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Struggling US farmers worry about one thing: a resurgent Russia

Russian wheat exports are booming despite a crushing price slump, as the country’s farmers finally emerge from decades of neglect

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Via The Wall Street Journal

Otradnaya, Russia – Vladimir Mishurov transformed the remnants of the “Lenin’s Path” collective farm in this village into a profitable business. He also helped make Russia the world’s largest wheat exporter for the first time since the last years of the czars.

Over the past decade or so, Mishurov has changed the aging Russian machinery to dozens of modern machines from John Deere and other manufacturers and has begun to make extensive use of new efficient fertilizers and seeds. He bought and rented additional land from neighbors and relatives, bringing the area to 1,500 hectares – the benefit that in Russia the prices for it are relatively low.

Like many American farmers, he often worked days and nights and slept very little, especially during harvesting.

The main difference between Mishurov and the average farmer from the Great American Plains is that in Russia they are lower costs, and they are mostly in rubles , and from the sale of their products abroad, he gets a lot of money, because he sells it for dollars.

Against the backdrop of a long and serious decline in grain prices, Russian agriculture is flourishing. For the year ending in June, the country exported more than 40 million tons of wheat, which is 50% more than last year, and the highest among all countries in the world in the last quarter of a century. In 2016, Russia overtook the United States in terms of wheat exports and became the first in the world, and in 2018 it repeated this achievement.

The growth of Russian competitiveness is a serious problem that creates a threat to American farmers. The United States has closed the largest number of farms since the 1980s. Overproduction of grain in the world pushed prices down, and today they are half compared to the level of 2012 when the price peak was reached. For the same reason, it is difficult for US farmers to earn a dollar profit.

Because of US trade disputes with China and other countries, Russian wheat can become even more attractive if large buyers enter reciprocal duties on American grain. China increased them by 25%, but Chinese restrictions on imports from Russia prevented Moscow from taking advantage of the emerging advantage. This was told by Swithun Still, who is the director of the Solaris Commodities SA, a Swiss company that sells Russian grain.

While there is no “trade war, but laws of economics”, they help Russian wheat compete, and even in countries that are neighbors with the United States, say, in Mexico, noted Still. According to him, Russian grain has become more quality, and it is cheaper.

Russian farmers are moving ahead when export earnings are converted into rubles. The Russian currency has fallen in price, and the dollar exchange rate is now twice as high as in 2014. Russia has the same advantage in relation to the euro and other currencies. Its farmers cover the costs of the house, continuing to sow grain, and also defeating their western competitors by price indicators.

The growth in exports of Russian agricultural products, including grain, fish and meat, is an integral part of efforts to diversify the economy and eliminate its dependence on oil. Once, oil and gas gave half of the revenues to the federal budget. Now, when oil prices are 25% below the record level in 2014 (they rose significantly after more than 60% fall), oil and gas exports account for about 40% of budget revenues.

“As oil prices fell, grain came on ahead. Grain is our oil , “said the then Minister of Agriculture, Alexander Tkachev, in 2016.

Cheaper wheat from Russia squeezes American and European grain from the markets of import-dependent countries in the Middle East and North Africa, where the Kremlin has in recent years been fighting to strengthen its military and diplomatic influence.

In 2017, exports of agricultural products amounted to $ 20.7 billion in monetary terms, outstripping arms exports and ranking second in revenue. Wheat is about a quarter in total.

According to the US Department of Agriculture, the crop area of ​​wheat in Russia as of June was almost twice as high as in the US. American farmers, not seeing the opportunity to earn, sowed the smallest area in wheat in the history of statistical observations. This year, the production of wheat in the US declined by 25%.

The farm Mishurova is located in the fertile steppe in the south of Russia. This region is the largest grain producer in the country. For the rich in minerals black earth and mild climate it has long been called the granary of Russia.

Mishurov today is 46 years old. In his youth he worked as a tractor driver, driving around on a roaring tractor, whose engine had to be repaired every year, which made his hands forever rough. Money was not enough, and the workers received wages in kind: sacks of flour, wheat and sugar. Drunkenness in the countryside was ubiquitous.

