Niall Ferguson imagined what a repeat of the sequence of events which led to the collapse of the first era of globalization would look like if updated to the 21st century at a lecture in July, 2007. The hypothetical situation was disconcertingly closer to actual events than he might have imagined, had he imagined it was actually going to happen. More than a year before the current financial meltdown, Ferguson followed the events which, 90 years ago, led to the First World War. First there was cascade of events around the time zones.
Perhaps the most remarkable feature of the crisis of 1914 was the closure of the world’s major stock markets for up to five months. The Vienna market was the first to close, on July 27. By July 30 all the continental European exchanges had shut their doors. The next day, London and New York felt compelled to follow suit. Although a belated settlement day went smoothly on November 18, the London Stock Exchange did not reopen until January 4. Nothing like this had happened since its foundation in 1773. The New York market reopened for limited trading (bonds for cash only) on November 28, but unrestricted trading did not resume until April 1, 1915. Nor were stock markets the only ones to close in the crisis. Most U.S. commodity markets had to suspend trading, as did most European foreign-exchange markets. The London Royal Exchange, for example, remained closed until September 17. It seems likely that, had the markets not closed, the collapse in prices would have been as extreme as it would be in 1929, if not worse.
And for those who think that fiat money is at the root of all evil, there’s this:
There are many differences between our world and the world of 1914. Most currencies then were pegged to gold. That inclined some central banks (notably the Bank of England) to raise rates in the initial phase in the crisis, in a vain attempt to deter foreigners from repatriating their capital and thereby draining gold reserves. The adequacy of gold reserves in the event of an emergency had been hotly debated before the war; indeed, these debates are almost the only sign that the financial world foresaw trouble. The gold standard, however, was no more rigidly binding than today’s informal dollar pegs in Asia and Latin America; in the case of war, a number of countries, beginning with Russia, simply suspended the gold convertibility of their currencies. In both Britain and the United States formal convertibility was maintained, but it could have been suspended had it been thought necessary. (The Bank of England did request, and was granted, a suspension of the 1844 Bank Act, but this was not the same as suspending specie payments.) In each case, the crisis prompted the issue of emergency paper money by the Treasury: in Britain, £1 and 10 shilling Treasury notes, in the United States, the emergency notes that banks were authorized to issue under the Aldrich- Vreeland Act of 1908.
Mark Twain once wrote that “the past does not repeat itself, but it rhymes.” Why it rhymes is an interesting question. Perhaps what is common to catastrophes are not the events but the processes. Institutions themselves cannot seem to retain essential memory. It is people who must remember, and people forget. If traders are notoriously unable to remember the last crisis, politicians are equally unlikely to recall past dangers. Or maybe it is the reverse: maybe people forget, but institutional memories are retained long after they lost the original purpose for which they were intended. Most developers are familiar with the phenomenon of forgotten processes and threads which are never quite destroyed; which eat up system memory or interfere with other processes until the whole shebang becomes unstable and needs a reboot. If lack of memory or memory itself is the culprit, then maybe ever hundred years or so, history hits Ctrl-Alt-Del and the operating system comes up again, new, fast and seemingly invincible.
The circumstances may vary, but maybe human folly is constant. That is paradoxically encouraging in its way because it implies that human virtue, courage and endurance can be counted on to ride to the rescue. The Greatest Generation always exists for those who are forced to assume that mantle. Inspiration has always been the handmaiden of necessity and perhaps renewal is often forced upon society by collapse.
Can we save ourselves the shocks and evolve into some welfare-like civilization which avoids grand challenges but also great moments of crisis? HG Wells believed that the end of challenge meant the end of growth. Even he quailed before the unknown shocks; yet felt there was no alternative but to go on until the final wheel was spun and the last card played. In the epilogue to his classic novel The Time Machine, Wells wrote of the Time Traveler — and perhaps of us, since we are all in a sense traveling through time:
One cannot choose but wonder. Will he ever return? It may be that he swept back into the past, and fell among the blood-drinking, hairy savages of the Age of Unpolished Stone; into the abysses of the Cretaceous Sea; or among the grotesque saurians, the huge reptilian brutes of the Jurassic times. He may even now—if I may use the phrase—be wandering on some plesiosaurus-haunted Oolitic coral reef, or beside the lonely saline lakes of the Triassic Age. Or did he go forward, into one of the nearer ages, in which men are still men, but with the riddles of our own time answered and its wearisome problems solved? Into the manhood of the race: for I, for my own part cannot think that these latter days of weak experiment, fragmentary theory, and mutual discord are indeed man’s culminating time! I say, for my own part. He, I know—for the question had been discussed among us long before the Time Machine was made—thought but cheerlessly of the Advancement of Mankind, and saw in the growing pile of civilization only a foolish heaping that must inevitably fall back upon and destroy its makers in the end. If that is so, it remains for us to live as though it were not so. But to me the future is still black and blank—is a vast ignorance, lit at a few casual places by the memory of his story. And I have by me, for my comfort, two strange white flowers—shrivelled now, and brown and flat and brittle—to witness that even when mind and strength had gone, gratitude and a mutual tenderness still lived on in the heart of man.
Tip Jar
There is some incentive by which humans divide their decision making between the economic and the political spheres. We assume that all decisions are made according to one set of rules and therefore a person will be either a rule observing rational actor in all spheres of life or not. That may be a completely false assumption. It is possible that people make decisions according to different criteria in different situations. For example Stone Age man may have developed one set of proto-capitalist or proto-socialist set of behaviors for dealing with problems out of the cave and the opposite set of behaviors or rules for inside the cave. Out of the cave was what we consider economic activity and interaction with strangers and inside the cave was family. Economics may mean “Household Management” but that may set up a false expectation. There are people who can successfully conduct business in accordance with rational and capitalist principles but who remain deeply committed to socialist theory as a political cause. The obverse may be true of people who excel at social interaction and political activity but who conduct their private lives in an extremely unempathic and even abusive manner.
The Republicans have an almost childlike faith that presenting facts in accordance with predetermined rules of conduct will convince rational people to make correct decisions in a political contest. The Democrats appear to believe that the only thing that counts is winning and the only constraint on methods used is a legal sanction that will not apply if they win.
Sarkozy is looking for a big overhaul of the financial system.My wag is that — since EU can say that their problems were caused by the USA– sarkozy will want the US to “compensate” the EU for doing the right thing. Maybe rearrange the financial deck chairs along terms more favorable to the EU. Judging by Bush’s reaction–he understands.
http://afp.google.com/article/ALeqM5h0gfKPrnxZBW3hcG3Idns14dmnjw
Bush is to meet Sarkozy, who is armed with a mandate from his EU colleagues to push for an overhaul of the financial system, and European Commission chief Jose Manuel Barroso at his Camp David retreat in Maryland.
But the White House has preemptively warned that the talks will yield no new policy proposals, nor a date or location for a world leaders summit that the French leader hopes will generate sweeping reforms.
Wells was, of course, a radical socialist. His desire for gratitude and mutual tenderness are quaint, considering those qualities are only formed through the Tocqueville’s very individualistic ‘reciprocal influence of men upon one another’. Socialism is the end, not the beginning, of helpfulness.
The desire for universality is as old as the human race, but no gratitude or tenderness has ever been found there. Quite the contrary.
This is wildly off topic, but then not entirely because it does deal with human behavior and rationality. This UK Mail story about Madonna is fascinating reading. This once stunningly sexy woman with some genuine talent at making pop music has now turned into something of a gaunt, androgynous horror-show freak. Her descent into Kaballah, self-abusive diet and exercise regimes, and what strikes me as kind of desperate self-loathing has gone hand-in-hand with her increasingly screechy Leftist politics. She may be an extreme case, but I think she’s symptomatic of the dementia and extremism that runs through the Leftist mindset. Given all the money in the world, not only can Madonna not find happiness, she can’t even find basic human comfort or a moment’s peace.
Why can I look at Madonna and see Nancy Pelosi? And vice versa?
These are the people we’re about to put in charge.
http://www.dailymail.co.uk/tvshowbiz/article-1078650/The-mad-world-Madonna-Grains-meal-rice-milk-TV-sleeping-plastic-suit-covered-500-cream.html
I find it rather interesting that al-Qaeda and its allies are trying to put the world economy onto a gold standard.
I don’t think the choice is a stark one between fiat currency and the gold standard. I rather like the idea of a “food basket currency” — a currency whose value is pegged to an aggregate price of a basket of important commodities.
There are excellent reasons to oppose the gold standard that go beyond opposition to al-Qaeda and its advocacy of a gold bug ideology. Any currency pegged to the price of a metal encourages mining, while any currency pegged to government power encourages lobbying. Meanwhile, any currency pegged to agriculture encourages farming.
I think it is no mere coincidence that the invention of the Lydian gold coin promoted international trade in Greek antiquity, and yet, it is interesting how Egyptian and Mesopotamian agriculture declined over the centuries after the adoption of the gold standard. I think the reason is that the means to generate currency no longer came from agriculture but rather came from mining, thus vastly inflating the importance of Macedonia and southern Spain with their mines at the expense of the traditional breadbaskets of Tunisia, Egypt, and Mesopotamia. (Macedonian gold financed Alexander’s conquests while Spanish silver financed the Carthaginian and later Roman empires.)
Any currency can be manipulated. An agricultural superstate can use granaries to control a currency. However, an agricultural currency ensures that even a small garden is a de facto printing press for money, and thus has a liberating effect upon our currency.
Given the social power of gold in Arab countries, oil is pegged to gold. Gold effectively promotes the social power of Islamists. Fiat currency effectively promotes the social power of socialists. Agricultural currency effectively empowers food producers. Given how the United States of America is one of the world’s great breadbaskets, along with Canada, Australia, and Argentina, it would be in America’s geopolitical interests to promote a currency loosely pegged to a “food basket”.
re: “And for those who think that fiat money is at the root of all evil, there’s this:
There are many differences between our world and the world of 1914. Etc, etc.”
The culprit is not strictly fiat money but Fractional Reserve Banking. Booms and busts are inherent in systems that use Fractional Reserve Banking.
Ironically the book ( still in print ) that explains this was published in 1912 by Ludwig von Mises: THEORY OF MONEY AND CREDIT. It would be useful to read this book if one wants to understand what is happening.
Dan Kurt
the actual “currency” we’re talking about that has caused the problem was not gold or grain or dollars/yen/euros but rather mortgages–specifically american mortgages.
these were used to fuel a stealth lyndon johnsonesque “great society” (about 25% of the bad mortgages were from illegals).
The bill for all the bad mortgages came due at once.
What the derivatives market did was hedge the risk worldwide. So people in all parts of the world got stuck with the US bill. (My understanding is that the bankrupsy of lehman bros cost europeans 300 billion.)
The democrats therefor are–on track to get the best of all worlds: their program is paid for, the republicans get the blame for democrat induced recession, more government will be the result. Specifically more international government.
After all if american mortgages can’t be trusted whose mortgages can be trusted. Because americans can’t be trusted to regulate their own markets–therefor international bodies will take on the job.
Anyhow, that’s my wag as to what Sarkozy is up to.
I’m not in favor of the US giving up more sovereignty to international institutions. Rather I would be in favor of US banks stop giving out loans to people who can’t afford them. As well I would be in favor of the US getting off dependence on foreign oil yesterday.
iowa tracking polls
http://iemweb.biz.uiowa.edu/quotes/Pres08_Quotes.html
Richard,
Nice. Totally agree that the end of challenge is the end of life. Life is a battle, witness the struggle of (just) breathing or walking, which we so take for granted (arrogantly at times). No struggle is flat-line. Each generation must find it’s own way over it’s own traumas.
I suspect the tie between the 1914 stock crashes and real money is weak. The likelyhood of fractional gold reserves and fiat money in some of the other countries detaches them. Then the intra and inter relation problems of each stock market at that time; needed controls not in place until later. Real money doesn’t cure everything, it just prevents abuse via the issuer.
Finally, a big portion of ’08 stock market and banking problems is the use of _borrowed_ money in the market of gambling; on margin no less! Can you imagine the sums of money that went south for some players?
Charles @7,
Well put.
The way I see the whole cycle happening is illustrated by the Music Industry.
It started with recorded music, radio. It began hitting it’s stride post war, eventually leading to the explosion of the 60′s. The product they had to sell was teenage rebellion. And sell they did, reflecting/defining a culture.
Then a situation arose. No longer did their rebellious customers need to obey anyone even to get music. They could set up their own networks, thank you very much. Any measure of trust and respect had been determinedly beaten out of the culture by the industry that now needed that trust and respect to get money for their product.
All of a sudden rebellious culture costs money, so now we have all these former disrespecters of rules pontificating on how copyright must be respected.
And around it goes.
What, pray tell, is the difference between the New York Stock Exchange and associated firms, and the Salt Lake City exchange, or the Vancouver stock exchange, built as a den of liars and thieves to take advantage of mining stock games?
In other words, everyone forgets the foundation upon which their prosperity and security is built, then actively undermine that foundation, and sadly wonder what went wrong.
Derek
The problem with the Gold Standard
[Niall Ferguson, Hoover Digest]
“…Most currencies then were pegged to gold. That inclined some central banks (notably the Bank of England) to raise rates in the initial phase in the crisis, in a vain attempt to deter foreigners from repatriating their capital and thereby draining gold reserves. The adequacy of gold reserves in the event of an emergency had been hotly debated before the war; indeed, these debates are almost the only sign that the financial world foresaw trouble. The gold standard, however, was no more rigidly binding than today’s informal dollar pegs in Asia and Latin America; in the case of war, a number of countries, beginning with Russia, simply suspended the gold convertibility of their currencies…”
All of that is true. The gold standard is not the answer. The fractional reserve system can be applied to any asset including gold.
Exchange rates or leverage ratios can be changed at any time. It’s all just a matter of confidence in the financial system.
The Banking System (fractional reserve system) is just a chain of making a loan from a pool of savers (which expands the money supply) and repayment of that loan (which contracts the liquid money supply). As long as that chain remains unbroken the financial system is sound – somewhat like the chain on a bicycle.
Once, the chain is severely broken then confidence is lost and the money supply contracts – and the bicycle comes to a halt.
From my vantage point, transparency and sound lending practices is the cornerstone of a sound financial system (good quotes, clean accounting and reasonable leverage ratios for financial institutions). Those items lead to an enhanced confidence in the financial and prosperity.
But, when politicians loot Freddie and Fannie and other safety net pools of capital such as Social Security the lending chain breaks and a loss of confidence occurs.
As for rogue traders, some will always be out there but they tend to burn up upon re-entry (or end-up in jail).
The solution to this current financial situation is to stop the looting of government special entities such as Fannie and Freddie and sanction those responsible. Then, place responsible people in their place.
A clean-up must be take place and recapture of ill-gotten gains should be done.
Get the crooks out of the financial system and keep them out (I am looking at Barney Frank and his buddies and Chuck “the bank run instigator” Schumer).
Once, the crooks are gone confidence in the financial system will be restored.
We are not just experiencing a financial crisis; we are experiencing a moral crisis. The real root of this problem is that a majority in our government don’t feel any responsibility for the money they forcibly extract from the taxpaying citizenry. While some have focused on the greed on Wall Street, to me the bigger problem has been the greed of our public servants. Instead of being stewards of the public trust, they have looted the storehouse to fund bridges to nowhere or to loan taxpayer money to people who could or would not repay it.
This country was built by men like Joe the Plumber. People who traded their hard work , blood and sweat for an opportunity to prosper. These are the true wealth builders. The leftist apologists mock this man for his dream of owning a company someday. Yet he is the one that is willing to pay the price and take the risks of making a better life for himself and his employees. Their messiah, the Obama, has never done anything in his life to add to the common wealth of this nation. All his efforts have been aimed at spreading other people’s wealth around. From those that earned it to those that haven’t.
Kingston53 is spot on.
History can give us some guidance, but is fraught with people chasing down the wrong parallels. Pat Buchanan gave us an excellent reminder recently that it was natural and expected that Hitler would try to take the Germanic peoples under 1 Reich following principles of democratic self-determination we later applied in high moral dungeon to de-colonialization, majority rule in East Timor, Bangladesh, Bosnia, Kosovo, S Africa…
Munich!!! was as natural and expected in freeing the Sudetans from harsh Czech repression as retaking the Rhineland and liberating it’s people from French rule. It was the wrong point in history to argue “would have stopped Hitler”.
Perhaps a more justifiable point was when Poland, the Germans, the Slovaks, Ruthenians all agreed to carve up the rest of Czechslovakia into their own territory save the Bohemian Protectorate (the Czechs) they agreed to put under the Nazi’s rule.
Buchanan lays the cause of WWII as entangling alliances in Europe. The French and British were drawn in by their foolhardy mutual defense pact with Poland over German efforts to reclaim Danzig as part of Germany again. Something Hitler had the full backing of the German public on, In the Pacific, to the success of the French-Dutch-British-American strategy of economic warfare against Japan to strangle Japans effort to establish it’s own belated colonial empire.
Japan’s war was a war for oil and other vital resources it was denied. It was capitulation or war against the successful embargo. Japan chose war.
It’s important to talk WWII as well as WWI.
As prior to WWI, we see the Ruling Elites confident that the 2nd period of globalization and free trade (pre WWI was the 1st) will bind all nations into peace through an interconnected economy and financial system. Germany can’t war with us, nor Russia, the Brits reasoned “because they would lose a lot of trade and money if they did”. Sort of the same logic we apply today to the “impossibility” China and America will ever clash because “we trade so much!”
