. This joint guarantee was welcomed by unstable banks with poor reserve positions, and imposed a cost on more prudently managed banks (as is the case today with deposit insurance). A prudent bank could complain, but if it wanted to use a clearinghouse’s services and reap the cost advantages it had to comply with the reserve-pooling policy.

As the magnitude of the banking crisis intensified, clearinghouses started permitting banks to issue the certificates directly to the public (starting with the Panic of 1873) to further stymie reserve drains. (These issues to the general public amounted to illegal money substitutes, though they were tolerated, as noted above.)

Fractional-Reserve Free Banking and Bust

The year 1857 is a somewhat strange one for these clearinghouse certificates to make their first appearance. It was, after all, a full twenty years into America’s experiment with fractional-reserve free banking. This banking system was able to function stably, especially compared to more regulated periods or central banking regimes. However, the dislocation between deposit and lending activities set in motion a credit-fueled boom that culminated in the Panic of 1857.

This boom and panic has all the makings of an Austrian business cycle. Banks overextended themselves to finance the booming industries during America’s westward advance, primarily the railways. Land speculation was rampant. As realized profits came in under expectations, investors got skittish and withdrew money from banks. Troubled banks turned to the recently established New York Clearing House to promote stability. Certain rights were voluntarily abrogated in return for a guarantee on their solvency.

The original sin of the free-banking period was its fractional-reserve foundation. Without the ability to fund lending activity with their deposit base, banks never would have financed the boom to the extent that it became a destabilizing factor. Westward expansion and investment would still have occurred, though it would have occurred in a sustainable way funded through equity investments and loans. (These types of financing were used, though as is the case today, this occurred less than would be the case given the fractional-reserve banking system’s essentially cost-free funding source: the deposit base.)

In conclusion, the Fed was not birthed from nothing in 1913. The monster was the natural outgrowth of an increasingly troubled banking system. In searching for the original problem that set in motion the events culminating in the creation of the Fed, one must draw attention to the Panic of 1857 as the spark that set in motion ever more destabilizing policies. The Panic itself is a textbook example of an Austrian business cycle, caused by the lending activities of fractional-reserve banks. This original sin of the banking system concluded with the birth of a monster in 1914: The Federal Reserve.

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