THE MATTERHORN INTERVIEW Special: Jesse of Jesse’s
Café Américain – September/October 2013
“We Are Seeing An All-out
Defense of the Status Quo”
On behalf of Matterhorn
Asset Management, financial journalist Lars Schall
talked with Jesse, the host of the popular financial web site Jesse’s Café Américain, about, inter alia: his interest in precious
metals; why he thinks the U.S. Commodity Futures Trading Commission decided
to take no action regarding complaints about manipulation of the silver
market; the future of the so called “currency wars;” and last but not least
why he believes that the Federal Reserve is laying the groundwork for its own
demise.
By Lars Schall
Jesse’s web site
Jesse’s Café Américain can be found here.
Lars Schall: Jesse, tell us at the beginning a bit about your
background, please. For example, what motivates you to run your web site and
comment on a daily basis on the financial markets?
Jesse: I had a long career in
engineering, computers, and communications that was based on a good
foundation, a classical education in the arts and natural sciences. As you
might expect there was a significant amount of post graduate study in
specialized and developing areas of computer science and networking.
Fortunately I had a good mind for math, and a talent for music, which makes
for a good encoder and algorithm developer.
Our minds and our time
are the two resources that are most within our control. I naturally loved to
learn, but it was coupled with a sense of ‘obligation for use’ that is
embodied in the parable of the talents: with advantages come obligations.
This is not to say that I
always used what I have been given well and wisely, but I have always made
the attempt, even while falling. One learns, and learns to forgive, first
others and then themselves. None is perfect in this world.
My corporate career ended
at age 50, leaving it in order to spend more time at home, and especially
with my young son. I had been working very long hours and spending a
significant amount of time away from home for too many years, and did not
wish to lose any more of that precious gift of family. Calculations showed
that given our savings, and naturally modest lifestyle, we could get by on
what I could make from trading in markets and some other investments. And so
this has been the way it has been for the past twelve years.
Solitary work lacks the
camaraderie of the workplace, and I also knew that without the impedance of
producing something ‘on paper’ and subjecting it to objective evaluation and
criticism, that it was all too easy to be fooled into self-indulgence and the
subtle misapprehensions of self-reinforcing thought. And a person is not
fully alive unless they are changing and creating something.
Voila, Le Café.
L.S.: Do you follow a
particular world view?
Jesse.: With a broad education and
exposure to many cultures and schools of thought and religions and
philosophies, my background is more varied than one ordinarily might enjoy.
There are few philosophies and religions that I have not taken for a serious
‘test drive.’ This is the benefit and the curse of a restless mind.
But it seems as though I
have always come back to ‘Christian humanism’ which has its roots in the Renaissance
and the earlier Church. And in my mature thought I am a practicing believer
in all that it represents. I understand those who doubt, since doubt is a
natural condition and a pre-condition to growth. But at some point my own
doubts were overwhelmed by belief, and subsumed in what is called ‘faith.’ I
could not escape coming to the same conclusion, over and over again. It
reminds one of the old poem, ‘The Hound of Heaven.’
L.S.: Why do you focus
in your work especially on precious metals?
Jesse.: I had always been interested in
stocks and bonds, and then derivatives. I took my father and mother’s
financial situation in hand, and helped them to achieve a comfortable
retirement. I was a little more speculative in my personal dealings as I was
young. I was an early trader in the stock options markets when all their
listings would cover less than one page on a newspaper.
Gold and silver became
interesting for the first time in the 1990’s, when I started to study the
history of speculation and stock market crashes, and the rise and fall of
bubbles.
This led to a fairly
serious study of the nature of money. Up to about 1999, I had no interest in
gold and silver. What I saw happening in the world economy then sparked my
interest in that subject.
I write about gold and
silver now because they are at the heart of what is happening. And there is
not as much about stocks and bonds, because I have stopped trading actively
in such a broad range of things.
I am fascinated by the
sea change in the world monetary system, which has been colloquially called
‘the currency wars.’
L.S.: Will those
‘currency wars’ intensify going forward according to your analysis, and if
so, how do you think they will play out?