Pre-WWI was also the period of nutty entangling European countries with other countries they had no vital interest in – but ties of royal bloodlines, allies seen as “useful” in peacetime. “The Guns of August” and other books detail how those entangling alliances and great misjudgments of men unaccustomed to reacting in crisis and unfamiliar with total war (They ignored the bloodbath of the US and Mexican civil wars and how all the resources of nations were mobilized to killing the other side. Thinking instead that conflict would be Napoleonic, a few set battles involving a few tens of thousand “hero” troops, and the war would quickly be over. They got Gallipoli, Verdun, the Somme, and the Russian Army broken from reckless use as cannon fodder.)
The US had the sense of George Washington’s warning of entangling alliances to stay out of it and let others shed most the blood and wreck their countries for most of WWI.
The tie to market instabilities and growing anarchism pre-WWII to the present is not weak. They were harbingers that the Old Order was tattering. The Brits in particular were overextended – they had lost most of their high end and low end manufacturing and scientific supremacy to better abled competitors like the USA and Germany once “free trade” and the 1st Globalization started. Yet the Brits retained their commitments of Empire and even accelerated new commitments, seeking strength through alliances, ANY alliances. They retained an inordinate confidence in their military – the Navy and superbly trained colonial troops trained in “counter-insurgency”. Not realizing that new styles of warfare – U-boat fleets, trench warfare where colonial “spec ops” people were just another target for machine-gunners – was going to neutralize much of their advantage. Only at the end was the British Empire able to choke off enough food & materials supply to the Germans to make a difference – and then is was not to win the war – but enforce a vengeful French & Brit Labour quest for ruinous terms on Germany.
But we now see people wanting a declining America with the same instabilities, trade deficits, loss of manufacturing and science edge – to expand it’s entagling alliances as Britain did to it’s ruin in two wars.
Georgia, Ukraine? Sure, lets add them to NATO! What’s the harm? And why not a treaty with Our Special Friend? Pakistan AND India!
In the Pacific, while we are the primary contributor to the Rise of China by gutting our industries and jobs to profit a small cabal of Ruling Elites in America – We are also doing a stealthy encirclement of China, blocking the spead of their sphere of influence commensurate with their USA-dollar-fueled explosive commercial and military growth. As, without actual embargo, we are demonstrating that with “partners” like Japan, India, Indonesia, the Philippines – we can choke them of oil and other resources if we “need to”. The Chinese know this vulnerability and are working on ways to end this vulnerability and neutralize the Old Powers.
Of coure modern times are quite different. We now live in an interconnected world where populations that find themselves in a future war will not receive one-sided propaganda communications with all their phones, radios seized – but global comms. The 1st time this happened was Vietnam, as the morale of the Americans was successfully targeted and every subsequent war has had an info-war element. Which now include new forms of war like cyberwar, space war, and head-chopping web pages blending the medieval to high tech.
Add nukes of course, where even small shitty nations can now have a global impact with use or threatened use of a small nuke arsenal. Add nukes also by how awful their use would be – add caution and margin to war starting. They held the Red Army at bay for 40 years and stopped shitty little wars from spreading to major powers.
Add in other new factors like (1)demography driving resource depletion, political destabilization of populations as new “sorts” arrive, and global warming – much as Christian, Muslim Fundies and Growth Ideologues deny that overpopulation is any problem. (2)Transnational Islamism – though likely never to be the threat that transnational Communism or its response – Fascism and National Socialism in modern high tech, lethal countries was – is still very destabilizing, could involve a limited nuke use in worst case – and like JOhn Brown, the terrorist Jewish Bolsheviks or Gavrilo Princip of the Serb Black Hand – serve as the initiating charge to the bigger bomb that goes off.
I think just about everyone agrees we live in a far more dangerous world than we did 20 years ago, and more and more have come to believe that “Islamofascism” is not the primary danger but one of the modest-sized threats that could do planty of damage on its own, but also trigger a bigger global conflagration. It may be a world where conflict cannot be avoided by US troops overextended and bogged down in 3-5 wars, by UN peacekeepers in 100 countries, or by major powers desperately trying to craft new entangling alliances to “keep the lid on”.
Peace at any price may be a crazy notion. Much as extreme zealotry in preventing any and all forest fires because on tree or one baby bear dying is “too much” piled up decades of tinder. Which finally went off in an out-of-control major conflagration that no one can stop that destroys everything.
Perhaps the strategy of blocking any and all wars from being fought at a low-intensity or intense regional level, in place since we had a “world-sized” forest fire is a wrong strategy. Piling up unresolved grievances like forest tinder until a fire breaks out that is so pervasive and intense that no tree or baby bear survives..
Maybe we do need to “let” smaller wars happen until the grievances are resolved, one way or the other.
And maybe we need to rethink the idea that the civilians should be “completely safe” in war – and face no consequencies for the policies and actions they push, or consequences like losing civilian land or other wealth if they lose. And civilians in danger in a war they joined in agreement to start is not an abomination – it may be an absolutely vital feedback mechanism to make them rethink sending forth the suicide bombers or the money& security equipment sent to assist Israeli settlers grabbing land from Palestinian farmers.
The response we may need is completely counterintuitive to the international laws, and morality we have all been drilled on the last 60 years.
Let wars happen. Let civilians suffer. Don’t get into obligations to “save” everyone at the risk you are setting up a day when we lose masses, and masses of people.
Consider it like allowing small fires to happen to burn up the tinder. Consider brush cutting and dead tree removal vital – as with fire – to achieve a healthy forest at lower risk of overall conflagration. And consider that we manage our private forests with compartmentalisation – construction of firebreaks rather than one vast swath where a fire in one place may spread to involve a vast, larger forest all connected together (the reason why a fire on private timberland in Georgia affects a few hundred acres, while prohibition on roads, firebreaks, and tinder and timber management burned down half of Yellowstone National Park 10 years ago.
“Perhaps the most remarkable feature of the crisis of 1914 was the closure of the world’s major stock markets for up to five months. The Vienna market was the first to close, on July 27. ”
“At 11:10 A.M. on July 28, 1914, Count Leopold von Berchtold, the Austro-Hungarian Minister for Foreign Affairs, sent the following telegram from Vienna to M. N. Pashitch, Serbian Prime Minister and Minister for Foreign Affairs. This declaration of war was received at Nish at 12:30 P.M.”
source
Connection?
We are not just experiencing a financial crisis; we are experiencing a moral crisis.
==
No, what you are experiencing is a spent shell crisis. Though I’d be hard pressed to believe any of you here could ever have been considered a loaded shell. The Jihadis have a term of endearment for you people. SHEEPLE. And they’re absolutely right.
mika – you are pathetic in your contemptible name-calling. I have to believe you understand that about yourself and it makes you even angrier. I sincerely hope you don’t have access to any small dogs or innocent children to take your impotent fury out on.
Alexis said:
“I think it is no mere coincidence that the invention of the Lydian gold coin promoted international trade in Greek antiquity, and yet, it is interesting how Egyptian and Mesopotamian agriculture declined over the centuries after the adoption of the gold standard. I think the reason is that the means to generate currency no longer came from agriculture but rather came from mining, thus vastly inflating the importance of Macedonia and southern Spain with their mines at the expense of the traditional breadbaskets of Tunisia, Egypt, and Mesopotamia. (Macedonian gold financed Alexander’s conquests while Spanish silver financed the Carthaginian and later Roman empires.)”
It was Macedonian silver not gold that financed Alexander the Greek. Likewise, it was silver that financed the Athenian “golden” age. Some scholars have theorized that at one time silver was more precious than gold. However after the world market was flooded with silver by the Athenians and Macedonians, gold became the more precious metal.
Egyptian civilization lasted an incredibly long time. The first Egyptian pharoah (Narmer) ruled around 3100 BC. The last native Egyptian pharoah was Psamtik the Third who ruled around 526 BC (the Persians conquered Egypt after Psamtik the Third). This represented a span of 2574 years from beginning to end (the Great Pyramid made in 2560 BC and was already ancient before Psamtik the Third’s reign). Compare this to the 232 years the United States (9% the Egyptian civilization’s lifespan).
Ancient Egyptian money was based upon brass, bronze and gold rings (they’re wear their money like a necklace). The Egyptians (being very conservative) did not adopt coins until after the Persian conquest. The Greeks who ruled Egypt after Alexander’s conquest (the Ptolemy dynasty) had these very large bronze coins as their main currency (these coins were about the size of a silver dollar). It’s believed these coins were sized to match the old pharonic ring currency. Many of these large bronze coins appear whenever the harbor at Alexandria gets dredged. I have a couple in my collection (they’re not expensive). Egypt went through many bad inflations under the Ptolemies. During a bad inflation, these large bronze coins became near worthless. I have a theory that the Alexandrians would hand these worthless coins off to their kids to play with. The kids would then fling these coins into Alexandria’s harbor to see how many times they could skip across the surface of the water.
