Stockman: US Entry Into World War I Was A Disaster

Authored by David Stockman via The Daily Reckoning,

103 years ago, in 1914, the Federal Reserve opened-up for business as the carnage in northern France was getting under way.

And it brought to a close the prior magnificent half-century era of liberal internationalism and honest gold-backed money.

The Great War was nothing short of a calamity, especially for the 20 million combatants and civilians who perished for no reason discernible in any fair reading of history, or even unfair one.

Yet the far greater calamity is that Europe’s senseless fratricide of 1914-1918 gave birth to all the great evils of the 20th century - the Great Depression, totalitarian genocides, Keynesian economics, permanent warfare states, rampaging central banks and the follies of America’s global imperialism.

Indeed, in Old Testament fashion, one begat the next and the next and still the next.

The old liberal international economic order - honest money, relatively free trade, rising international capital flows and rapidly growing global economic integration - resulted in a 40-year span between 1870 and 1914 of rising living standards, stable prices, massive capital investment and prolific technological progress that was never equaled either before or since.

The Great War undid it all.

In the case of Great Britain, for example, its national debt increased 14-fold, its price level doubled, its capital stock was depleted, most off-shore investments were liquidated and universal wartime conscription left it with a massive overhang of human and financial liabilities.

Yet England was the least devastated.

In France, the price level inflated by 300% its extensive Russian investments were confiscated by the Bolsheviks and its debts in New York and London catapulted to more than 100% of GDP.

Among the defeated powers, currencies emerged nearly worthless with the German mark at five cents on the pre-war dollar, while wartime debts - especially after the harsh peace of Versailles - soared to crushing, unrepayable heights.

And the Great Depression’s tardy, thoroughly misunderstood and deeply traumatic arrival happened compliments of the United States.

In the first place, America’s wholly unwarranted intervention in April 1917 prolonged the slaughter, doubled the financial due bill and generated a cockamamie peace, giving rise to totalitarianism among the defeated powers and Keynesianism among the victors.

Even conventional historians admit as much.

Had Woodrow Wilson not misled America on a messianic crusade, the Great War would have ended in mutual exhaustion in 1917 and both sides would have gone home battered and bankrupt but no danger to the rest of mankind.

Indeed, absent Wilson’s crusade there would have been no allied victory, no punitive peace, and no war reparations; nor would there have been a Leninist coup in Petrograd or Stalin’s barbaric regime.

Likewise, there would have been no Hitler, no Nazis, no holocaust, no global war against Germany and Japan and no incineration of 200,000 civilians at Hiroshima and Nagasaki.

Nor would there have followed a Cold War with the Soviets or CIA sponsored coups and assassinations in Iran, Guatemala, Indonesia, Brazil and Chile to name a few. Surely there would have been no CIA plot to assassinate Castro, or Russian missiles in Cuba or a crisis that took the world to the brink of annihilation.

There would have been no domino theory and no Vietnam slaughter, either.

Nor would we have had to come to the aid of the mujahedeen and train the future al Qaeda in Afghanistan. Likewise, there would have been no Khomeini-led Islamic counter-revolution, and no U.S. aid to enable Saddam’s gas attacks on Iranian boy soldiers in the 1980s.

Nor would there have been an American invasion of Arabia in 1991 to stop our former ally Saddam Hussein from looting the equally contemptible Emir of Kuwait’s ill-gotten oil plunder - or, alas, the horrific 9/11 blowback a decade later.

Nor would we have been stuck with a $1 trillion Warfare State budget today. But I digress.

Economically, the Great War enabled the already rising American economy to boom and bloat in an entirely artificial and unsustainable manner for the better part of 15 years.

The realities of war finance also transformed the new Federal Reserve into an incipient central banking monster in a manner wholly opposite to the intentions of its great legislative architect - the incomparable Carter Glass of Virginia.

During the Great War America became the granary and arsenal to the European Allies - triggering an eruption of domestic investment and production that transformed the nation into a massive global creditor and powerhouse exporter virtually overnight.

Altogether, in six short years $40 billion of money GDP became $92 billion in 1920 - a sizzling 15% annual rate of gain.

Needless to say, these fantastic figures reflected an inflationary, war-swollen economy - a phenomena that prudent finance men of the age knew was wholly artificial and destined for a thumping post-war depression.

World War I simply gave birth to the modern Fed as we know it.

When Congress created the Federal Reserve on Christmas Eve 1913, just six months before Archduke Ferdinand’s assassination, it had provided no legal authority whatsoever for the Fed to buy government bonds or undertake so-called “open market operations” to finance the public debt.

In part this was due to the fact that there were precious few Federal bonds to buy. The public debt then stood at just $1.5 billion, which is the same figure that had pertained 51 years earlier at the battle of Gettysburg, and amounted to just 4% of GDP.

Thus, in an age of balanced budgets and bipartisan fiscal rectitude, the Fed’s legislative architects had not even considered the possibility of central bank monetization of the public debt, and, in any event, had a totally different mission in mind.

The big point here is that Carter Glass’ “banker’s bank” was an instrument of the market, not an agency of state policy. The so-called economic aggregates of the later Keynesian models — GDP, employment, consumption and investment — were to remain an unmanaged outcome on the free market, reflecting the interaction of millions of producers, consumers, savers, investors, entrepreneurs and even speculators.

But WWI crossed the Rubicon of modern Warfare State finance. During World War I the U.S. public debt rose from $1.5 billion to $27 billion - an eruption that would have been virtually impossible without wartime amendments which allowed the Fed to own or finance U.S. Treasury debt.

These “emergency” amendments - it’s always an emergency in wartime - enabled a fiscal scheme that was ingenious, but turned the Fed’s modus operandi upside down and paved the way for today’s monetary central planning.

Washington learned that it could unplug the free market interest rate in favor of state administered prices for money, and that credit could be massively expanded without the inconvenience of higher savings out of deferred consumption.

Effectively, Washington financed Woodrow Wilson’s crusade with its newly discovered printing press - turning the innocent “banker’s bank” legislated in 1913 into a dangerously potent new arm of the state.

It was this wartime transformation of the Fed into an activist central bank that postponed the normal post-war liquidation - moving the world’s scheduled depression down the road to the 1930s.

The Fed’s role in this startling feat is in plain sight in the history books, but its significance has been obfuscated by Keynesians presuming that the state must continuously manage the business cycle and macro-economy.

The Great Depression thus did not represent the failure of capitalism or some inherent suicidal tendency of the free market to plunge into cyclical depression — absent the constant ministrations of the state through monetary, fiscal, tax and regulatory interventions.

Instead, the Great Depression was a unique historical occurrence — the delayed consequence of the monumental folly of the Great War, abetted by the financial deformations spawned by modern central banking.

The “failure of capitalism” explanation of the Great Depression is exactly what enabled the Warfare State to thrive and dominate the rest of the 20th century because it gave birth to what have become its twin handmaidens — Keynesian economics and monetary central planning.

Together, these two doctrines eroded and eventually destroyed the great policy barrier - that is, the old-time religion of balanced budgets - that had kept America a relatively peaceful Republic until 1914.

If only we could rewind the clock to 1917 and keep Wilson out of WWI, history - and economics - likely would have been a lot different.

Comments

Escrava Isaura Blue Steel 309 Tue, 11/14/2017 - 03:55 Permalink

David Stockman: 103 years ago, in 1914, the Federal Reserve opened-up for business as the carnage in northern France was getting under way.  Wait, it gets better, Stockman contradicts the intent of his propaganda —article: The old liberal international economic order - honest money, relatively free trade, rising international capital flows and rapidly growing global economic integration - resulted in a 40-year span between 1870 and 1914 of rising living standards, stable prices, massive capital investment and prolific technological progress that was never equaled either before or since.  C’mon man! Does Stockman believe that the internet crowd is as stupid as the people that watch mass media? Does Stockman believe that the internet crowd is as gullible as a high school student? What caused WW1 was the international economic order, meaning PRIVATE debt. The growth you mentioned was acquired by private banks issuing too much debt. There’s no such thing as honest money, even when it’s backed by a commodity, such as gold. And, when you add interest rate, the money becomes even more dishonest. Honesty is a principle such as in fairness and equality. Money triggers the opposite of principles. Even that there were only 2.6 billion people, US had 76 million people back then, private debt was a problem. And, during the war these private debts grew even worse. Give you an example how this economic growth that you mentioned sausage really works: United States banks loaned far more money to the Allies than to the Central Powers (Germany, Austria Hungary, Turkey, et al). J. P. Morgan Bank, the largest lender, asked Secretary of State William Jennings Bryan for an opinion on whether these loans violated our neutrality. Bryan believed that it did, as you can read from this letter from Bryan to J P Morgan. United States exports in 1914 to the Allies were $824.8 million, compared to only $169.3 million to the Central Powers. According to the Gilder-Lehman Institute of American History, by 1917, American loans to the Allies had soared to $2.25 billion; loans to Germany stood at a paltry $27 million.…. There was plenty of opposition to the War declaration in Congress, particularly from progressive Senators such as Norris and LaFollette. Senator Norris believed the War was a plot by Wall Street to prop up our economy and support the banker's loans to the Allies…. https://www.quora.com/profile/Brian-Sisk-1    

In reply to by Blue Steel 309

Escrava Isaura Greyhat Tue, 11/14/2017 - 04:35 Permalink

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The ‘big question’ is us. The Fed is just a symptom of something much larger. The core problem of humanity is not economic, because economics ‘money’ is a human creation. A symptom. We can change that at any time. The real problem of humanity it’s biological. It’s in our genes. The real problems are procreation (having babies) and intelligence (high mental functions). Both are unsustainable, selfish, and overwhelm society. Intelligence is even worse, because it disturbs the ecological systems and created all these complexities that we struggle with. Nuclear energy is a good example. And the problem with nuclear energy is yet to come when all the power plants in the world fail which will probably, most likely will kill all life in the planet. Anyway, good luck addressing babies and high IQ with anyone. You’ll do better, a lot better actually, by talking about gods and angels (illusion/fantasy) in the sky or some tech battery that will save humanity (indoctrination) than argue reason in earth. “The human brain remains a piece of stone-age machinery, however you look at it, and no amount of culture can make it otherwise. Genetically speaking we are a finished product, not a prototype. What you see is what you get—there will be no bright utopian future.”— Reg Morrison. The Spirit in the Gene, page 247. https://regmorrison.edublogs.org/author/regmorrison/   

In reply to by Greyhat

peddling-fiction Escrava Isaura Tue, 11/14/2017 - 09:04 Permalink

Isaura, usually when I see your "green lantern" avatar, I downvote. It works.I dared read your dribble, and you "maam" are going off the deep end.I hope you are a paid disinformer, because if you are not, the prognosis is dire.To disinform the public is a great sin, whether you know it or not.It enters the street of Calumny, that has a very sinister end. 

In reply to by Escrava Isaura

tunetopper Escrava Isaura Tue, 11/14/2017 - 12:30 Permalink

You had me going until I read this line...you typed: "..And, when you add interest rate, the money becomes even more dishonest."Sir you are either ill-iinformed, anarchistitc, Radical Muslim, a troll- or a self-important shit-head,  Money and interest rates are benign unless mishandled by their controllers- the central banks. There was no central bank causing your perceived "dishonest" mis-allocation of money and rates.

In reply to by Escrava Isaura

HRClinton MEFOBILLS Tue, 11/14/2017 - 00:57 Permalink

Good info. Learned something. Thx!Don't know if Stockman has or will ever do a "Fed Origins", but I think it's fair to say that such a dive would have been a digression from his article's thesis.Besides, would he add any value or new info that has not already been written? I think that his thing is to write articles with uncommon insight, not a "Who done it" angle.

In reply to by MEFOBILLS

Lordflin peddling-fiction Tue, 11/14/2017 - 10:00 Permalink

World War One was planned in the 1800's... I have seen the battle plans drawn up. As to the other, this is a bunch of speculation that falls into the realm of Nostradamus, Alfred Pike, and the like... not a line of inquiry I find worthwhile or productive. If this kind of thing interests you I hear that there is a race of humanoid lizards taking the planet over as well... might want to look in to it.    

In reply to by peddling-fiction

Caloot I Write Code Mon, 11/13/2017 - 23:22 Permalink

Umm.   Ww1 was a disaster.   Oh and ww2.. a disaster.   Civil war?  Disaster.  Vietnam Korea Iraq 1 Iraq 2.   Yea. Pretty much any war is a fking disaster.  Sometimes stockman is plain annoying.   Should I pay for that pile of wisdom 

In reply to by I Write Code

fleur de lis Mon, 11/13/2017 - 23:34 Permalink

Woodrow Wilson got caught in a honeytrap when he was still an overrated faculty member at Princeton and the blackmail was paid off by Samuel Untermayer in exchange for a later favor.http://archive.constantcontact.com/fs086/1103027403968/archive/11105521… sold us all into slavery for a lousy $40k to cover up his sex problem and now we know about it anyway and we're bigger slaves than ever.Then all the sewer rats came swarming and took over .gov at every level.https://ironink.org/?p=3454http://historicist.info/untermeyer/wilson.htm

Anteater fleur de lis Mon, 11/13/2017 - 23:39 Permalink

Hey, if you can be blase about a miracle diving-spiral at 9gs and 560knots with a 'fully loaded jetliner' leveling off at 30 feet off the deck,magically exploding through 5 impenetrable concrete layers, leavingnothing but atoms and fire and fury wipe out of Congressional recordsshowing Israeli-Pentagon-MIC treasonous collaboration, ... if you canbe blase about the 9/11 Pentagon Coup, now $3/4s TRILLION a year,then who cares about Woodrow Wilson and Jews who destroyed US?Stand proud and sing out their Satanic 'rockets red glare' theme song.For the Land of GreeGree, and the Home of the Slave!

