Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
What ECB’s Tiering Means for Gold - 17th Nov 19
DOJ Asked to Examine New Systemic Risk in Gold & Silver Markets - 17th Nov 19
Dow Jones Stock Market Cycle Update and are we there yet? - 17th Nov 19
When the Crude Oil Price Collapses Below $40 What Happens? PART III - 17th Nov 19
If History Repeats, Gold is Headed to $8,000 - 17th Nov 19
All You Need To Know About Cryptocurrency - 17th Nov 19
What happens To The Global Economy If Oil Collapses Below $40 – Part II - 15th Nov 19
America’s Exceptionalism’s Non-intervention Slide to Conquest, Empire - and Socialism - 15th Nov 19
Five Gold Charts to Contemplate as We Prepare for the New Year - 15th Nov 19
Best Gaming CPU Nov 2019 - Budget, Mid and High End PC System Processors - 15th Nov 19
Lend Money Without A Credit Check — Is That Possible? - 15th Nov 19
Gold and Silver Capitulation Time - 14th Nov 19
The Case for a Silver Price Rally - 14th Nov 19
What Happens To The Global Economy If the Oil Price Collapses Below $40 - 14th Nov 19
7 days of Free FX + Crypto Forecasts -- Join in - 14th Nov 19
How to Use Price Cycles and Profit as a Swing Trader – SPX, Bonds, Gold, Nat Gas - 13th Nov 19
Morrisons Throwing Thousands of Bonus More Points at Big Spend Shoppers - JACKPOT! - 13th Nov 19
What to Do NOW in Case of a Future Banking System Breakdown - 13th Nov 19
Why China is likely to remain the ‘world’s factory’ for some time to come - 13th Nov 19
Gold Price Breaks Down, Waving Good-bye to the 2019 Rally - 12th Nov 19
Fed Can't See the Bubbles Through the Lather - 12th Nov 19
Double 11 Record Sales Signal Strength of Chinese Consumption - 12th Nov 19
Welcome to the Zombie-land Of Oil, Gold and Stocks Investing – Part II - 12th Nov 19
Gold Retest Coming - 12th Nov 19
New Evidence Futures Markets Are Built for Manipulation - 12th Nov 19
Next 5 Year Future Proof Gaming PC Build Spec November 2019 - Ryzen 9 3900x, RTX 2080Ti... - 12th Nov 19
Gold and Silver - The Two Horsemen - 11th Nov 19
Towards a Diverging BRIC Future - 11th Nov 19
Welcome to the Zombie-land Of Stock Market Investing - 11th Nov 19
Illiquidity & Gold And Silver In The End Game - 11th Nov 19
Key Things You Need to Know When Starting a Business - 11th Nov 19
Stock Market Cycles Peaking - 11th Nov 19
Avoid Emotional Investing in Cryptocurrency - 11th Nov 19
Australian Lithium Mines NOT Viable at Current Prices - 10th Nov 19
The 10 Highest Paying Jobs In Oil & Gas - 10th Nov 19
World's Major Gold Miners Target Copper Porphyries - 10th Nov 19
AMAZON NOVEMBER 2019 BARGAIN PRICES - WD My Book 8TB External Drive for £126 - 10th Nov 19
Gold & Silver to Head Dramatically Higher, Mirroring Palladium - 9th Nov 19
How Do YOU Know the Direction of a Market's Larger Trend? - 9th Nov 19
BEST Amazon SMART Scale To Aid Weight Loss for Christmas 2019 - 9th Nov 19
Why Every Investor Should Invest in Water - 8th Nov 19
Wait… Was That a Bullish Silver Reversal? - 8th Nov 19
Gold, Silver and Copper The 3 Metallic Amigos and the Macro Message - 8th Nov 19
Is China locking up Indonesian Nickel? - 8th Nov 19

Market Oracle FREE Newsletter

How To Buy Gold For $3 An Ounce

Markets Vanish - 'In a Flash'

Stock-Markets / Financial Crash Jan 06, 2013 - 08:47 AM GMT

By: Fred_Sheehan

Stock-Markets

The same title cheered in the new years of 2011 and 2012 ("Markets Vanish - "In a Flash"," January 4, 2011 and January 8, 2012). These warnings described how quickly, and with no foresight by participants, markets evaporated in 1914. In 2013, markets have never been more susceptible to such a bolt of recognition. This is a consequence of such imperturbable faith in the prices set by besotted bureaucrats. What follows is a quick look at the nasty, brutish, and short results from government manipulations after such policy failures.


Buy NowThere are few failures that compete with World War I. Having failed, the same bumblers garnered fame by subjecting their own populations to conquest. Whether it was the patriotic call to the trenches or confiscation of securities, there is no question those who had failed worst made out best.