There is a silver tetradrachma that was struck under Ptolemy the First that I’ve long wanted to own. The die engraver is called “Delta” after the mint mark that he left on his dies (his workmanship was of very high quality). Delta made a very good likeness of Alexander the Great. These coins were struck in Memphis at a time when Alexander’s body was on public display in a crystal sarcophagus (the sarcaphagus was filled with white honey which is an excellent preservative). Delta would have been able to model his coin dies directly from Alexander’s corpse.
NOTE: New EU estimate puts total world derivatives at > $600 Tillion.
Cedarford –Congratulations on your thought-provoking analogy between war & forest management.
However, there is an aspect of your thesis that does not seem to fit. The world has actually had all kinds of “small” wars in the last few decades.
But Guardian readers don’t get upset when Russia literally bombs Grozny flat. The New York Times reader has little time for Darfur. The only thing that the international Nomenklatura gets excited about is US involvement.
It is a little like flying across the Western US in the summer time. There are forest fires burning all over the place — but the only ones that get on the news are those near Malibu.
Buchanon is an idiot. The cause of WWII was the Western Democracies being too weak. Hitler always had them as easy pickings in his cause of the Thousand Year Reich, just as Charlemagne had the Saxons in his sights.
Being weak is never to anyone’s advantage, except their enemies. Had the French and British had larger, better equipped military forces, Hitler would not have dared act, and particularly if they stopped him at the Rhineland re-militarization, or Anschluss, or Czechoslovakia.
As Putin told the nation after Beslan, “we were weak, and the weak get beaten.”
It is as simple as that. To deter attack, be strong, and be seen as strong. While not so aggressive as to convince enemies that the only recourse is to attack first. Machiavelli understood this, as did Sun Tzu, or Miyamoto Musashi.
The alternative explanation is that somehow by “magic” human nature changed and we are all now holding hands singing songs in universal, transcendent love.
Hitler was never going to be Mr. Peace and Love, “just” be happy with Lebensraum to the East. Any more than Tojo would have stopped at Indonesia and Indochina. Or Alexander with Anatolia. Or Caesar with just part of Gaul. Or Napoleon with just France. Any student of history can see the pattern with “lean and hungry men.”
eggplant:
I stand corrected about that it was silver that funded Philip II’s army.
I will point out that ancient Egypt did use barley as a form of currency; it created written “reserve notes” allowing the bearer to exchange the note for a specified amount of barley.
Whatever else can be said about food-backed currency, it is based upon a commodity that the United States has in abundance. I’d rather have our currency be based upon a commodity whose supply the United States can control, as opposed to a commodity controlled by people who don’t like America.
“We’re all travelers in this world. From the sweet grass to the packing house. Birth till death. We travel between the eternities.”
–eulogy from “Broken Trail”
Ouch! Got a finger crap scrolling past Cederford.
It is comforting to know that “the past does not repeat itself, but it rhymes.” Since we’ve recovered from these crises before, we’ll recover this time too. All we have to do is hunker down and wait for the next recovery.
But the world is a different place. Last time, America saved the world from Japan and Germany; we were protected by oceans. This is our first crisis in the information age. No ocean will protect us from the next despots.
I see our freedom being challenged by institutions such as ACORN, the mass media, and corrupt government spending. It is easy for casually informed voters to think that a vote for Barack is a vote against the commander-in-chimp or a vote for free health care. I see a vote for Barack as a vote for suppression of free speech, a suppression of free markets, and a suppression of free elections.
I do hope that we can get back to limited government; that which protects life, liberty, and the pursuit of property.
I second Tomorrowist, and applaud the plain and simple presentation of the issue of our time.
We feel your Stain, Zim.
I particularly liked the way he folded Global Warming in.
ot:
Wary of Islam, China Tightens a Vise of Rules
China places intricate restrictions on Muslims in a vast autonomous region in an effort to control Islam’s spread.
http://www.youtube.com/watch?v=NyvqhdllXgU
I dislike Stern but this is priceless. Our educational institutions have achieved their liberal goal… a “brain dead” America. How can today’s “man on the street” be qualified to vote let alone understand fiat money vs gold or where to put his money in a crisis. I see millions unemployed and a Darwinian future.
From the New York Times!
Building Flawed American Dreams
Henry G. Cisneros spent years helping low-income families buy homes, part of a broad national trend with dire consequences.
Alexis and Eggplant: Back in WWII, Wendell W. Fertig issued what amounted to a rice-and-corn standard currency on the island of Mindanao. Worked well. Only problems were when the Hapons got too close.
They also made bullets out of curtain rods and propelled same with home-brewed ammonium nitrate.
Coke bottles and fencing wired enabled a telegraph system. Most astonisingly a crew consisting of a B17 radio operator, a pre-war radio salesman and a man who had once listened to a shortwave set gathered scrap material together to concoct a radio they hoped and prayed would reach Australia. That was the only way they could let anybody know they were still alive, free and fighting.
Well, that radio failed. Skip distance got in the way and Australia never heard them.
San Francisco did though.
Oh, and did I mention that they also brewed their own bio-fuel? Only way they could power the new radios and other equipment brought to them by submarine.
A war story worth telling as Ollie North would say.
About all that money:
Lazarus Long noted that “$100 placed at 7% interest compounded quarterly for 300 years will increase to $100,000,000, by which time it will be worthless.”
The point? Money is not wealth, it is a receipt for wealth. Thus monetary systems have to change and do so relatively frequently
which means older currencies do become worthless, one way or the other. The great advantage of precious metals is that their metal has some form of use value over the eons and thus endures. Other than that, I see no overwhelming virtue in them and most especially not in bi-metallic standards.
Hello Buddy. How many Aggies does it take
to eat an armadillo?
Three. One to eat the ‘dillo and the other two to stop the traffic.
You know that the American Muslim character says that your grandchild will be Muslim. Well, I called Lubbock and old Will Rogers is still on his horse. He will be off of it a LONG time before any conversion takes place.
See that Antonio Lopez de Santa Mika has called us spent shells. He should know. He fired the rounds out of his Aggie target pistol.
Alexis said:
“Whatever else can be said about food-backed currency, it is based upon a commodity that the United States has in abundance. I’d rather have our currency be based upon a commodity whose supply the United States can control, as opposed to a commodity controlled by people who don’t like America.”
I think it would be a good thing for us get away from fiat currency. Gold bugs like to dream about going back to a gold standard but that’s nonsense. The world economy is so big that there isn’t enough gold in the world to provide an adequate reserve. I like the idea of basing currency upon unskilled labor. Define $10 to be the wage of one hour of unskilled labor. Establish a minimum/maximum wage law around that currency standard, i.e. it’s illegal to pay anyone less than $10/hour but also illegal for the base pay of an unskilled worker to be more than $10/hour. Maybe carry it a step further and require that the labor used in making an item imported into the United States must conform to the $10/hour rule. If it can be shown that the labor used was less than $10/hour then an import tariff would be applied against the item.
No doubt a clever economist could shoot lots of holes in this idea. However the same clever economist would probably then come back and argue for fiat currency and unrestricted free trade.
Eggplant:
Despite your recommendation’s clear advantage of simplicity, I am skeptical about using unskilled labor as the basis for a currency principally because it implies an acceptance of the Labor Theory of Value. I still think marginal utility has its place.
Your suggestion reminds me of a Roman coin called the “universal brothel token” that could be used to purchase specific sexual acts throughout the Empire. I am curious if you happen to have any of those tokens in your coin collection.
A blogger, Zomblog, found the evidence of the big lie Obama has been telling about Bill Ayers being a guy who happened to live in the neighborhood.
Obama & Ayers Shared Chicago Office For Years On the Same Floor… – And Maoist Hardliner Mike Klonsky Worked There Too
—
Obama Demands DOJ Stop ACORN Probe Sweetness & Light
“I’ve got nothing to do with ACORN, but my associates there and I join in DEMANDING this harassment stop!“
Obama And ACORN – ‘It’s A Power Thing’
Op-Ed Contributor: Buy American. I Am.
WARREN E. BUFFETT
Whiskey,
“Had the French and British had larger, better equipped military forces”
They did; they French Army was bigger and better-equipped than the Germans. That wasn’t the problem – the problem was that they didn’t think Hitler would act, and when he did, they weren’t prepared for that style of warfare.
I’m hearing that the governments in the east are now guaranteeing their bank depositers.
http://biz.yahoo.com/ap/081017/as_asia_guaranteeing_deposits.html
what you have not heard out of the aussies nz or asia is any bank failures. the reason is that their banks were not as highly leveraged as banks in the US or the EU. therefor they have been better able to handle financial storms.
further it may well be that the east was less exposued to bad US assets.