In the early twentieth century, Russia was the world’s largest exporter of wheat. The Soviets killed and threw in jail millions of people, including the most hard-working and successful farmers. They did this in an attempt to create a system of collective farms, which turned out to be ineffective. By the 1970s, the Soviet Union was forced to import grain.

After the collapse of the Soviet Union in 1991, the collective farms struggled, but continued to exist, and they were run by the same bosses who had neither business acumen nor money to invest .

“There was no master,” says Mishurov. “They could not adapt to a market economy.” They are accustomed to follow the instructions without thinking. ”

Farm workers came to work “to kill time, and waited for the end of the working day to go home,” says farmer Andrei Burdin, who lives in a neighboring village and cultivates land that once belonged to the collective farm “Dawn of Communism”. “Agriculture has reached a dead end,” he adds.

In the late 1990s, Russia allowed the sale of land, but new investors and their managers were far from agriculture and did not want to take risks.

Mishurov, who worked as the chief agronomist in a large multidisciplinary agricultural company, recalls how in the early 2000s he told one manager that if pesticides were used, the yield of barley could be increased by a quarter.

“No, Vova, that’s enough for us, too,” the manager replied. “Why should I try to persuade someone to earn more money?” – says Mishurov.

In the mid-2000s, he decided to start his own business. First he collected the land of his relatives and all the equipment he could find. Today, Mishurov grows wheat, barley, beets, corn, sunflower, peas and other crops.

43-year-old Burdin in 2005 began to cultivate about 100 hectares of land on his visionary tractor and seeder. The profit he invested in more efficient machinery and fertilizers, and then expanded the area of ​​his arable land, renting them from neighbors.

“When we earned the first money, I did not buy a Mercedes and an apartment ,” Burdin said. “I invested them in the next season.”

First he bought Russian equipment, but then switched to tractors and harvesters “John Deere”, which the Russians call “green technology.” According to Burdin, he tested the John Deere harvester in comparison with the Russian combine and found that from the same area it can grind a third more grain.

He also bought a precision seeder from the Swedish company Vaderstad AB, which plants seeds at optimum depth and at optimal intervals, which increases yields. Today, Burdin cultivates about 1,500 hectares.

Downloading seeds in April in the seed drill, he joked with his workers on the topic of old technology. Burdin recalled how he worked with a sprayer of pesticides, which permeated him with poisonous chemicals. According to the farmer, he worked on it no more than four hours a day, fearing for his own health. Now its installation itself measures how much to spray pesticides and where, which leads to cost reduction.

Voronezh, Russia. Tempo F8 plant corn and sunflower, Tempo R12 prepares the land for planting sugar beet.

The prices for land in the area where Mishurov and Burdin live are much lower than in many of the competing countries. On average, agricultural land in Romania, which is located on the Black Sea and is a member of the European Union, costs almost three times more than in Russia. And the land in Iowa and Kansas is more expensive than Russia’s more than five times, as evidenced by the research data of the Moscow firm SovEcon, which specializes in the analysis of agricultural markets, forecasts for Russian agriculture and consulting services.

According to Burdin, Russian seeds and fertilizers are cheaper than Western seeds, although their quality has improved significantly in recent years. He buys semen from the State Institute of Agriculture, and can use the crop for seeding next season. Many US farmers use expensive and high-yielding patented seeds from companies such as Bayer AG and DowDuPont Inc.; but the crop obtained from them can not be used for planting, because of which farmers are forced to annually purchase fresh seeds.

Transportation costs in the region are also low. It is located near the Black Sea ports, and diesel fuel and gas there are much less than in Western Europe. Burdin and Mishurov own a fleet of trucks, on which they export grain to the port of Novorossiysk, located at a distance of 320 kilometers.

Private and state-owned companies in recent years have modernized grain terminals and increased their throughput. Farmers using the application in their smartphones can order a time interval for the delivery of grain by their trucks, so that cars are no longer waiting for days in the queue.