The British and the French governments were short of money to pay for supplies by 1915. Note: this was still a world in which non-redeemable, government, money-printing operations would not pass muster. If a hard-up, food- and munitions-famished government attempted to print pounds or francs for goods, the boat from London to New York would have made a round-trip after the counterfeit fodder had been sequestered and burned at the Customs House on Bowling Green. The customs officials would no doubt have been acting in good faith, an attempt to suppress the embarrassment due the British or French governments in the belief that some lunatic, war criminal had attempted to pass bad notes.

Instead, force majeure was employed. The following description by Harold Nicholson goes beyond the specific point addressed here (underlined) since the nearly insurmountable problem of those governments is unfamiliar in an age of quantitative easing. Yet we are approaching the point (yep, any day now baby, just you wait) when worthless Bernankes, Draghis, and Abes will call for just such a calculus: "[W]hereas American exports to Great Britain alone had in 1914 been $594,271,863, they increased in 1917 to $2,046,812,678. This enormous expansion in the American trade export trade was due, of course, to the European demand for more war material and food. Such purchases could no longer be paid for in goods and services; only a small proportion could be liquidated in gold; the purchases for 1915 alone were some $700,000,000 in excess of gold capacity; the balance had to be financed by credit. How could such vast credits be obtained? Three separate systems were adopted. The first was the export of gold; a billion dollars of gold were transferred to the United States between 1914 and 1917. The second method was to commandeer the American securities held by British and French nationals. This method was first put into operation in January 1916, and in the end provided the British government with the collateral of $2,425,000,000 and the French government with the collateral of $51,000,000. The third method was just confidence." J.P. Morgan acted as agent to the British and French governments.

To imagine governments would take such action demanded the mind of a Houdini in 1914, even after markets had vanished in late-July. In the United States, a country without an income tax in 1912, and a continent away from the fighting, a 77% surtax on incomes was imposed after Americans embarked on its holy mission to save European from itself. President Wilson told the leaders of the Federal Council on Churches: "[Y]ou have got to save society in this world, not in the next.... We have got to save society, so far as it is saved, by the instrumentality of Christianity in this world." Wilson went on to compare Christianity to the highest form of patriotism since they were both "the devotion of the spirit to something greater and nobler than itself."

This was in December 1915. In 1916, Woodrow Wilson was reelected to a second term as president with an appealing campaign slogan: "We didn't go to war." During the presidential campaign, he wrote to his Secretary of the Navy: "I can't keep the country out of the war." Nor, did he.

Having abused trust with the American people under the banner of a holy crusade, the Wilson administration took measures inconceivable before 1914. This is the lesson to be contemplated in 2013. We have two Holy Crusaders, one at the Fed and one in the White House, both of whom (this is where it gets very dangerous) view humanity in the abstract and who preach in the dreadful certainty of the former Princeton College president (that would be Wilson).

After the U.S. declared war on European Sin (May 6, 1917), Wilson refined his impersonation of American Gothic: "Woe be the man that seeks to stand in our way in this day of high resolution when every principle we hold dearest is to be vindicated and made secure." A Rip Van Winkle who had been asleep since 1914 may have wondered if the "we" included a mouse in the parson's pocket. George Santayana expressed doubts about such blending of the material with the spiritual. Wilson and his fellow travelers were "fanatics, who redoubled their efforts after losing all sense of aim." Santayana had left his teaching position at Harvard in 1912, sailed to Europe, never to return, but bequeathed a compelling indictment of American letters, especially the poisonous, pious, and inert influence of Harvard upon American consciousness, as true today as a century ago, and just as stubbornly ignored.

One sample of World War I financial mischief was the Liberty Bond. The first of these offerings (in 1917) was a $2 billion issue, over ten times the size of any previous effort. Given the scale, was a 3-1/2% coupon inadequate compensation? Not by any means. Americans would buy them whether they wanted to or not, (and who would?) Charles G. Dawes, chairman of the Liberty Loan Drive, declared: "Anybody who declines to subscribe for that reason, knock him down."

This captures the spirit of U.S. economic policy ever since. In the Holy Quest for GDP Growth, post-millennial economic policy has unerringly chosen to "knock him down." The Greenspan Fed sustained an overextended economy with the Internet bubble. Those who played it to the end got knocked down. Greenspan fanned the housing bubble, handed the baton to Bernanke, who battered credulous mortgage-buying Americans back to the stone age.

The 3-1/2% Dawes bond yields look gargantuan given today's investment alternatives. This is not so much a question of yield as it is of quality. First and foremost, money is not what it was. Most of what is considered money today is a claim on a non-existent asset. This is a far deeper problem than when the British and French governments ran out of real money during World War I. (They both abandoned the gold standard, with consequences beyond today's discussion.) Given how easily governments bullied and confiscated private citizens' property a century ago - a far more civilized period than today - and the flagrant lawlessness of Financial Repression today, the commandeering securities can be accomplished in an instant of double-talk.

By Frederick Sheehan

See his blog at www.aucontrarian.com

Frederick Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, November 2009).

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Frederick Sheehan Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules