Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Investing in the Tulip Crypto Mania 2021 - 19th Jun 21
Here’s Why Historic US Housing Market Boom Can Continue - 19th Jun 21
Cryptos: What the "Bizarre" World of Non-Fungible Tokens May Be Signaling - 19th Jun 21
Hyperinflationary Expectations: Reflections on Cryptocurrency and the Markets - 19th Jun 21
Gold Prices Investors beat Central Banks and Jewelry, as having the most Impact - 18th Jun 21
Has the Dust Settled After Fed Day? Not Just Yet - 18th Jun 21
Gold Asks: Will the Economic Boom Continue? - 18th Jun 21
STABLE COINS PONZI Crypto SCAM WARNING! Iron Titan CRASH to ZERO! Exit USDT While You Can! - 18th Jun 21
FOMC Surprise Takeaways - 18th Jun 21
Youtube Upload Stuck at 0% QUICK FIXES Solutions Tutorial - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations Video - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations and Trend Analysis into Market Correction - 17th Jun 21
Stocks, Gold, Silver Markets Inflation Tipping Point - 17th Jun 21
Letting Yourself Relax with Activities That You Might Not Have Considered - 17th Jun 21
RAMPANT MONEY PRINTING INFLATION BIG PICTURE! - 16th Jun 21
The Federal Reserve and Inflation - 16th Jun 21
Inflation Soars 5%! Will Gold Skyrocket? - 16th Jun 21
Stock Market Sentiment Speaks: Inflation Is For Fools - 16th Jun 21
Four News Events That Could Drive Gold Bullion Demand - 16th Jun 21
5 ways that crypto is changing the face of online casinos - 16th Jun 21
Transitory Inflation Debate - 15th Jun 21
USDX: The Cleanest Shirt Among the Dirty Laundry - 15th Jun 21
Inflation and Stock Market SPX Record Highs. PPI, FOMC Meeting in Focus - 15th Jun 21
Stock Market SPX 4310 Right Around the Corner! - 15th Jun 21
AI Stocks Strength vs Weakness - Why Selling Google or Facebook is a Big Mistake! - 14th Jun 21
The Bitcoin Crime Wave Hits - 14th Jun 21
Gold Time for Consolidation and Lower Volatility - 14th Jun 21
More Banks & Investors Are NOT Believing Fed Propaganda - 14th Jun 21
Market Inflation Bets – Squaring or Not - 14th Jun 21
Is Gold Really an Inflation Hedge? - 14th Jun 21
The FED Holds the Market. How Long Will It Last? - 14th Jun 21
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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