Connect with us

Latest

Analysis

News

Donald Trump’s achievement: getting through his first year as President

Trump has successfully withstood the most sustained attempt to eject a newly elected President from office in US history

Alexander Mercouris

Published

on

5,077 Views

As 2018 begins Donald Trump has reason to be satisfied.

He has survived his first year in much better shape politically than might have been expected, seeing off the single most sustained attack on a newly elected President that the US has witnessed since Abraham Lincoln’s first year.

Newly elected US Presidents can normally expect a honeymoon in the first six months following their election, with support for them tending to tail off towards the year’s end.

In Donald Trump’s case the pattern has been the reverse.  Not only are his ratings improving but his position in Congress looks stronger now than it has ever been before.

Though talk of impeachment is still there, with the Republican Party in Congress now finally closing ranks behind him its prospect, even if the Democrats win control of Congress in the autumn, is starting to melt away.

In order to understand how this has happened the reasons for Donald Trump’s problems in his first year as President must first be explained.

Donald Trump won the Presidency as an outsider running against the US’s political class.  He did so by highlighting the growing problems of ever larger numbers of Americans and the growing disconnect between them and the political class, which has increasingly turned its back on them.

Nothing is more calculated to infuriate professionals than to be beaten by an amateur at their own game, and the mere fact that Donald Trump won the President as an outsider would have sufficed to make him a host of enemies in Washington.

However the manner of his victory – with his calls to “drain the swamp” and have “crooked Hillary” “locked up”, together with his emphatic rejection of ‘identity politics’, criticism of interventionist wars, and calls for a rapprochement with Vladimir Putin (the US political establishment’s bête noire) – in other words by his total rejection of the orthodoxies of the US’s political class – was horrifying, calling into question the whole political and ideological construct within which the political class operates and casting doubt on its legitimacy.

In view of this a pushback against Donald Trump was inevitable, and one fact more than any other gave it an extra spur.

This was that Donald Trump won the election in the Electoral College but lost the popular vote, falling behind his opponent Hillary Clinton by as much as 3 million votes.

There has been much discussion about this – far too much in my opinion – but the key point about it is that the fact that Donald Trump cannot show that a majority of Americans backed him in the election has exposed him to attacks on his legitimacy and has emboldened his opponents.

This is what lies behind the challenges he has experienced in his first year.

They began on the very first day of his Presidency with a row about the size of the crowd which attended his inauguration.

Contrary to what is often said, I do not think this was a trivial episode, and I am sure Donald Trump did not see it that way either. That is why he and his officials insisted in defiance of all the evidence that the crowd was bigger than it really was.

Trump has come in for much ridicule for this, but this overlooks the reason why the question of the size of the crowd was brought up in the first place.

It was in fact yet another attempt to highlight the fact that he lost the popular vote in the election so as to insinuate – again – that he is not the legitimately elected President of the United States because the majority of the American people did not vote for him.

Given that the issue of the size of the crowd was being used in that way, Trump’s insistence that it was larger than it was becomes fully understandable as a defence of the legitimacy of his election to the Presidency.

Soon after that attack more followed.

Within just two weeks of the start of Donald Trump’s Presidency a series of political and judicial attacks were launched against his ‘travel ban’ Executive Orders, even though these Orders fulfilled pledges he had made during his campaign.

Of all the attacks Donald Trump has experienced since his election the attacks on his ‘travel ban’ Executive Orders are the ones which have troubled me most.

This is not because I agree with the policy set out in the Executive Orders.  On the contrary I think it is harsh and cruel.  However I have never had the slightest doubt that Donald Trump has the constitutional authority as President to make these Orders, and I have been dismayed that no less a person than the Acting Attorney General of the United States not only argued otherwise but sought to sabotage them, and that several federal court judges have done the same, citing as grounds arguments wholly lacking in legal merit which read as if they were lifted straight out of the editorial pages of certain newspapers.

That it has required the Supreme Court to intervene to state what is legally obvious is deeply disturbing, and shows just how politicised the federal court system in the US has become.

The US constantly preaches to the world and to itself the importance of judicial independence, judicial impartiality and the separation of powers.  Indeed the whole US Constitution is based on these principles.

The grossly partisan way certain courts have behaved in the battle of the Executive Orders shows that in the US these principles are in danger of becoming a fiction.

That ought to be a very worrying fact, and it is a matter of still greater worry that so few Americans seem concerned about it.

If Donald Trump’s political opponents have not hesitated to use the courts and elements of the Justice Department’s bureaucracy to try to obstruct the implementation of his policies, they have also not hesitated to obstruct the appointment of officials to his administration.

The process of Senate confirmation of candidates for senior posts in the administration has been spun out to a ridiculous degree, with many middle ranking positions still unfilled.

This is not because the candidates Donald Trump is nominating are unfit for office.  It is because it is Donald Trump who is nominating them.