Jesse.: Yes they will intensify and we
are seeing that already. A fiat currency is an exercise in both confidence
and power. As confidence weakens, the use of power must intensify to maintain
it.
One of the things that
people tend to forget is that when one adopts a common currency, they
surrender a portion of their economic autonomy. We are seeing this play out
in the European Union as monetary theory would predict.
In adopting a common
currency, the euro, the entire region thereby agreed to let a central group
set their monetary policy for all, which includes the ability to tighten and
loosen supply in response to prevailing economic conditions. But whose
conditions, when they vary over a broader area?
When a country adopts
another currency, they surrender a portion of their own fiscal authority, and
thereby their political autonomy. If you do not believe this, just look at
what is happening in Greece and Cyprus.
A common fiat currency
system works over a large and diverse region such as the United States
because in addition to monetary union there is a political union as well,
including transfer payments and spending to those regions which may have
differing economic conditions. Fiscal policy evens out the blunt force of a
unified monetary policy.
This is important,
because as the rest of the world is now seeing, the dollar hegemony is not
working because the United States is setting monetary policy for itself, but
is doing it with the world’s reserve currency. This is where the dislocations
begin in some regions of higher natural growth, which see inflation and other
effects first that place a stress on their political governance.
The outcome of the
currency war will either be a supra-regional government that encompasses most
of the developed world, with the same problems that have become apparent in
the European Union that leads to repression, or some other resolution that
permits for local autonomy with more flexibility for international trade.
Obviously this is a range of possibilities and the actual result will be
evolving somewhere in between.
The creation of a
‘currency’ that is not under the control of a single political authority
could be achieved by creating a unit of trade based on a broad basket of
national currencies. It ought to include of something under the long term
control of no one such as gold or silver.
There will still be
manipulation of currencies and metals, but the manipulation will be more
difficult because the power of each is diluted within a basket if it has been
constructed well.
Since money is power,
those who are in control of the money of the status quo, the US dollar, will
resist this change, even to their own eventual disadvantage and destruction.
Pre-eminent among those are the multinational banks, which are loosely called
the Anglo-American banking cartel. This extreme defense of untenable
positions is an unfortunate tendency of the human nature of those who are
driven to seek power and fear losing it.
By the way, the US is suffering
a protracted recession now because while monetary policy is active, although
misguided, the fiscal policy has stopped functioning well because of
political deadlock. The monetary policy that Bernanke has set is a trickle
down approach, which is obviously failing because it is operating in a system
that was already skewed by corruption and has not been reformed. It is like
sending aid to a Third World country. The aid is seized by powerful warlords
and used for their own advantage, with little reaching the people.
They know this, but they
do not care. It is about personal advantage and careers.
In the US in addition to
political deadlock, caused by a struggle for power, there is ironically a
credibility trap as well. Both sides are dipped so deep in the corruption of
the system that they cannot bear to unleash any uncontrolled reform movement,
but they are also fighting one another for the spoils. I have seen this play
out in the failure of major corporations, and I am seeing it now again on a
larger scale.
L.S.: What would you
say is essential to know in order to understand the precious metals?
Jesse.: Exposure to other cultures and
times is most important. One can become very insular and parochial in their
thinking. We can believe that what is now has always been, and will always be
so.
As the great financier
Bernard Baruch once said, gold ‘has worked down from Alexander’s time. When
something holds good for two thousand years I do not believe it can be so
because of prejudice or mistaken theory.’ So if one wishes to understand what
money is, they might start with gold and its inherent characteristics, since
the majority of history seems to have voted in its favor. This is not to say
that gold is the only money, but rather, if you wish to understand money, you
must first understand the essential characteristics of gold.
One of its great
advantages is that gold and silver have no counterparty risk, and depend on
nothing but themselves for their value. Think about a time traveler, who
takes a fifty US dollar bill and a fifty dollar gold piece back to ancient
Egypt or Rome. What is the probable relative value of each? What has changed?
Therein are the difference and the risk.
L.S.: Would you
support a free competition of money so that people can choose the various
forms of money that they want to use without a force behind it that imposes
it upon them (a monetary diktat)? I think your critique regarding the Modern
Monetary Theory (MMT) goes a bit in this direction.
Jesse.: Yes you are right, the difficulty
I see with Modern Monetary Theory is that is has not constructed a
systemically based governor in its monetary construct.
In theory the Federal
Reserve and the Treasury are circumscribed by the judgement
of the debt markets which are diversely held. With regard to Modern Monetary
Theory I have asked what the limiting factor on issuing money might be. The
reply to date has been that no limitations are required because a fiat
currency cannot default, and the valuation of the currency can be maintained
by force of various types.
This only works if one
has sufficient political force over everyone who uses the currency. That has
been tried before, in the Soviet Union for example. The currency deteriorates
from the outside in, from the basis of international trade. And it takes
increasing force to maintain the currency as confidence fails.
I am sympathetic to the
idea of displacing debt as the basis of currency because of its many abuses.
But that speaks more to the corruption of the system which finds no cure in a
currency as proposed by MMT which is even more discretionary and powerful
unto itself.
A successful currency
must emulate some of the characteristics of gold to be sustainable. They
would do well to study it. Bitcoin has some
promising characteristics, but also some fatal flaws. I have discussed that
in the past.
But I should make it
clear that I am not in favor of a gold standard per se. First of all, the
system is so corrupt and so fragile at the present time that a gold standard
would be too severe a cure.
Rather, I would like to
see a system where people have a choice to store their wealth in a variety of
instruments including gold and silver, and have the ability to settle
transactions in things other than an official currency. That becomes a
problem given the propensity to tax private transactions, to which I am also
adverse. But perhaps that is a discussion for another day.
L.S.: Do you think to
own gold and silver these days is the right choice, and if so: why?
Jesse.: I cannot speak for anyone else since
everyone’s circumstances are different. In my own case it seems to be a good
idea to have a portion of my portfolio in precious metals as a protection
against the debasement of the currencies, and the many unknowns that are
brought about in a great change in the monetary system such as we are seeing
today.
These great events tend
to happen over time, and that lulls us into complacency. But they then seem
to come all in a rush and intrude on the public consciousness so that people
say, ‘how did this happen?’ That is how it was with the last financial
crisis.
L.S.: Is the rigging
of the precious metals markets getting more and more obvious for you as a
trader?
Jesse.: I do not see how anyone who
watches the tape can miss it. The sell at market of large numbers of
contracts in quiet periods, what has been called the Dr. Evil strategy, is
hard to miss. The intent is quite clear, to knock the price down for some
period of time. A simple rule would suffice to stop this sort of abuse, but
it does not happen.
L.S.: What’s your
comment on the dismissal by the U.S. Commodity Futures Trading Commission of
complaints about manipulation of the silver market?
Jesse.: It is the credibility trap in
action. The manipulation of the silver market has the de facto sanction of
the government and the regulators who have turned a blind eye to it for so
many years that to admit it now would be awkward and embarrassing. The TBTF
banks hold so much power because they can threaten systemic destruction, but
also ‘know where the bodies are buried’ so to speak.
It is ironic that the US
system has now devolved into a serious of threats of destruction and power
standoffs, in the both the political and financial systems. That is a symptom
of lawlessness.
I think that if reform
does come it will come slowly, as those in political power try to operate
behind the scenes to repair things without risking themselves, and upsetting
their personally lucrative arrangements and careers. Transparency is not
possible because too many still in power are complicit, and speed is not
desirable for them because let’s face it, the system is working for them as
it is.
The problem is that short
term thinking like this can allow a situation to become so bad that it
reaches a tipping point. That is why there was such a concerted effort to suppress
the Occupy Wall Street movement. No deviation or dissent from the status quo
can be permitted at this fragile time.
And this is why they say
that every so often progressives and reformers must save capitalism from the
capitalists. Their short term greed takes them to some tipping point, and
they become locked down in a credibility trap that must be resolved from the
outside. That is a period of great risk, because sometimes cures are as bad or worse than the disease.
L.S.: How do you
interpret the movement of physical gold from the West to the East?
Jesse.: It is just a surmise, but I think
we are seeing an all-out defense of the status quo, as represented by the
Anglo-American banks that are founded on the dollar. This certainly includes
the European banks unfortunately, but I tend to view all but the biggest
multinationals as more dupes than insiders. Greed and hypocrisy are the
fashion of the day amongst many.