1.)Does it follow from these two premises that banks world wide should be regulated or even certified internationally so as to preclude them from engaging in interbank lending if their leveraging exceeds certain ratios?
2.)As far as I know there are no other other countries in the world but the USA with mortgage backed assets circling around the globe–corrupting the balance sheets of banks in far away places. Does it follow from this that the practice of circulating mortgage backed assets beyond national borders should be banned.
Charles
1) NO. Following the principle enunciated above/elsewhere (Leo I think) keep the regulation as low on the food chain as possible. I see nothing wrong with individual banks/countries setting that cap. I think it should be advertised or somehow integrated into the ratings system so customers – institutional and individual can make an informed banking decision.
2) NO. Possibly sufficient, but unnecessary if the various mortgage derivatives are allowed to flow freely – with full transparency – again to allow informed decision-making. One of the reasons the various governments couldn’t get the large pools of private capital back into the system in Sept/Oct was the lack of transparency – I call it the Black (sc)Holes Effect.
Slade: Good show>
Charles: Foreign banks unleveraged?
In Europe a bank with 2.5% reserves is considered excessively liquid.
Iceland for example is almost back to internal barter and its krona is useless outside Iceland.
In Europe, governments are almost ready to print banknotes to satisfy depositors.
Should these fools have leveraged the American leverage. Of course not. But should we put restraints on our own people to protect them from their own folly? Think not.
See everybody this evening. Work time.
I still don’t know what to think of this guy. Other than, he gives me a case of the willies. But folks here should ought to take a look, maybe. Nyquist’s past columns link –and as you can see going back a year or so he’s been a pretty good cassandra. There’s several pieces to the current banking crisis –this may be one of them.
It’s not the Bank’s money to play with. It’s the public’s money in trust. All measures should be taken to safeguard that money. The same idea should dominate in Wall Street.
Alexis said:
“Your suggestion reminds me of a Roman coin called the “universal brothel token” that could be used to purchase specific sexual acts throughout the Empire. I am curious if you happen to have any of those tokens in your coin collection.”
I’ve seen them for sale in coin catalogs. I do not have one in my collection and never actually seen one at a coin show or club meeting (they are very ordinary looking). I was not aware that they were negotable through out the Empire (I thought they were tokens negotable only at specific brothels). Common prostitutes working in brothels were normally young females who were born into slavery (their miserable lives were short and nasty). The only advantage a female prostitute had in the ancient world was access to contraception, e.g. silphium tea, uterine pebbles, etc. High class prostitutes such as courtesans and temple prostitutes (the temple of Aphrodite in Corinth) could actually have better lives than an ordinary married woman due to having access to contraception (women died like flies during childbirth in the ancient world). Prostitution like slavery and infanticide are ugly aspects of the ancient world that most historians prefer to ignore.
Alexis, et al,
The food based model is more logical (to me) since you can not eat gold, silver, fiat money, etc. When times get toughest we are reminded of the criticality of that basic need (ask those who suffered during the depression). That also begs a question, or possibly suggests a hedge on foreign held debt: How much of the free food the US has given away to these nations going to count toward debt? Fairness would suggest it be so or we should cut them off entirely (or charge oil barrel prices for it).
Charles@41: Could it be they simply allowed the banking to operate under the well established rules of lending without pressuring them to give bad loans to undeserving borrowers in the name of “Progressiveness?”
So buddy, and please correct me if I’m wrong, it appears we have a government bubble, and because the government is the regulatory agency it has applied what it knows best to resolve the trouble, more government.
Excellent articles, well done.
Too much government or too little? Reading articles like the Nyquist piece makes one wonder where the hell are Our Guys? The hubris of complacency sounds weak but that’s presumably the point of the argument. I defer to Leo’s suggestion that government positions/entities demand to be reconfigured to fit the modern world. Instead of F/F, where is digital security?
The answer? Health Care!
the europeans are pushing for a summit to revise the international banking system before a new president comes in.
why?
libor rates are significantly higher than a month ago and significantly lower than one year ago.
can someone interpret this?
http://www.bankrate.com/brm/ratewatch/other-indices.asp
The Volokh Conspiracy – Outsiders Voting in Ohio
“A group of us came up with the idea at Oxford. It’s an opportunity for a new get-out-the-vote effort,” said Marc Gustafson, a 31-year-old New York City resident who is a Marshall Scholar at the University of Oxford in England. . . .
In August, they said their stay in Ohio would be temporary. Many said they planned to leave the state in October. Some had to return to school in England by Oct. 12. Others needed to get back to their jobs in other states.
Comments:
(link)Bpbatista (mail):
Unfortunately, Jennifer Brunner has made it painfully clear that she is indifferent to vote fraud in Ohio.
10.19.2008 10:25am
(link)A Conservative Teacher (mail) (www):
Interesting. How much evidence do you suppose has to be gathered before the mainstreem media will begin to even ask the question about voter fraud? Every website I know, including my own, has evidence of voter fraud, all of it in favor of Obama, and people on the street are talking about it too- and yet, no mention of it on any TV channel buy FOX. Thanks for adding to the narrative with this post- I think we’re getting a good picture of how it is now possible to steal an election in America for a communist.
slade said…
“Charles
1) NO. Following the principle enunciated above/elsewhere (Leo I think) keep the regulation as low on the food chain as possible.”
—
Agreed.
In reality tho, all power seems to be inexorably flowing to DC.
Asks Slade, “Too much gov’t or too little?”
Too much is always too little, it seems.
Just wait til those Acorn kids come knocking on your door, carrying clipboards and wearing deputy sheriff badges. That’ll be when we know what “too much” is.
I think there is a strong argument to be made in favor of a diverse set of value stores (i.e. money).
First, technology changes the relative value of goods and services. Imagine a currency that 30 years ago was designed to be a basket of computer components: a couple of transistors, a dozen or so resistors, a few capacitors, and a relay. The value of this basket would, because of innovation, fallen in value by half every 18 months. Yikes. Same logic could be applied to almost any commodity (including gold) or economic output (e.g. food), although perhaps with less dramatic impact.
Second, money is always entrusted to some group of institutions (unless it’s in your mattress). But institutions, being composed of human beings, is bound to have flaws. If you put all of your eggs in one basket – picking up on an earlier Wretchard theme – you make it more likely that there will be catastrophe when the inevitable failure occurs.
Third, relative value changes as preferences change. It used to be that iceberg lettuce was the most popular salad ingredient. Now people much prefer endive, mesclun, bibb, romaine, and raddichio. If you pick a single store of value, there is always the risk that it will suddenly not be so popular (cf. Dutch tulips).
We live in a dynamic society with a dynamic economy. This dynamism is a feature, not a bug. We should avoid shutting down the trial-and-error search process through the imposition of a single solution via government regulation.
However, an argument against regulation is not an argument against standardization. These two are often confused. The internet is a great way to illustrate the difference.
The internet is highly standardized but lightly regulated. Standards emerge through a consensus process in which the market participants debate and refine their approaches until there is an acceptable definition. This doesn’t always work – for every TCP, we have an ATM; for every IP we have a token ring. But over time, there is a gradual evolution that leads to increased efficiency. And when something breaks, the parties examine the failure and further refine the standard.
Now, the US monetary system is very dynamic, but it is set up on a handful standards: the dollar, M1, M2, the discount rate, the prime rate, the T-Bill rate, the Fed Funds rate, etc. We also have a handful of processes for managing these standards: the FOMC, the Fed window, the interbank transfer system, etc. When you think about it, we transact a stunning amount of commerce using a relatively small number of standards and processes. Kinda like the internet.
But this dynamism comes at a cost. Values fluctuate all the time due to “noise” in the system – an unavoidable cost of any dynamic system. And sometimes the feedback loops that are supposed to keep the system in balance get out of whack, and cause a major disruption like the one we’re experiencing. (Interestingly, politics is often what screws up the feedback loops, but political solutions are sought nonetheless. The wheels are turned against the skid. Oh well.)
To be sure, there is a sort of soft, warm feeling that comes from total predictability through regulation. It would be great, in theory. Kinda like communism. If only we had “good” people in charge of the system, we could make it work. We could then turn over our freedoms to the Grand Inquisitor, confident that he would take care of us. Promise.
But there are many problems to such a heavily regulated, highly predictable system. One problem, of course, is what was discussed in a previous thread – predictable systems are easier for the “bad” guys to game. This adverse selection process soon distorts our perfect system, and the result is catastrophe – the polar opposite of predictability. The Black Swan eventually makes its appearance.
If, instead, we focused on where the system was broken – CRA, GREs, leverage, concentration risk – we could learn from our mistakes, refine the standards, and release v2.0. Instead, our reaction to the disaster is to line up the perps for summary execution. They promised perfection; they lied to us. The decks are cleared, and in moves the next group of thugs and bureaucrats.