That this sort of behaviour is utterly self-destructive ought to be obvious.  The United States cannot function properly without a government yet some people in Congress appear to be so hostile to Donald Trump that they are prepared to sacrifice the efficient operation of the US government in order to conduct their feud with him.

It is however the Russiagate scandal which eclipses all other attacks which have been made against Donald Trump in his first year.

The origins of Russiagate go back to 2015 when Donald Trump up-ended US political class orthodoxy in the most radical imaginable way by speaking well of Russian President Vladimir Putin and making clear his wish for better relations with Russia.

In doing so Donald Trump had the courage to doubt one of the central charges the US political class regularly makes against Vladimir Putin: that he carries out extra-judicial killings (ie. murders) of his Russian political opponents.

Worse still, it turned out that the American people were not only unfazed by what Donald Trump had to say about Putin, but his talk of wanting a rapprochement with Russia was actually striking a positive chord with them.

To a US political class which to a disturbing degree has internalised hostility to Russia and for whom the demonisation of Vladimir Putin has become an article of faith, this was well nigh unbelievable heresy, so shocking that there had to be some ulterior motive behind it.

The result was a series of investigations which were launched in the first instance privately in the autumn of 2015 to try to find the ‘hidden link’ between Donald Trump and Russia which would explain his supposedly extraordinary behaviour.

These investigations gained critical mass in the early summer of 2016 when Hillary Clinton and her campaign hit on the story of Donald Trump’s supposed connections to Russia as the silver bullet which would kill off his campaign, divert attention away from the ugly revelations in the DNC and Podesta emails, and deliver Hillary Clinton the Presidency.

Accordingly at some point in July 2016 the private investigations of Donald Trump’s supposed Russian connections expanded into an official investigation by the FBI based on the Trump Dossier, a grotesque compilation of salacious gossip about Donald Trump and members of his campaign team paid for by the Democratic National Committee and the Hillary Clinton campaign and put together at the request of Fusion GPS by the ex British spy Christopher Steele.

The result was that from July 2016 until the inauguration on 20th January 2017 members of Donald Trump’s campaign and transition teams were placed under surveillance by the FBI, with the US intelligence community publishing an extraordinary statement a month before the election which all but said that the Russians were trying to swing the election to Donald Trump, and publishing a further Intelligence Assessment on 8th January 2017 – after the election and shortly before the inauguration – which without providing any evidence again all but said the same thing.

This was accompanied in the last weeks of the transition period and the first weeks of the new administration by a flood of leaks from the Justice Department, the FBI, other sections of the US intelligence community and from former members of the Obama administration, which also sought to delegitimise Donald Trump and destabilise his administration by also insinuating that he owed his election to the Russians.

The media, which in the United States as in all other Western countries has now become the servant of the political class, picked up and magnified these unsupported claims to an extraordinary degree, treating the Russian role in Donald Trump’s election as “proved”, ridiculing Donald Trump’s denials, and labelling anyone expressing any doubt about the claims as a “Kremlin stooge” or a “conspiracy theorist”.

The resulting scandal has resulted in two very dangerous moments for Donald Trump.

The first came in February 2017 when with weeks of his inauguration he was forced to ask for the resignation of General Michael Flynn, his National Security Adviser and the person who was spearheading his attempt to mend relations with Russia.

Flynn was felled in part by his own mistakes but mainly by a concerted and in part illegal campaign of leaks and bureaucratic traps which in the end successfully brought him down.

Flynn’s resignation created a gap within the administration’s foreign policy team which has never been properly filled, but more critically it gave an appearance of reality to the conspiracy allegations at the heart of the Russiagate scandal, which gave the scandal extra life.

The immediate result was to harden the already strong hostility to Donald Trump in Congress, with many Republicans now convinced that there might be something to the Russian conspiracy allegations after all, making the possibility of impeachment appear for a time a very real one.

It was the bad feeling caused by the Flynn affair which in my opinion lay behind the strongly negative reaction to Donald Trump’s entirely correct and fully justified sacking of the FBI’s scheming and incompetent Director James Comey, and to the appointment of Robert Mueller as Special Counsel.

It was also the Flynn affair which led to the second dangerous moment in Donald Trump’s Presidency, the passing by Congress in August of its bizarre anti-sanctions legislation targeting Russia.

This was undoubtedly intended by Donald Trump’s Congressional opponents to be an impeachment trap akin to the equally unconstitutional Tenure of Office Act which in 1867 nearly felled Andrew Johnson.

The plan was that Donald Trump would veto the legislation, exposing his ‘loyalty’ to Vladimir Putin and Russia, Congress would then override his veto – just as it once overrode Andrew Johnson’s veto of the Tenure of Office Act – so that with with Trump discredited and his support in Congress shot to pieces Congress would move to impeachment as soon as a convenient pretext arose.

