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Sayonara, ‘America First’! We Hardly Knew Ye!

The Kerch Strait incident will serve as another pretext for sanctions that will soon be added with the predictability that night follows day.

Jim Jatras

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Authored by Jim Jatras via The Strategic Culture Foundation:


President Donald Trump’s cancellation of his planned meeting with Russian President Vladimir Putin at the Buenos Aires G20 is another sign of the now almost certain demise of his declared “America First” agenda – and perhaps of his presidency. Supposedly decided in response to a Ukraine-Russia naval incident in the Kerch Strait, dumping the meeting is universally and correctly seen as a response to the guilty plea of his former lawyer and “fixer,” Michael Cohen, to lying to Congress (notice that James Clapper isn’t forced to plead to his perjury before the Senate) and Cohen’s disclosure of Trump’s fruitless business dealings in Russia.

Keep in mind that this comes at a time when grand inquisitor Robert Mueller is on thin ice – or would be, if Trump and his team had a clue. Consider: in just the past few days Jerome Corsi, Roger Stone, and belatedly perhaps even Paul Manafort have delivered what amounts to a case against Mueller’s underlings, including subornation of testimony they knew to be false – a felony punishable by five years in the slammer (18 US Code § 1622 – Subornation of perjury). Is Trump or any of his lawyers thinking of having the victims swear out a complaint and instructing the Justice Department actually to prosecute these miscreants? No, of course not, even though at least Corsi appears to be willing.

Likewise Trump threatens to declassify “a wide swath of ‘devastating’ documents related to the Mueller probe, which he had initially planned to do in September before changing his mind” on the beseeching of British Prime Minister Theresa May. Britain’s worst prime minister ever is desperate to hide the fact that at its root there’s nothing Russian about “Russiagate” but there’s lots and lots of British MI6, GCHQ, and other Five Eyes skullduggery aimed at subverting the 2016 US election and preventing any possible rapprochement between Washington and Moscow. With respect to both goals this massive PSYOP and political warfare campaign by the US-UK Deep State has been a smashing success.

Trump has the goods on them but just sits on his hands and threatens. (He should heed that great philosopher Tuco from The Good, the Bad, and the Ugly: “When you have to shoot, shoot – don’t talk.”) For those patiently waiting for Trump’s “4D chess” game to unleash QAon’s “Storm,” here’s a news flash: the cavalry is not coming to the rescue. The following are just a few names that will never be brought to justice: Rod Rosenstein, Peter Strzok, Bruce Ohr, Andrew McCabe, James Comey, Lisa Page, Andrew Weissmann, Stefan Halper, Christopher Steele, Joseph Mifsud, Richard Dearlove, Andrew Wood, Susan Rice, Loretta Lynch, Cheryl Mills, Huma Abedin, Samantha Power, Sally Yates, Jeannie Rhee, Eric Holder, James Clapper, John Brennan, and Barack Hussein Obama. Oh, and Hillary Clinton of course (while the whistleblower on her corrupt activities gets raided by the FBI).

These august personages are not subject to the laws binding on ordinary mortals like thee and me. These scoundrels will skate. All of them. That’s why a smug, world-class criminal like Brennan can mock Trump’s complaints as similar to how “corrupt authoritarian leaders abroad behaved before they were deposed.” He already anticipates dancing on Trump’s (probably figurative) grave.

Back to the Cohen plea, it’s entirely likely it was timed to have precisely the result of scuttling the Trump-Putin meeting. There can be no better illustration of the weakness of Trump’s position than his inability to engage in even a semblance of statesmanship with respect to the leader of the one power on the planet with which the US absolutely must have some minimal working relationship.

With the Democrats set to take over in the House of Representatives in just over a month, we’ll soon see intensified investigations coordinated with Mueller to find any possible pretext for impeachment in Trump’s business or private life. It’s conventional wisdom that even if the Democrat-controlled House can find something to support articles of impeachment the GOP-held Senate will be Trump’s firewall. Bunk. Democrats rallied around their president Bill Clinton but it was Republicans who threw Richard Nixon to the wolves. Are there a dozen or so Republican Senators who would be ready to dump Trump and install Mike Pence in the Oval Office? You betcha. Start with Mitt Romney.