The East is taking
advantage of the artificial pricing of the metals to ‘stock up’ if you will,
and are not only buying for themselves, but urging their people to buy as
well, with a few notable exceptions such as India which has accounting
imbalances and has lagged behind on official purchases. The East is preparing
for what they think will come next. The West is caught in a failing system,
and keeps doing the same thing as though it will still work, somewhat
neurotically perhaps.
L.S.: What does the
financial crisis, its causes and how it is managed tell you about the state
of the West, for example morally? Or, to ask it differently, do you believe
this is just a financial / economic crisis or is this going much deeper?
Jesse.: It goes much deeper. Starting in
the 1980’s, the culture of greed and self-centeredness has become
increasingly ascendant. Yes, there is always a certain amount of cynical
corruption amongst a minority of a people, but sometimes that type of behaviour becomes more socially acceptable, almost
contagious, and tends to drive out the good behaviour
which cannot compete with it in the short term when the rules are overthrown.
L.S.: If you were
calling the shots, what would you do to solve the crisis?
Jesse.: I obviously cannot address that
in any reasonable amount of words, except to say that the influence of big
money on the political process is the root of much evil. At one time we had a
thesis and antithesis in the political debate. But now that the ruling class
has found out that they may become quite rich by acquiescing to certain
things, and that there are few consequences for what one may do in that
pursuit, the outcome is fairly predictable.
We have to bring back
consequences, transparency, and the rule of law.
L.S.: Do you support a
free-trade zone between the U.S. and the EU?
Jesse.: Normally free trade zones are not
necessary amongst mature economies that are operating on a set of common
principles and openness. The zones are generally used to encourage growth in
a particular geographic area, so it is a form of government subsidy.
I also do not favor a
regional or world government, on the basis that the greater the concentration
of power, the higher the probability of groupthink, shared policy errors,
crony insider dealings, and corruption. ‘Free trade’ like free markets is a
fantasy that seems to be a stalking horse for world government. They are not
naturally free.
I like differences, and
think people should have the ability to determine how their own society
should function and what its priorities should be within some reasonable set
of decencies. And like a common currency, common governance tends to flatten
out differences, and encourage repression. I always enjoyed seeing the
cultural differences in my travels and would hate to see that replaced by an
artificial blandness and dystopian uniformity.
L.S.: This year will
see the 100th anniversary of the U.S. Federal Reserve. Your thoughts on this?
Jesse.: It really doesn’t matter what I
think, but the Fed is laying the groundwork for its own demise.
L.S.: Why do you think
so?
Jesse.: They are discrediting themselves,
and have also painted themselves into a corner. The notion that an all-wise
and selfless group of technocrats can wield such enormous power, while
operating in secrecy and by their own judgement, is
a romantic myth.
Eventually they make
mistakes, and seek to cover up those mistakes, and make even more mistakes in
the process. Greenspan was like a slow poison for the Fed, but even if he had
not been the chairman in service of the political interests for far too long,
I am afraid that the Fed would have probably died of old age. A system must
renew itself every so often, and the leadership of the Fed has not been up to
that challenge. That change must come from outside the Fed which is a
creature of the Banks.
It will be replaced by
something else. What that will be I cannot say.
L.S.: What are your
thoughts on the direction that the U.S. has taken in general?
Jesse.: If one looks at the marvelous and
broad international support which the US had after the 911 attacks, and
compares that to where the US stands for now, in the depths of its scandals
and corruption, the policy failure is obvious. I have likened the modern
presidency to the emperors of Imperial Rome, with Reagan as Julius. And so
now we have Obama as Claudius.
We speak of the US, but
we must distinguish between the government and the people. The government is
in the grip of the monied interests, and pays lip
service to the wishes of the people. Reform is needed, and a return to the
principles that made the US a beacon of freedom, even if it may have faltered
in practice.
L.S.: Given your
background in computer sciences, do the revelations regarding NSA & Co.
surprise you? And what are your thoughts about it that privacy seems to be a
thing of the past?