In the event Donald Trump showed much more political skill and agility than his opponents had reckoned on, sidestepping the impeachment trap they had laid for him by signing the legislation into law instead of vetoing it whilst making clear his belief in written provisos that the legislation is unconstitutional, thereby preparing the ground for a future challenge to the Supreme Court.

Since then events have begun to move in Donald Trump’s direction.

The reason is that the main thrust of the attack on him – the Russiagate scandal – has turned out to be a grotesque and gigantic misfire.

The evidence to back the collusion claims with Russia which Donald Trump’s opponents staked so much on in order to bring him down stubbornly refuses to appear, and the longer the scandal continues the more obvious it becomes that that it is not appearing because it is not there.

The result is that instead of Donald Trump being exposed as a Russian stooge, it is his opponents and the US security agencies who are being increasingly exposed as conducting a witch-hunt against him.  Moreover it has also become increasingly clear that this is a witch-hunt which has repeatedly tipped over into gross impropriety and sometimes into outright illegality.

The point has now been reached where even former Republican opponents of Donald Trump’s are now calling for the appointment of a new Special Counsel to investigate the actions of his accusers.

Though this has not yet been noticed by the wider US public, it has transformed the situation in Congress.

Whereas in July many Republicans in Congress were worried that their President would turn out to be a Russian stooge, now only an irreconcilable hardline minority of anti Trump Republicans in the  Senate believes it or pretends to believe it.

The result is that whereas in the first half of the year Donald Trump was desperately short of support in Congress, making it all but impossible for him to get legislation passed, now with the Republican Party in Congress rallying behind him not only is the danger of impeachment receding but he has finally scored his first big legislation win in the form of the tax reform bill, which is now set to become law.

Here I ought to say that I happen to think that the tax reform bill is as wrong on economic grounds as I think the entry policy contained in Donald Trump’s ‘travel ban’ Executive Orders is wrong on moral grounds.  However politically speaking it is Donald Trump’s success in getting the tax reform bill through Congress which is what matters.  The point is that whilst Donald Trump did not have sufficient support from Republicans in Congress to get it through six months ago, he has that support now.

The result is that with the Republican Party in Congress closing ranks behind him, with doubts about Robert Mueller’s and the FBI’s conduct of the Russiagate inquiry growing, and with the economy looking strong, Donald Trump starts 2018 politically much stronger than he has been at any time since he was inaugurated President.

Even his approval ratings are rising, so that according to one poll they now stand at the same level as Barack Obama’s at this stage in Obama’s Presidency.

Donald Trump has paid a price for his survival in his first year.

He has lost his two most important lieutenants – Flynn and Bannon – and has been obliged to surround himself with a Praetorian Guard of generals who behave more often as his captors than as his servants.

The result is that the belligerent foreign policy of confronting everybody everywhere all the time which Donald Trump pledged during the election to reverse has not only continued but has intensified.

As for the project to mend fences with Russia, at least for the moment it has been kicked into the long grass.

Given the forces stacked against him at the start of 2017 Donald Trump will consider that an acceptable price to pay.

The key point is that he has survived and grown stronger after the most sustained attack ever experienced in modern US history on a newly elected President.

It is now all but certain that he will continue to the end of his term, with at least a possibility – especially if the economy remains strong – that he will be re-elected in 2020.

Donald Trump’s political space is increasing.  The test of his Presidency will be how he uses it.

Liked it? Take a second to support The Duran on Patreon!
Advertisement
Click to comment

Leave a Reply

avatar
  Subscribe  
Notify of

Latest

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

The Duran – News in Review – Episode 177.

Alex Christoforou

Published

on

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.

Remember to Please Subscribe to The Duran’s YouTube Channel.

Follow The Duran Audio Podcast on Soundcloud.

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.

 

Liked it? Take a second to support The Duran on Patreon!
Continue Reading

Latest

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

The Duran Quick Take: Episode 87.

Alex Christoforou

Published

on

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.

Remember to Please Subscribe to The Duran’s YouTube Channel.

Follow The Duran Audio Podcast on Soundcloud.

“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.

Liked it? Take a second to support The Duran on Patreon!
Continue Reading

Latest

The Birth Of A Monster

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

The Duran

Published

on

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.

Liked it? Take a second to support The Duran on Patreon!
Continue Reading

JOIN OUR YOUTUBE CHANNEL

Your donations make all the difference. Together we can expose fake news lies and deliver truth.

Amount to donate in USD$:

5 100

Validating payment information...
Waiting for PayPal...
Validating payment information...
Waiting for PayPal...
Advertisement

Advertisement

Quick Donate

The Duran
EURO
DONATE
Donate a quick 10 spot!
Advertisement
Advertisement

Advertisement

The Duran Newsletter

Trending