As the noose around Trump’s neck continues to tighten, his response will be to keep on carping about how unfair it all is, that there was no collusion with Russia, that it’s a “total witch hunt” that should be ended. All true, all meaningless. He has the weapons to fight back but lacks the knowledge or personnel to use them. So he complains. He tweets. Meanwhile, on substance he’s jumping up and down like a monkey on a string.

Which leaves us asking: Why?

One of the burdens carried by those of us Deplorables who early in 2016 declared our support for the then-improbable candidacy of Donald Trump has been the taunts of those who “knew better.” Trump was a fraud, they said, “just a BS-ing con man who would say anything to get elected.” He was a stalking horse to help usher in President Hillary (what other Republican could she possibly beat?). He was crude, impulsive, irritable, egotistical, dyslexic, and incapable of and uninterested in learning anything he doesn’t already know. He was a flimflam artist who had cheated everyone he’d ever done business with or been married to and would abuse his lumpen Murican political supporters in Flyover Country accordingly. He was just another globalist neocon flunky of the Israelis, the Saudis, and the Deep State who was only mouthing populist rhetoric to get elected. He was a shyster on the make whose only goal was to enhance his “brand” to get even richer. He was a huckster with big assets in Russia, Saudi Arabia, China, and other nasty, nasty places, who just wanted to make a killing on his investments. And so on …

Those of us who supported Trump (and who still struggle to support him) point to his repeated use of America First and national interest language even when it was politically counterproductive and only served to subject him to vilification by Democrats and establishment Republicans alike. Ditto his repeated appeals for better relations with Russia, even at the cost of being accused of treason by the same antagonists and their media shills. Ditto the claim from a hostile source like Bob Woodward that behind doors Trump repeatedly tries to do the right thing, like get the US out of Afghanistan and Syria, but then is overruled by “experts” who are his nominal subordinates. Ditto his seeming “art of the deal” transformation of his bluster and threat competition with “Little Rocket Man” into the best chance for peace on the Korean peninsula in seven decades. From his unscripted comments and tweets, there always seems to be a little 2016 Candidate Trump fighting to get out of President Trump but never quite succeeding…

But how then to explain his terrible, horrible, no good, very bad national security team? His beeline to Saudi Arabia, Israel, and NATO headquarters in his maiden foreign policy trip to reaffirm mindless hostility to Iran and America’s suicide pact with useless so-called “allies” in Europe? His authorization of lethal weapons to Ukraine? His two cruise missile strikes on Syria on transparently bogus claims of chemical weapons use? His ever-tightening of sanctions on Russia and nonstop expansion of NATO? His continued naval provocations against China?

To characterize as “low” expectations of any Trump-Putin sidebar meeting that might have happened at the G20 is putting it extremely mildly. (Who knows, maybe they’ll still manage to steal a few sweet moments for a quick tête-à-tête, like a secret tryst of illicit lovers. Maybe Strzok and Page can provide some pointers.) Even laying aside the endless navel-gazing about what President Trump really wants, and why his administration’s foreign policy bears almost no resemblance to his 2016 America First platform, it’s pretty clear that in practice the US course will remain essentially a continuation of the failed policies of the past three decades: a futile attempt to maintain US global hegemony indefinitely at any cost. That can have only one hideous outcome.

With regard to Russia, the Kerch Strait incident will serve as another pretext for sanctions that will soon be added with the predictability that night follows day. The ongoing trade war with China (on purely economic grounds not wrong in itself) serves as a backdrop for continued dragon-baiting in the South China Sea, the Taiwan Strait, and Xinjiang, all places where the US has no actual interests. Even Trump’s minimal potential as a wrecking ball to disrupt the dysfunctional commitments he inherited doesn’t seem to be working out. The Swamp-critters to whom he’s entrusted his administration dance along their merry way as though Mitt Romney or ¡Jeb! Bush were president, with little or no interference from their nominal boss.

On top of hastening the bankruptcy of the US, the danger of war with Russia, or China, or both will continue to increase. Neither Russian President Putin nor Chinese President Xi Jinping can still have any illusions about that and are planning accordingly. No one knows exactly when or where we will reach the point of no return.

Russian and Chinese officials have warned the US about their preparedness for war in so many words. No one in Washington is listening, except to the extent that the new report of a Congressionally mandated commission has concluded that despite spending on our military ten times what Russia does and three times China’s outlays, we still might lose a war to either of those powers.