Record harvests create a serious strain on the infrastructure . Windows for grain discharge are dismantled very quickly, and farmers are often given time with a delay of several days, says Burdin.

Export could be further increased, they find the opportunity to ship more, he notes.

Russia views this as a priority task. President Vladimir Putin ordered officials to eliminate bottlenecks in the infrastructure, which hinder the increase in exports. In the interior of the country, long distances, as well as a shortage of wagons and elevators, is the main obstacle to supplying grain to the foreign market.

In one of Russia’s largest Novorossiysk terminal this year, modernization is being completed, and it will almost double its capacity. Other companies also plan to build and expand terminals on the Black and Baltic Seas, as well as in the Far East. According to officials, the expansion of ports is capable of increasing the export of grain by 50%, and by 2020 it can be brought up to 7.5 million tons per month.

The government in every possible way praises state subsidies, including inexpensive loans, which help farmers to change old equipment. Analysts and farmers note that the state’s efforts to support farmers are unsystematic and give variable success. Subsidies often fall into companies with the right connections, investments go to agriculture slowly, and bureaucrats and officials often wait for bribes.

“Farmers have found freedom and can do their work as they see fit and effective ,” said Andrei Sizov, director of the SovEcon Analytical Center. “The role of the state in the past ten years is very small, and this is good for the industry.”

Giant agricultural holdings, which are multidisciplinary companies created by wealthy tycoons and close to federal and regional authorities, operate on such a scale that Western farmers are looking like dwarfs against their backdrop. The share of private farms of more than 100 thousand hectares or thousands of square kilometers in Russia accounts for about 13% of all cultivated land, says Sizov.

Now Mishurov can afford such luxury as collecting and restoring old Soviet cars and rest in the Maldives or in Thailand. But he says he prefers to stay at home.

Here, poor villages depend on the generosity of wealthy farmers. Mishurov allocated money to repair the statue of Lenin and the monument to local residents who died during the Second World War, and Burdin paid for the repair of the local kindergarten.

Mishurov has 10 agricultural workers, three security guards and a cook preparing food for the workers. “It’s a lot for our squares, but we try to keep jobs in the countryside,” he says. One morning a man came to the house to ask Mishurov to ask for a bucket of corn for his hens. He was a former collective farm chairman.

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David BowlasWalter DublanicaTomam hantsTom Welsh Recent comment authors
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Tom Welsh
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Tom Welsh

If that article was written by “James Marson” and published by the Wall Street Journal, I will be very surprised. It is poorly written and edited, and has a distinct foreign – maybe Russian – twang to it.

“One morning a man came to the house to ask Mishurov to ask for a bucket of corn for his hens”.

No decent journalist would write that sentence – and certainly no decent editor would fail to correct it.

AM Hants
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AM Hants

Not forgetting, Russian grain is GM free. Must look out for Russian wheat products.

Tom
Guest
Tom

Maize: $370/bu CME DEC futures.. subtract $0.20 for the local grain elevator.. Central Illinois is hurting as this is at production costs.. at 200/bu/acre
The situation for Russia is a bit different.. the climate is better for production of hard winter wheat and by doing multi year cropping of the same wheat , costs at lower.. also by not using anhydrous ammonia and spreading fertilizers in the spring, less is lost to water run-off and less is needed.. Average acreage in this area is 1000 hectares per farm.

Walter Dublanica
Member

Russia is an oil/gas/grain/nuke super power. Russia & Ukraine have about 80% of the worlds “black earth” soil. As they say in Ukraine if you put a shovel in the ground it will grow, meaning that the soil is that fertile.

David Bowlas
Guest
David Bowlas

Well Russia has been trying to give an olive branch to America for years and those big headed Tvvats have just taken the P1s$. And their gutless poodles led by Britain have just tried to gain brownie points by pretending that Russia has put Novichok on the streets of Little England. Well cry me a river and F#ck 0f£.

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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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