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It was two days before the Financial Times
caught on. Monday's FT was printed too early to catch it, while Tuesday's
looked way off the mark by the time it came out.
But US President Richard Nixon had cut the dollar's
link to gold – and thus everything else's link to gold too – on
Sunday evening, Washington time, Aug. 15, 1971...just like the Pink 'Un had failed to forecast.
More than 40 years later, the rest of the world is still only now catching on.
"Without a
limit on the quantity of cash, you've obviously got no limit on the quantity
of debt," as BullionVault told the BBC on the fortieth anniversary.
"And so since 1971 we've seen a succession of ever-bigger credit
bubbles...
"The secondary banking crisis
in the UK in the mid-1970s, the less developed countries crisis in the early
'80s, through to the savings and loan crisis in the United States, all the
way through to the subprime and then the banking crisis. And they get ever
bigger because there's an ever greater quantity of debt which somehow has to
be met."
Oh sure, other
things were also afoot – the end of "the fixed exchange rate
systems, reduced capital controls in rich countries, and the beginning of 20
years of regulatory easing," as academic economists
remind us. But Nixon's decision, while making official what had
already happened, confirmed that money now had no peg, no controls. It
slipped anchor, and began floating freely in both value and quantity. For homo
significans – the upright ape that
invests things with meaning – that matters. A lot.
The Greeks
invented democracy, the Olympics, metaphysics and tragedy. Those last two
might have come thanks to the fact they also invented money, which itself
might prove just as important as it is ironic today. But we'll get back to
that. Because Debt: The First 5,000 Years by anarcho-anthropologist
David Graeber is clearly important. Wrong, but important. If
you have any interest in money (and trust me; whether you earn it, owe it or
think you own it, you do) then it's worth the cover price. Because it at
least puts the money back into history, front and center. Along with debt.
You can't separate the two, says Graeber. Which brings us bang up to date.
"The
key to averting or curtailing a second Great Depression is to reduce the
levels of private debt, through a unilateral write-off, or jubilee. The
irresponsible loans the banks made should not be honored."
So says Guardian
columnist and environmental journalist George Monbiot.
He is in fact quoting Steve Keen, associate professor of economics &
finance at the University of Western Sydney – and "one of the few
economists," according to Monbiot, "to
predict the financial crisis." In our house, you can't get out of bed
without tripping over one of those (even the cat saw it coming); Keen himself
notes on his blog that "contrarians" including Doug
Noland at PrudentBear
and Eric Janszen at iTulip had "a handle on what
has happened...for a decade or more railing against the stupidity of Wall
Street and accommodative central banks." But let's cut Monbiot some slack, just this once. He is trying to
destroy capitalism as we know it, after all. Time was,
he would have needed all the help he could get. But now he's got it in spades.
"Start with
student loans," says The Atlantic magazine
– "one concrete answer...to the anguish of the 99%."
In fact, we need
"ways to forgive the excesses of mortgage, installment and revolving
credit," says Morgan Stanley's Stephen Roach,
"as was done in the 1930s, that will help
consumers get through the pain of deleveraging sooner rather than later."
Ending the
deleveraging has got to end the pain of deleveraging, right? "It seems
to me that we are long overdue for some kind of Biblical-style Jubilee: one
that would affect both international and consumer debt," writes former
Yale associate professor Graeber, self-professed anarchist, anti-globalization activist,
and currently reader in anthropology at Goldsmiths, University of London.
According to Bloomberg, Graeber's on-the-ground planning kicked August's Zuccotti Park protests into what's since become Occupy
Wall Street. And even though the 99% don't need leaders (judging from the
empty campsite outside St Paul's Cathedral in London at 9.00am last Thursday,
they don't need to hang around to feel they're making their point either),
his book Debt, published this summer, offers them a deep, intellectually
rigorous, historical underpinning, too.
Like
I said, it's important.
"You gotta have a jubilee, 'cause the principle [sic] in the
mortgage is too high, not that interest rates are too high," says one of
a million forum comments, this one at Matthew Yglesias'
ThinkProgress.
"The banks have been pretty good in the political arena at preventing or
minimizing debt forgiveness policies."
Not good enough,
however, to escape a 60% write-down – or worse – on Greek
government bonds. This week's Eurozone summit proposed "voluntary"
debt forgiveness by private bondholders. The fact that the banks are being
told – and not asked – to like it or lump sets the tone nicely.
Once-upon-a-time it would have marked a "credit event", otherwise known
as a default, and a long way from "forgiveness" or
"Jubilee" by any measure. Fitch Ratings says it will be precisely that.
Yet the Greek debt decision was still a non-event for bond insurance holders.
Because the body which decides whether credit-default swaps (CDS) pay up or
not – the International Swaps and Derivatives Association (ISDA) – said so.
No credit event,
no CDS payments, and no scramble to find out who's carrying the can. The
bondholding banks are, of course – including the very same banks that
might need state-aid to recapitalize their balance-sheets to meet new
Eurozone standards, too!. Quite whose money the
banks in fact represent, no one seems too concerned
just yet. For now, "This is not a pipe," as René Magritte
wrote beneath his 1929 picture of a pipe. You just try smoking it. "This
is [similarly] not a credit event," as hedge-fund manager David Einhorn,
quoting the Belgian surrealist, predicted of Eurozone default back in July.
"Just
try to collect on your credit default swaps."
Adrian Ash
Head of
Research
Bullionvault.com
You can Receive your first gram of Gold free by opening an
account with Bullion Vault : Click here.
City correspondent for The Daily Reckoning in London, Adrian Ash is
head of research at BullionVault.com – giving you direct access to investment
gold, vaulted in Zurich, on $3 spreads and 0.8% dealing fees.
Please Note: This article is
to inform your thinking, not lead it. Only you can decide the best place for
your money, and any decision you make will put your money at risk.
Information or data included here may have already been overtaken by events
– and must be verified elsewhere – should you choose to act on
it.
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