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Pelham is correct. The United States is not bankrupt, nor even near bankruptcy, even if our true national debt is ten times the official count.

Where he’s wrong is in his analysis of the benefits of a Fed. It is an incumbency protection racket. It works to protect banks from the free market effects of their bad moves and it protects them from a nefarious government which manipulates markets to benefit political cronies.

Take a look at the pre-Fed era when very real market cycles wiped out entire gains and made fortunes. It was harsh, but it prevented socialism. The Fed exists to temper the natural market cycle. That attenuation gives a free hand to socialist policies and benefits incumbency.

It’s often mis-ascribed as an era of crony capitalism. It was in part as government colluded with crony capitalists, particularly the disastrously wasteful railroad expansions. Yet we also have examples of railroad expansion without government cronyism. Take a look.

http://wiki.mises.org/wiki/James_J._Hill

Few people know about James J. Hill, so I’m not surprised that Pelham and others maintain the AP US History perspective on that era. AP Economics also teaches the same lies about economics that every incumbent and Keynesian wishes Americans to know.

http://wiki.mises.org/wiki/Robber_Barons

http://wiki.mises.org/wiki/John_D._Rockefeller

Rockefeller did for that era what the Internet, Walmart and fracking has done for ours. Rockefeller dropped the price of oil from 58 cents a gallon to 8 cents a gallon. Oh, that awful deflation. But this is the good kind, due to productivity improvements.

http://fee.org/the_freeman/detail/john-d-rockefeller-and-the-oil-industry

https://www.theobjectivestandard.com/issues/summer-2008/standard-oil-company/

You might enjoy this video: https://www.youtube.com/watch?v=4Vw6uF2LdZw

Good article from an unusual source: http://www.philanthropyroundtable.org/topic/excellence_in_philanthropy/seven_myths_about_the_great_philanthropists

Here’s a little on the Gilded Age: http://wiki.mises.org/wiki/Gilded_Age

My hope is that Pelham and others will wipe the sleepers from their eyes and unlearn the historical mis-education most Americans suffer under.

“Where he’s wrong is in his analysis of the benefits of a Fed. It is an incumbency protection racket. It works to protect banks from the free market effects of their bad moves and it protects them from a nefarious government which manipulates markets to benefit political cronies.”

More nonsense, of which you do have an impressive storehouse.

In the late 1800s/early 1900s JP Morgan used to act as America’s “central bank”, the lender of last resort to other banks. He wasn’t doing this out of his benevolence, he did it to prevent the banking system and the whole economy from cratering. A major collapse would damage his bank as well despite it being the largest in the country by a wide margin.

During bank runs otherwise perfectly solvent banks could be wiped out because they could not quickly convert their assets into the cash demanded by their panicked depositors. They needed a ‘banker’s bank’ to give them temporary loans so that they weren’t wiped out by a short term crisis.

A bank experiencing a run had to fire-sale its assets to get liquid, which had the effect of gutting the value of similar assets held by other banks. It set in motion a vicious, systemic spiral. Morgan had been lending money to other banks when he could in order to halt panics.

As America industrialized the monetary economy became a much larger factor than during the previous agrarian era. Morgan realized that no one bank was going to be able to continue to fulfill the role that he had been playing so after the Panic of 1907 he organized a national monetary commission, which has been a goldmine for conspiracy nuts ever since. Jekyll Island all that other stuff.

The monetary commission would recommend legislation that would give a legal basis to what Clearinghouse Associations had already been doing during panics to keep banks from being wrecked in a bank run. Clearinghouses had been issuing a sort of script in lieu of money when there was a sudden extreme demand for currency. This technically was counterfeiting, but since the script would extinguish when the run was over it was a gray area. Instead of dubious Clearinghouse script the Fed could extend credit to banks based on the Real Bills Doctrine or against Treasuries offered for loan.

Anyway this is/was the rationale for creating the Fed. It’s not the “incumbency protection racket” of some people’s vivid if ill-informed imagination. It replicated behavior that private banks were already doing, but it provided a structured legal basis and some government oversight- as originally constructed the Federal Reserve Board had two Treasury Dept members, although it has had none for many years.

There are legitimate criticisms to be made of the Fed but someone making the claim that everything worked just fine before the Fed is simply very ignorant of American monetary and banking history. Spending some time with Friedman and Schwartz’s ‘A Monetary History of the United States’, James Grants’ ‘Money of the Mind’, Chernow’s ‘House of Morgan’ could begin to dispel the cloud of darkness.