Meet the new boss. Same as the old boss.
L3
Class Will Tell
“The Republicans, alas, are stuck with this election’s true and unrepentant revolutionaries. McCain and Palin have each refused, by sheer cussedness, to fulfill the social expectations of others. This may make them poison to undecideds who suffer, more than most, from class anxiety. But do not despise the undecideds. Even conservatives can contract Scheiber Syndrome. Think of David Brooks, Christopher Buckley, David Frum, Peggy Noonan, and George Will. The symptoms? Curiously amplified, obsessively repeated, sometimes elaborately stage-whispered doubts about the Republican ticket.
There is no cure, but there is an etiology. All share a dreadful secret–their writing is driven by an anxiety to be tastemakers to the gentry, not merely thinkers and entertainers. There is nothing more anxious-making than striving to create taste for the classes, not masses, or even to keep up with it. (The struggle to do so is etched in the lines of Tina Brown’s face.) But what the classes think is a matter to which the GOP standard-bearers are sadly but nobly indifferent.“
Too much is always too little, it seems. – Buddy
That was just a prelude Buddy to introducing the subject of reallocating resources to better match need with skill set. The problem appears to be quality over quantity of resource allocation, the resource here being government.
Eggplant asserted, “women died like flies during childbirth in the ancient world.” If true, that’s why Eggplant has no ancestors.
Buddy,
But we’ll be comforted to “know,”
after Barry Tells Us,
That he had nothing to do with it!
Eggplant is a Cloned Plant.
To follow up with what Doug said about class. I spent the day at an agricultural fair. Lots of people roaming around with their families. In this part of the country it still takes a lot of work to make $40,000 or $50,000 a year. Most of these people are just making enough to get by. The disdain that the “elites” have for these people and what they hold dear threatens to tear this country apart. Why work hard and do the right thing for your family and country when a large number of your countrymen despise you, your religion, and your concept of what this country stands for. Especially when they see that their money is given out with reckless abandon to bail out bank presidents or to fund anti-american leftists at Acorn. I don’t think it will take much more. I had a tile contractor tell me last week when we were talking about the bail out that this country would have been better off if one of the Twin Tower jets has instead hit the capitol, but only if it had been in session.
The Tile contractor who once played on a level playing field, but now must compete with those that exploit illegals and laugh at the law.
libor rates are significantly higher than a month ago and significantly lower than one year ago. – Charles
Whatever the explanation, makes you wonder if it’s a meltdown, a freeze-up or a stick ‘em up.
Charles, what ya want to look at it is the spread between short-maturity Treasuries and Libor. I believe the finance folks watch the three month but don’t quote as i have a bunch of new blank spots lately. Anyhoo, the wider that spread, the more risk is priced in, and the less financial activity (velocity) can be assumed.
They also closely watch, and act on, the so-called “ted spread” –which you can search more profitably than reading my half-fast characterizations.
Slade, you right –it could be a melt-up, a freeze-down, or worst of all, an up-stuckum (note past-tense –we’re past tense & soon to be walking past tents).
FOX News on Obama [Stanley Kurtz]
FOX News is going to be airing a special report this weekend on Barack Obama’s background, associations, etc. I did a long taped interview for the show, and I expect that parts of it will be used. The report is scheduled to air today (Saturday) at 9PM ET, Sunday at 5AM ET, and again on Sunday at 2PM ET.
—
Whose Tax Problems Are Bigger? [Jonathan Adler]
The press seems obsessed with plumbing the background of “Joe the Plumber.” Some media outlets have even done extensive reports on his alleged tax problems.
Yet, as Jim Lindgren notes, the press did not bat an eye at when Barack Obama’s tax returns showed what appears to be a clear violation of Illinois ethics law. Specifically, Obama reported significant income from “speaking fees” on his 2000 and 2002 tax returns, even though, as a state legislator, he was barred from receiving honoraria and speaking fees at the time.
I would think this would be more significant than whether Joe What’s-his-name has a tax lien, but then I’m not a professional journalist.
Charles and slade,
The current LIBOR issue is fundamentally a perceived risk issue. The year-ago issue was interest rates. The key to watch is not LIBOR per se, but the spread between LIBOR and T-Bills. It is my understanding that the current spread is the highest in history, which tells you banks see other banks as really risky.
Banks used to believe that other banks were good credit; their balance sheets were regularly reviewed by regulators, they were conservatively capitalized, and they rarely failed. And while that might still be true, no one knows for sure. (There is also some question as to whether LIBOR is being accurately calculated by the Brits who manage it, FWIW.)
The result is a big jump in perceived risk of interbank lending (LIBOR, of course, is the abbreviation of London Inter-Bank Offered Rate). All part of the general loss in confidence, and the perception that the only safe place to hide is T-Bills.
If it weren’t for the fact that most of the $150T of interest rate swaps referenced LIBOR, it would be gone by now. And it may still be gone by next year. We’ll see.
L3
I think the thrust of Charles’ question is why the panic now and not a year ago suggesting something synthetic or manufactured about the current crisis. IOW the true trustworthiness of selected metrics or combinations thereof.
A lot of us feel like we’re being chatted up.
Highly, highly recommend the several Fox Specials lately –the “what happened” as well as the “who is Obama” mentioned by Doug. They’re ‘call your mamma & tell her to watch’ quality.
Good news straws in the wind, rememmber Libor & ted have been closing for two or three mkt days now, oil is way down, the money supply after a year-long near flatline has been coming up for three weeks or so now –and gold, which “should” be, oh, say $1500 by now, ceterus paribus, can’t hold $900. Implies more hope in the system than the surface factoids might seem to indicate exist.
And this, too.
ha ha (*groan*) Slade’s “feel chatted up” followed by my little sally sunshine attempt–
Sally forth and spread the cheer Buddy. It’s all good ::))
I swear, if it wasn’t for Fox, this entire ball o wax, would be just one big deep dark mystery. All we’d know, population at large, would be the bytes the Dems are laying out –”Reagan Deregulation” and “Racism” are at fault for EVERYTHING.
…ignoring, of course, that what Reagan deregulated was a nearly 20% inflation, interest rates, and unemployment “economy”.
slade,
I think that a year ago the rate was higher but the spread was much lower. I think it’s the spread vs. the risk-free rate (i.e. T-Bills) that really matters, not the nominal rate.
There may very well be a synthetic element to all this. But my guess is that banks finally woke up to just how much of the crappy paper was floating around on other banks’ balance sheets, probably when they woke up to how much crappy paper was on their balance sheet. They were good lenders, after all, so if they have toxic assets, the other guys must really be sucking pond water.
Just a guess.
L3
Wonder if we couldn’t just draw a red-line triangle connecting DC, NYC, and Chicago, and you know, let Obama be president of THAT?
Thanks Leo – that’s how I see it.
Now for the really interesting part:
European leaders press for new economic order
Fri Oct 17, 2:19 PM EDT
The idea is ambitious: World leaders joined by aides to the new U.S. president-elect would gather before the year’s end in New York and attempt to forge a new vision for the global economy.
French President Nicolas Sarkozy has teamed up with British Prime Minister Gordon Brown to press for such a summit, and the French leader travels to Camp David this weekend to lobby President Bush to sign on.
Brown, buoyed by the praise he won for engineering a British bank bailout that inspired U.S. and European rescues, is proposing “radical changes” to the global capitalist system, including a cross-border mechanism to monitor the world’s 30 biggest financial institutions. Sarkozy has floated the idea of reforming rating agencies and even exploring the future of currency systems.
Details remain vague and the obstacles are many.
But the political pendulum, at least in Europe, is swinging decisively in the direction of tighter control and supervision, away from the laissez-faire economics that fueled a colossal global boom and appear to have enabled an equally dramatic bust.
L3 is right –the spread was normal until Countrywide blew up, iirc. Then quickly, Bear, Indy, F&F, Merril, LEH, and AIG. Then the great debate in DC with the congress & the bailout. (*whew*) a string like in a matter of a few months, it’s really a wonder we ain’t already gone Mad Max –
Micha Elyi said:
“Eggplant asserted, “women died like flies during childbirth in the ancient world.” If true, that’s why Eggplant has no ancestors.”
Population levels were fairly static in the ancient world even though there was almost no effective contraception. Modern concepts of hygiene were unknown in the ancient world. Child mortality rates were appalling as was female mortality due to child birth. Both Rome and Athens had large percentages of their populations wiped out by plagues. In his history “The Peloponesian War”, Thucydides provides a horrifying account of the plague in Athens (he almost died from it). We’re all very lucky to be alive today (have ancestors).