So what do the Swamp-critters draw from that? We need to spend even more! And Trump will accommodate them.

The one bright spot so far has been on the Korean peninsula – for which Trump deserves great credit, though his minions are working overtime to avert the horrid prospect that peace might break out and we’d no longer have an excuse to keep troops in South Korea. On everything else, even where developments favor disengagement from involvements not conducive to American interests, Trump’s administration insists on digging back in.

For example, France’s “Little Macro” wants a European army. It’s a ridiculous pipe dream, especially since Europe faces no external threat except migration, against which a conventional force is mostly useless. But Trump should be thrilled to take him up on the offer and turn European security over to Europeans. Instead he’s trying to sink the idea.

Likewise, in the Syrian conflict it’s clear that with Russian and Iranian help President Bashar al-Assad’s government has beaten the jihadists sicced on that unfortunate land by the US and our so-called allies, but Washington won’t admit it and still hopes to leverage Assad’s departure. Why, because of ISIS, which Trump said was the sole reason we have thousands of US troops (illegally) in that country? No, but because of the need to oppose Iran and impose regime change in Tehran, as well as denying Moscow a “win.”

Iran (an Israeli obsession having no bearing on US security) is also the reason Trump declined to take the exit ramp the Khashoggi murder offered from our unnecessary commitment to the despicable Wahhabist regime in Riyadh. Instead he has doubled down on US support for Mohammed bin Salman while absurd plans for an “Arab NATO” proceed, as though one NATO weren’t already bad enough.

None of this is America First. In a sane policymaking world, Trump should be looking to cut a spheres of influence deal with Putin (and with Xi and maybe with India’s Narendra Modi). Maybe that’s what Trump really wants, maybe it isn’t. Or maybe someone just gave him The Talk: “Do what you’re told, Mr. President, or you and maybe your kid will end up like Jack Kennedy.”

In the final analysis, it doesn’t seem to matter much what Trump wants. It would be only a small exaggeration to say that with respect to foreign and security policy Trump is now a mere figurehead of the permanent state. Even if Trump and Putin do happen to meet again, what can the latter expect the former to say that would make any difference?

As a signal of the approaching end of the short-lived hope of America First, cancellation of Trump-Putin is the penultimate act but not yet the final one. The fat lady’s aria will be when Julian Assange is dragged to Washington in chains, like some barbarian chieftain paraded in a Roman triumph.

Ultimately, as Anne Coulter writes (with respect to the Mexican border crisis, where Trump is at least doing slightly better than in foreign affairs but not by much), Trump might “only be remembered as a small cartoon figure who briefly inflamed and amused the rabble.” If so, his failure will have frittered away the only peaceful chance to avert the looming death of our nation at the hands of the Cultural Marxist duopoly as well as to turn aside from the real prospect of a world war – one from which America cannot emerge undamaged as we did from the first two.

P.S. I would be genuinely thrilled to be wrong about all of the foregoing.

 

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john vieiraPlatonJim JatrasRaymond ComeauOlivia Kroth Recent comment authors
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JNDillard
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JNDillard

“Are there a dozen or so Republican Senators who would be ready to dump Trump and install Mike Pence in the Oval Office? You betcha. Start with Mitt Romney.” Mitt Romney is not a Senator. Duh. Other than that irrelevancy, Petras provides an excellent analysis. An apt comparison for Trump would be to Commodus, if not Caligula, two Roman dictators and Caesars who squandered both their Empire’s riches and their own opportunity to make a difference by a simple lack of vision, combined with compulsive attachments to their own addictions. The appropriate response of Russia and China is for them… Read more »

Olivia Kroth, author and journalist
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Dobroe utro! Russia first! Russia everywhere, especially in Argentina …

Raymond Comeau
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Raymond Comeau

Perhaps when Trump sees that he is being used to the limit by Deep State, et al, he may suddenly disappear and reappear in Russia where he will be just another plain non-genius, but hopefully free from the world’s worst terrorist Country The USA. And, Trump will be protected by his friend Putin.

Platon
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Platon

All of the Washington Regime players and their agents do just enough to keep the electorate thinking that there are two parties and, therefore, hope for anything different.

john vieira
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“I would be genuinely thrilled…” So would about half the population on the planet…not too sure about the other half!!!

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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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