In reply to by fleur de lis

fleur de lis Anteater Mon, 11/13/2017 - 23:49 Permalink

Are you trying to convince me that the 911 murder hoax was a hoax?Every idea that crawls out of the DC Swamp is a hoax of one kind or another.That NYC murder spree stunt got us railroaded into Iran, Afghanistan, Syria, Libya, etc., etc., etc.We care about Woodrow Wilson because he altered the course of history for the worse by selling America into slavery.That's why.You're the one who is blase about the worst disaster to hit America since the Ice Age meteor.Do some reading.https://beyondallreligion.net/2015/04/05/how-the-united-states-was-rail…  

In reply to by Anteater

francis scott … fleur de lis Tue, 11/14/2017 - 02:25 Permalink

BAH.  HUMBUG.

If Wilson hadn't entered WW1, we were still SKIPPING on a corrupt path stealing islands from Spain, taking over Hawaii and trying to take over the Philippines.  We were there for the Second Opium War and the Boxer Rebellion.  Those were ourleopard spots then, and they weren't going to go away just because Wilson didn't drag us into The Great War.   THIS IS AMERICA, fleur de lis, we were born in war and we spent most of the 19thcentury training in warfare by fighting the Native Americans and the Mexicans.  Then we nourished our blood-lust, drinking freely the blood of the peoples of other nations, who possessed land and resources that we envied.  We are the Second Rome.  We are the end of Civilization as the first Rome was the beginning.THE AMERICAN LEGACY SHALL BE THE END OF ALL LIFE AFTER THE LAST COCKROACH DIES. 

In reply to by fleur de lis

thevekja Tue, 11/14/2017 - 00:05 Permalink

World War I was blood sacrifice on a global scale, culling the best of Western Europe's young men while paving the way for the destruction of power structures that had existed for millennia (European monarchy).

It was all laid out in the Protocols during the First Zionist Conference in 1897. Liberalism will be the primary weapon of societal destabilization up until the point they achieve total hegemony, then zio-fascism on a global scale. Gaza and the West Bank are Exhibit A

besnook Mon, 11/13/2017 - 23:35 Permalink

the fed and ww1 were the birth of the zionazis, the takeover of the state by the formal creation of the deep state by the cooperating factions of the wasps and zionists.

Truthseeker20 Tue, 11/14/2017 - 09:06 Permalink

Read the book called Creature from jekyll island. It tells how US tried to get into WW one by sending the lusitana on purpose in area where the germans were sinking ships. On the lusitana there were war munitions on passenger ship. The germans paid for an advertisement to warn americans to not go on ships in that area. Guess what? State department prevented that warning to be published.Wars are great biz for international bankers--THE BANKING CARTEL CALLED THE FEDERAL RESERVE. Unfortnately many young men had to die in many unnecessary wars so bankers could make money and get closer to their NWO agenda.

PitBullsRule Tue, 11/14/2017 - 00:01 Permalink

The Daily Reckoning, those are the assholes that have been writing non-stop bullshit telling us to buy gold for the past 10 years, as it has fallen from 1900 to 1280 and continues to fall.You get what you pay for, its free for a reason.

Victor999 PitBullsRule Tue, 11/14/2017 - 02:00 Permalink

Gold prices are being intentionally suppressed via ETF's - paper gold traded on the stock market.  When the collapse comes and people try to claim the gold behind the paper, they will find that there is none.  At that point real gold will attain its true value on the market.  If you buy gold, buy real gold.  If it is not in your hand, it is not real.

In reply to by PitBullsRule

Mena Arkansas Tue, 11/14/2017 - 00:07 Permalink

You can thank the zionists for manipulating Woodrow Wilson and the US into WWI.Chaim WeizmannLord RothschildLouis BrandeisSamuel Untermeyer100,000+ americans had to die so the jews could weasel palestine out of the brits.But they were just stupid goy cattle, so it was all worth it.Not to mention Bernard Baruch heading the war industries board to make sure the tribe could turn a profit.

MusicIsYou Tue, 11/14/2017 - 00:09 Permalink

The great unwinding must be coming very soon, because mega rich insiders like Stockman have begun assigning blame more than pointing at the unwind.

XBroker1 Tue, 11/14/2017 - 00:21 Permalink

"Likewise, there would have been no Hitler, no Nazis, no holocaust, no global war against Germany and Japan and no incineration of 200,000 civilians at Hiroshima and Nagasaki."There was no holocaust. Hitler was played by the same person that ended up playing Walt Disney. Check Hitler and Gorbles and compare them to Walt and his brother, also check the families. They 'are' the same people. Disney produced war propaganda films and TV would become the ultimate weapon against the sheep. FF to today and we have Miley Cirus & a nation of her clones. https://vimeo.com/226260574