Re slade’s post, Russia has suddenly been making nice –just in the last day or two. Saying they will abandon Sevastopol if they have to, saying Georgia was a one-off (due to DC meddling, but still). Their RTS exchange is down 73% since May, and if oil falls much further, their Ural ops go flat –meaning zero growth for Rus economy. Maybe –just maybe –something good –and inclusive –is brewing. Brussels has responded with “Russia can be part of Europe” noise. I know –that may mean the reverse of that –but, with the new realization how interlocked these economies are –MAYBE there’s hope that we aren’t in a 1914-like loop.
Then quickly, Bear, Indy, F&F, Merril, LEH, and AIG. – Buddy
I’ve been thinking in terms of the robustness of the western response and wondering about the international bet. The conspiratorialists seem to think the bet was for nationalizing the markets as part of some grand domino scheme, but I wonder. It seems not unreasonable to bet that, being true capitalists, the banks would be allowed to fail without putting up the public dollar as backstop.
The anger over the bailout is still palpable. I am sympathetic. I am not convinced that the second option – properly managed – would not have been preferable. But the economic “pain” in the international arena would have been satisfying. The other element is the blowback from connected international economies may have been underestimated, absurd as that may sound.
[Speaking of Mel, I'd rather hire the Porter character from Payback to just wander the halls of Congress until the $700B reappears in the black column.]
I sympathize –i too dunno which was right –by the time Paulsen spoke (Sept 21), we were three days past the Sept 17 nosedive of the so-far so-good banks MS and JPM –so it was really a case of no choice –tho there had been a choice earlier –had we known the extent of the problems. Lesson –don’t depend on the regulators. Corollary –then, who?
The Russians knew in July.
Roubini’s been lecturing and writing since 2006 (?) or thereabouts.
I’ll be (slowly) letting this go, since I have no new thoughts to add, but I would not be nearly as angry if this had been confined to a “normal” 15%-20% correction, instead of the 40%-50% loss (it’s not over yet) coupled with the magnitude of the bailout yet to be determined.
But that’s OK. Not being a young person, I repositioned some of my portfolio into cash just as the sun started to break through the clouds.
Buy high. Sell Low.
Fox News Report on Obama Here Now
Yup –Asia/Pacific up –onward & upward –
Only part of the report, Sorry.
Another blast from the past –h/t instapundit –the 1836 shenanigan. Andrew Jackson –who’da thunk it? At least he won the Battle of New Orleans, and didn’t mess up the economy for his own personal aggrandizement.
This post is written as if the stock market closures were the product of an economic contraction, rather than the outbreak of war (hence the observation disparaging the gold standard). As far as I know, the stock market was shut down in America because of the war, and in part to prevent an outflow of gold from Europeans liquidating their American securities and repatriating gold.
Now, when the Europeans want to liquidate, our puppet politicians obligingly put the taxpayers further in hock to give them dollars (even when the European securities, such as AIG CDSs, are worthless). So that time around, we had leaders protecting American interests; this time around, we have leaders subverting them.
There are a plethora of reasons the Constitution mandated only gold and silver as money. Indeed, as Warren Buffett’s father explained at length (http://www.fame.org/PDF/buffet3.pdf), it is perhaps the only way to preserve freedom. Oops.
Eggplant: My Granny was born in 1864. By that time things were greatly improved in the infant and maternal mortality fields.
Nonetheless, while she had 6 children that lived, she also had either 4 or 5 that did not make it. Judging by the markers in that old Alabama cemetery, others had the same problems and many mothers perished as well.
And Granny’s brother-in-law was an MD who spent more than one stint on the teaching staff of John Hopkins. So she had the best medical advice available. It wasn’t all that much.
I was born in 1944. Between polio, a SARS-like epidemic, double pnuemonia and inumerable allergies, I was on the verge of infant to childhood death on more than one occasion. Had I been born one generation earlier, there was no way I could have survived.
That nice young couple that bought our house in Midland had a daughter that died of leukemia. George and Barbara Bush are both grateful that today other parents won’t lose a child to what killed their Robin.
It has been one heck of a road getting as far as we have gotten. We should all show some humble gratitude.
problem always is, “specie” (gold & silver) just can’t always create enough credit (see above link to essay on 1836 crisis) to meet legitimate economic demand.
“Enough” credit being, presumably, more than “not enough” and less than “too much”. What William Jennings Bryan was talking about in his “cross of gold” speech. Farmers couldn’t expand, with all the adversities that flowed from there.
We were probably okay, even with the Greenspan EZ money, had we not gone ‘unnatural’ on lendability.
Dave, i was born in Alabama, too, just a few years later –and almost died of Whooping Cough as a small babe. Musta been germish down in the bottoms –i was born on the Tombigbee river. well, on the banks, in a town, not in the river.
Buddy, it is my contention that “free coinage of silver at 16 to 1″ was a corporate welfare scheme through and through.
Post revolution, the Congress adopted a bi-metallic standard. The dollar was basically a silver dollar with gold as a secondary standard. Ratio was 20 to 1. A double eagle had the same amount of gold as a cartwheel had silver. 20 to 1 had been the ratio since Day One.
Then the industrial revolution hit second gear. Silver began being obtained as a by-product of lead, copper and zinc mining. And the quantities of these industrial metals soared. This devalued silver to 35 to 1 if not 40 to 1. Additionally, silver destabilized and the amount produced varied with the business cycle.
Congress then passed a law decreeing an upward valuation of silver to 16 to 1. Sorta like passing a law declaring pi to be 3.0.
So “free coinage” meant that anybody with 16 troy ounces of silver could obtain 1 troy ounce of gold on demand. In other words, turn in $16 and get $40 back with the taxpayer making up the difference.
Needless to say, the poor disposseed working families of America all thought it was a great idea.
Fortunately, a gold standard wasa adopted as the Civil War greenbacks were dried up and that stability gave us the industrial base for the 20th Century.
BTW Buddy, I was born in Lubbock. Lived briefly in Hobbs NM, then to Midland, then to hometown of Crane.
Mother was born in Alabama and reared in Baton Rouge.
Lucky break for me with all my troubles was being out there in the oil patch. Much better medical facilities than the cotton patch. The oil mafia exploited a lot of us into eventual good health. And amazingly enough, we refrain from bellyaching about it.
Did you know that “The Wizard of Oz” was a political/financial polemic?
L Frank Baum was a free coinage of silver man. In the book, Dorothys slippers were silver. The Yellow Brick Road was the gold standard. The Munchkins were Filipinos (a war with them was going on). Tin Man was industrial workers. Scarecrow was the farmers. Cowardly Lion was (I forget). Different political personalities of the day were potrayed as (memory fails me.)
So forth and so on. T R Fehrenbach had column on this couple of years ago.
And in a final note: In the movie version, the snake oil salesman (gold advocates) is seen wearing a well-worn Prince Albert coat.
During the filming it was discovered that said coat had been originally made for——–
———————————————-
——————————————————————– L. Frank Baum.
In his later years, he did not seem to mind being paid with gold.
Dave said:
“Nonetheless, while she had 6 children that lived, she also had either 4 or 5 that did not make it. Judging by the markers in that old Alabama cemetery, others had the same problems and many mothers perished as well.”
I find it calming to walk through cemeteries, particularly old ones. However as a parent, I also find it painful to see the graves of children. The loss of sweet innocence along with the suffering of bereaved parents seems to radiate from the old graves. Something really striking about mid-19th century graveyards is the large proportion of dead children. It’s interesting that in the mid-19th century, they almost always buried the dead kids with their mothers, i.e. children didn’t rate separate graves.
My wife has this family tree that goes back 4 centuries (old German). She has great, great, … great grandparents who lived in the mid 1700s that parented 12 children. Of those 12 children, only one survived to become a parent and carry on the genetic thread that lead to my wife and my own children. The pain those poor people must have experienced to have lost 11 children. It’s amazing what punishment human beings can take and continue to go on living.
Eggplant, it is amazing that H Sapiens is still around.
I gotta go to bed now. But about cemeteries:
If you are ever in San Francisco, visit the cemetery at the Presidio. In the old days, families and friends put up tobstones. They were not limited to government markers.
You will see a lot of Union Army vets buried there, mostly from Massachusetts. Memorials to cavalry troopers who drowned in a flash flood in 1850. Another marker for sailors killed in the Boxer Rebellion.
At least one Sergeant who would have been with 4th Cavalry in 1874- where She Really Did Wear A Yellow Ribbon. Others who bought the farm in unpublicized wars. And on and on. Place is a regular history book.
See you tommorrow.
Louie Louie by The Kingsmen (1964) was really a sea shanty.
Dwight Rounds, author of The Year The Music Died, 1964-1972, writes: “The words to Louie, Louie are almost impossible to understand, and are rumored to be obscene. No question that this added significantly to the sales of the single. There was probably a leak somewhere that the lyrics were obscene; otherwise no one would have realized it. This was the most ingenious marketing scheme ever. The FBI tried to track down Richard Berry, The Kingsmen, and various record company executives. They were never able to determine the actual lyrics used. To this day, the Kingsmen insist they said nothing lewd, despite the obvious mistake at the end of the instrumental, where Jack Ely started to sing the last verse one bar too soon, and can be heard yelling something in the background. Ely also said that he sung far away from the microphone, which caused the fuzzy sound, and that the notoriety was initiated by the record company. The words sound much more like the official version seen below … The lyrics rumor was a sham.