Jesse.: No it does not surprise me. The
internet has placed a great deal of information on a common network, and this
creates enormous risks for security that were lulled to sleep by a faith in
encryption and Virtual Private Networks. I had spent a great deal of time
helping certain entities construct secure networks in the past, and the
permeability of the new networks makes me shudder. The internet is both a
blessing and a curse.
Secrecy is not compatible
with freedom. And the partnering of the corporations and the government in
secret arrangements is a deadly threat to personal freedom and privacy. There
will be technical solutions. The problem is more in the realm of the
political. Again, those who love power rarely wish to relinquish it
willingly.
The intensity of the
reaction against whistleblowers, most lately Mr. Snowden, is a wake-up call
to people who cherish their freedom.
L.S.: Does it frighten
you that computers will be pretty soon more intelligent than humans – the so
called ‘singularity’?
Jesse.: Not at all because it is not
true. A computer is a tool, that does certain things
very well. And so is a jackhammer. And a backhoe. And a nail gun.
What is intelligence? A
computer is very fast and accurate, and can access an enormous amount of data
very quickly. But it is only as good as its programming. It is very adept at
deterministic processes. It can ‘ape’ human thought if the programming is
good enough, the so called Turing machine. But computers are not self-aware
and have no imaginations and no souls. They have no sense of justice.
They are very powerful
tools for processing information. But they are tools that remain in the hands
of a human mind, for good or ill. People who do not understand them may fear
them, but that is how it has always been with all new technology.
L.S.: Are you
optimistic for the future of mankind?
Jesse.: Each person sees great peril and
challenges in their own time. This is obviously clear from reading history. I
have lived a bit over 60 years, and grew up in a period of time where we
legitimately feared mass obliteration. My own parents and relatives grew up
desperately poor in the Great Depression, and then went off as young people
to fight overseas in terrible wars. And we think it is worse now? Only if we
think like children who know nothing but their own fears and needs of the
moment.
The human spirit is
resilient, and to strive for the ideal is essere
umano. And so I believe that the long arc of
time bends towards justice as has so commonly been observed, even when it
appears that entropy has things in hand.
I am particular fond of a
German poem by Friedrich von Logau that has
popularized, in translation, a theme that has its roots in a philosophical
and historical theme that goes back to the Greeks at least.
“Through the mills of
God grind slowly, yet they grind exceeding small;
Though with patience
He stands waiting, with exactness grinds He all.”
Friedrich von Logau, Sinngedichte
L.S.: Jesse, you’re
obviously an homme de lettres. What are the three books / authors you would
like to recommend to read?
Jesse.: Alas, you may as well ask me what
three foods people should eat. I have read voraciously all my life starting
from the earliest age. The greatest gift I had ever received as a young boy
was a set of books. But what I enjoyed reading then is not suitable to me
now.
I suggest that people put
down the popular novels and magazines once in a while, although I hate to say
anything that discourages reading of almost anything these days. As human
beings we need to challenge our minds by bringing them flush up against the
mind of genius on occasion.
But it is hard to do this
when one is just coming off the couch of the internet or television, so one
must begin with something that catches their interest. Genuine learning
occurs when the mind is taken out of itself by experiencing the joy of
learning, an ecstasy of understanding. But a little learning is a dangerous
thing, so learning must become a way of life.
As Eric Hoffer said, in
times of great change, the future belongs to the learners. The learned, those
versed and situated in what has been, are experts in something that is fading
away. They may resist that change, but they are fighting a battle against
time and forces that are probably beyond their understanding. And with
genuine learning comes humility, and that also is essential to adapting to
change, and being fully human.
L.S.: Thank you very
much for taking your time, Jesse!
Jesse.: Well, Lars, you’re welcome! But
one thing I meant to ask you is why is the German public accepting the de
facto confiscation of its gold so cavalierly?
L.S.: The main reason
is that it isn’t well informed about the subject per se, and the other one is
that it has no clue whatsoever about the monetary system and why gold will be
important in years to come.
If our politicians
would say – and one day they will – that we should sell the gold that is on
our soil in order to pay down some of our public debt, they will welcome it
without a second thought.
You can fool them so
easily…