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
China's Grand Plan to Take Over the World - 19th Nov 19
Interest Rates Heading Zero or Negative to Prop Up Debt Bubble - 19th Nov 19
Plethora of Potential Financial Crisis Triggers - 19th Nov 19
Trade News Still Relevant? - 19th Nov 19
Comments on Catena Media Q3 Report 2019 - 19th Nov 19
Venezuela’s Hyperinflation Drags On For A Near Record—36 Months - 18th Nov 19
Intellectual Property as the New Guild System - 18th Nov 19
Gold Mining Stocks Q3’ 2019 Fundamentals - 18th Nov 19
The Best Way To Play The Coming Gold Boom - 18th Nov 19
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

Market Oracle FREE Newsletter

$4 Billion Golden Oppoerunity

Do you think Ben Bernanke is J.P. Morgan?

Politics / Central Banks Aug 02, 2011 - 12:33 PM GMT

By: Fred_Sheehan

Politics

On July 13, 2011, Federal Reserve Chairman Ben S. Bernanke was questioned by members of the U.S. House Financial Services Subcommittee on Domestic Monetary Policy.

Chairman (of the Committee) Ron Paul asked: "Do you think gold is money?"


Chairman (of the Federal Reserve Board) Ben Bernanke responded: "No.... Well, it's an asset."

Chairman Bernanke went on to equate holding gold to owning Treasury bills. In his mind's eye, Bernanke could see the Federal Reserve's balance sheet on which gold and Treasury securities line up in the asset column. He could not have offered Congressman Paul a more sincere answer. But, this is the same man who told 60 Minutes: "I've never been on Wall Street." And, the same man who told a 2006 conference that money no longer played a role in monetary policy, to which the (then) vice president of the European Central Bank walked to the podium and called the statement "pointedly foolish."

Congressman Paul asked Chairman Bernanke, well then, why don't central banks hold diamonds. Bernanke responded: "Tradition."

Tradition appeared before the Pujo Committee in 1912: J.P. Morgan. (To be clear, this is J.P. Morgan - the man - who operated J.P. Morgan - the bank - until his death in 1913, and who midwifed General Electric, Westinghouse, U.S. Steel, the Natural History Museum, the Metropolitan Museum of Art, the Pierpont Morgan Library and had relieved Europe of its Raphaels, Van Dycks, and Gutenberg bibles.) Appointed by the House Committee on Banking and Currency, Congressman Arsene Pujo's inquiry was in temper with the times. The Panic of 1907 had sparked wider interest in bestowing authority over the banking system to a government appointed body. This movement would culminate in the Federal Reserve Act in 1913.

The committee's lead attorney, Samuel Untermeyer, questioned the star witness, J.P. Morgan.

Explaining to Untermeyer the difference between credit and money, the man who prevented a United States Treasury default in 1895 and saved the banking system from collapse in 1907 replied: "Money is gold, and nothing else."

Three words. Six words, counting the qualifying phrase that nailed shut the coffin to the qualifications and equivocations that relieve bureaucratic economists from accountability and expanded their incapacity over the past 40 years to make either a helpful or interesting statement.

Morgan had nothing else to say since he had precisely and comprehensibly answered the question.

A 2002 study by the International Monetary Fund concluded: "[T]he aggregate price level in the United Kingdom and the United States was virtually the same in 1700 as in 1900." During the century after J.P. Morgan died, the Federal Reserve, somehow authorized to replace gold with Federal Reserve Notes, has destroyed 98% of the dollar's value. This was progress.

The Panic of 1907 was resolved by J.P. Morgan, the apex of which was the Knickerbocker Trust failure in consonance with bank runs, calls from country banks on their correspondent New York banks, call rates on the stock exchange rising above 100%, and European selling of American stocks, the proceeds exchanged for gold in New York vaults, which was then loaded on ships sailing for Europe.

By now an old man, suffering from the flu, sneezing, coughing, cigar surgically attached to his lips, Morgan assembled a high command around his library desk at Madison Avenue and 36th Street. For approximately six days and nights the group decided which banks (and trust companies) "were hopelessly overextended and should be allowed to fail, and which were essentially healthy and could be saved." (Jean Strouse, Morgan: American Financier.) The U.S. Treasury had advanced $31 million to stem the panic, but that was the extent of government involvement. If Morgan miscalculated, Jacob Schiff predicted, it would "make all previous panics look like child's play."

Morgan told solvent bankers how much they must contribute to shore the weak banks. Occasionally, a financier balked. One banker told Morgan his reserves had fallen below the legal limit. Morgan fumed: "You ought to be ashamed of yourself to be anywhere near your legal reserve. What is your reserve for at a time like this except to use it?"

Morgan's actions were Olympian, autocratic, undemocratic, and he repelled progressive economists, who knew what was best for Americans. Irving Fisher, a celebrity economist at Yale, wrote in 1907: "The world consists of two classes-the educated and the ignorant-and it is essential for progress that the former should be allowed to dominate the latter." This impulse was considered democratic. Chairman Bernanke, former head coach to Princeton University's economics inductees, is successor to this lineage, as certain of its truth as was Fisher.

The colloquy between Ron Paul and Ben Bernanke elicited the best macro, market-timing advice since March, 1933, when Leon Trotsky made the blue-ribbon call of the 20th century. The revolutionary, murderer, author, and future ice-pick recipient told international investors to (effectively) short the British Empire, the pound sterling's time had passed, and to go long the dollar and the American empire. If FDR was listening, even he must have shook his head in disbelief.

On July 13, 2011 Chairman Bernanke explained: "The reason people hold gold is protection against tail risk, really, really, bad outcomes. To the extent that the last few years have made people more worried about the potential of a major crisis, then they hold gold as a protection," said the greatest tail risk to the West since Genghis Khan.

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).

© 2011 Copyright Frederick Sheehan - All Rights Reserved

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.


© 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