Fine little girl waits for me. Catch a ship across the sea. Sail that ship about, all alone. Never know if I make it home.
Three nights and days, I sail the sea. Think of girl, constantly. Oh that ship, I dream she’s there. I smell the rose in her hair.
See Jamaica, the moon above. It won’t be long, me see my love.Take her in my arms again.Tell her I’ll never leave again.
Chorus: Louie, Louie, oh no. Me gotta go. Aye-yi-yi, I said. Louie Louie, oh baby. Me gotta go.
http://biz.yahoo.com/ap/081020/world_markets.html
Oct 20 2008
In spite of the early rally, confidence in the markets remains fragile given last week’s extreme volatility and interbank lending rates that remain abnormally far above central bank benchmarks, a sign of distress in credit markets.
“We would be slightly more confident in suggesting that equities have reached a trough if we were to see some normalization in money market spreads or a reduction in measures such as equity market volatility,” said Peter Dixon, an analyst at Commerzbank.
“The fact that both remain elevated suggests that we cannot make such a call with any degree of certainty,” he added.
Particular focus will be on interbank lending rates this week and whether the logjam in credit markets is breaking, in light of the flurry of activity by governments over the last couple of weeks. There are growing signs that the government bailouts of banks around the world, the coordinated interest rate reductions announced earlier this month and massive liquidity boosts by central banks, are beginning to reduce lending rates between banks.
Overnight, the Hong Kong interbank offered rate, known as Hibor, for three-month loans tumbled to 3.66 percent from 4.19 as the territory’s de facto central bank pumped more money into the financial system.
Divyang Shah, a strategist at Commonwealth Bank of Australia, thinks that three-month interbank rates could fall “aggressively” this week.
On Friday, the interbank lending rate for three-month dollar loans fell for the fifth day running, the first weekly decline in three months. It dropped 0.08 percent to 4.42 percent, while the three-month Euro Interbank Offered Rate, or Euribor, fell almost 0.045 percentage points to 5.045 percent.
“Early indications are that 3-month Libor could fall by around 0.24 percent today,” said Shah.
Another memory of a cemetery:
As my uncle and I were paddling down a lake in southern Ontario in 1945, he pointed to an island and told the following story:
As he and an old Chippewa man were paddling along the same lake in about 1910, the Indian pointed to the same island and said it was the island on which he had married and many years later buried his wife. He then said something my uncle never forgot: “She was a wonderful mother–nineteen kids and only ten of them died.”
“”"”"”13. Kingston53:
We are not just experiencing a financial crisis; we are experiencing a moral crisis. The real root of this problem is that a majority in our government don’t feel any responsibility for the money they forcibly extract from the taxpaying citizenry. While some have focused on the greed on Wall Street, to me the bigger problem has been the greed of our public servants. Instead of being stewards of the public trust, they have looted the storehouse to fund bridges to nowhere or to loan taxpayer money to people who could or would not repay it.”"”"”"
My sentiments are similar. One need not be a raving Calvinist to appreciate the need for a moral foundation to guide both a sound society and sound government. With the amoral fever that seems to have gripped so many in the West as well as those who emulate the West, it doesn’t matter which variant of “democracy” a nation chooses if the underpinnings of integrity and self-discipline aren’t there. Even a free-market system will fail if it’s practitioners take a cartoonish, reckless approach to how those markets are run, and how people conduct themselves in business.
We also seem to be suffering — in my view — what I might term “valuation inflation,” for lack of a better phrase. What I mean is that certain types of people, institutions, services, and things have been overvalued. Someone recently said that the stock market — where it is now in the 8,000-9,000 range — is where it should have been for some time now, but wasn’t due to overvalued stocks. Housing prices, when averaged out nationally for the U.S., have been as much as double what they really should be in constant dollars, and even the cost of a college education has become way overpriced overall compared to rates of inflation. CEOs of major corporations — men and women who’ve invented no thing or process that has made a major contribution to either economic or human progress — are paid many times what they are actually, intrinsically worth. Athletes and successful actors are really worth only a fraction of their compensation, etc. ad nauseam. I’m suggesting no “legislation” or legal corrections to any of these phenomena, as that would be even more outrageous, but I am suggesting that we have gone way overboard in valuing the wrong things for the wrong reasons. And please understand that I say all this while 1) Appreciating, respecting and accepting human nature for what it is, and 2) being a “free markets/free minds” kind of individual.
Big business and big government have grown up in parallel over the last century, and this is no coincidence (and the so-called “Progressive” movement was right in the mix, spurring things along for both). There is an incestuous relationship now, perhaps as never before, between these two sets of institutions, and a lot of crossover between the two on the part of our elites. Neither set of institutions has any regard or interest in actual free markets, and may only find “free minds” useful if the creativity of such minds can be harnessed to fatten either the bottom line, or government power and coffers.
“. . . problem always is, “specie” (gold & silver) just can’t always create enough credit”
Banks and other institutions create credit; gold and silver merely provide the backing for their promises. There is no reason to believe a central bank is any better than an diverse assortment of financial intermediaries at providing “enough credit”–and every reason to believe that a central bank is biased toward creating too much credit.
UPDATE: …search for Bank of International Settlements revealed it’s estimate of total world derivatives value at:
$,140 Trillion!
”
The Bank of International Settlements estimated that the amount of listed credit derivatives, i.e. tradable in some form through an exchange, stood at roughly $548 trillion. The amount of OTC derivatives was estimated at $596 trillion notional value. This brings the total derivatives estimate by The Bank of International Settlements to 1,140 trillion.
“
Remember, they net against each other to a very large extent –
Dow closed up 400 just now –wheeee–but light volume. Some smart folks ignore any move that isn’t confirmed by volume –though price is price, in the end.
Rechecking the low which I heard at 6500-7700 depending on source.
With a second check to come after a 1500-2000 rise. If that one holds, safe to get wet again.
Appears that CME Group is in the lead for a clearinghouse for future CDSs. Tomorrow the LEH CDSs are spose to settle. Wall Street doesn’t seem to bee too worried –must be that gigantic pig of Sam’s Best liquidity now making its way thru the python toward the trading desks –
Intrade puts an Obama election at 85%.
(Wadeusa? I think it’s Cabinet time.)
Back when, two years or so into Carter, i was a young married guy with two kids, already working internationally and thus had easily proceeded two or three steps into immigrating to Australia when the two mothers (hers & mine) went to guilt-tripping about not seeing enuff of the grandkids. I love my country but can’t stand communists. I guess Oz-land has the same problem, tho, after all.
My private nightmare (until now) is an EMP attack that wipes out the electronic record of what little I have left and might accumulate during the next ten years. As soon as I recover my principal, I’m putting it into a small local S&L.
That can happen anywhere though but Australia does have some beautiful areas with urban refuges as required. And coastline. Lots of coastline.
One of three Kudlow analysts (Quentin Hardy) thinks the 7000 low is still to come. The difference seems to be whether the 2008 clutch is a “normal” recession or not. It might not be, but it could behave like one.
Not to be a messenger-attacker, but Quentin Hardy sold all his stocks eight years ago, he said recently. That would be around the bottom of the dot-com bust –and he’s a professional dot-com analyst. I usually discount him a pretty good bit –he’s talking his own ‘book’ nearly always. He’s an official in Obama’s California campaign, too, BTW. He’s also a smarmy smart-ass, but that’s just my personal opinion.
O/T, What to mention to Obama smugfesters.
H/t to this great essay.
Thanks Buddy.
slade, re your #111, private nightmare –i almost never remember dreams, but had one a couple weeks ago that woke me up. There’s a high hilltop on this old piece of scrubland, on a clear day we can see the western burbs of Austin 40 miles away. Austin, where i have five kids (four mine and a niece) schooling working and living. Anyhow in the dream I was up on the hilltop with my long-lost best friend from elementary school back in south Louisiana, the kid next desk over when we were doing duck & covers over the Cuban Missile Crisis. In the dream we weren’t as you’d expect laughing at how old we’d gotten, but were talking about that atomic bomb again –when suddenly one of the goddamned things went off over Austin. The mushroom climbed crazily fast up into the sky and Leonard and I, we stood there watching the blast wave rushing toward us, i was so sad over the kids i couldn’t stand it anymore so i woke up. It was around 4 am so i went ahead and made coffee and had a smoke. Nerves were kinda shot for awhile there –took a good hour to get to where i felt silly –feeling silly being always my clue to clamber back from the edge of whatever dream i’m in or out of.
::))