Christmas On Threadneedle
& The Coming Depression
Darryl Robert Schoon
Jan 9, 2008
The address of the Bank of
England is Threadneedle Street, EC2 London. Martha and I could
not have been closer. On Christmas day, we were at the Threadneedles
Hotel at 5 Threadneedle Street. But proximity to the Bank of
England is measured not by distance but by influence. Those closest
to the Bank of England are the moneylenders.
as a world power actually began on Threadneedle Street. Then,
no bank had its own building and bankers were but goldsmiths
who lent money and rented space to do business. But after the
moneylenders cut their bargain (and it was a bargain) with King
William of England, things were never to be the same, either
for England or the moneylenders - or the world.
In 1694, by bailing King William
out of his debts incurred by England's war with France, the moneylenders
achieved enormous power and a new found respectability. They
now called themselves bankers and would profit by the vast sums
of credit that were to underwrite the greatest empire since imperial
Rome - an era that is now about to end.
In THE GREAT WAVE - Price
Revolutions and the Rhythm of History (Oxford University
Press 1996), David Hackett Fisher chronicles the rise and fall
of prices and the accompanying rise and fall of epochs. The ending
of all such epochs, Fisher notes, are marked by a wave of rising
prices lasting from 80 to 120 years. Each wave culminates in
economic collapse and the resultant breakdown and transformation
We are now in the final stages
of a price wave that began in 1896, a wave that will end the
era of England's influence on our world. A period David Hackett
Fisher calls "Victorian England". But it could well
be called "The Era of Credit"; for it was credit that
built the era of Victorian England; and, it is the collapse of
credit that will bring about its end - for just as day becomes
night so too does credit become debt.
WHEN CREDIT WAS KING
THE REIGN OF CREDIT I
England - the cradle
England could not have achieved
its immense power nor moneylenders their extraordinary profits
had not King William struck his Faustian pact with the moneylenders
in 1694, a bargain that was to grant the King unlimited credit
to wage war in exchange for the right of moneylenders to issue
credit-based money. Both parties were to benefit immensely from
the bargain - until now.
England ultimately leveraged
its ability to wage war with credit into a world empire; and,
the moneylenders, now called bankers, used England's power to
spread their system of credit-based money across the world, multiplying
and increasing their profits thereby. And although England's
position as a world power has waned, the power of the moneylenders
has grown. Today, bankers are even more powerful than governments.
The king to the banker did
Tis I who ride you this day
This day it is true the banker did say
But tomorrow tis I who ride you
But the triumph of the bankers
will be temporary. It will be short-lived because the United
States has now irreparably damaged the credit-based system that
England's bankers so carefully constructed.
The power of the moneylenders
originally came from their ownership of gold; and, as goldsmiths,
they leveraged their position into a far more profitable enterprise
- the charging of interest on the lending of gold and it was
to the moneylenders that even the King of England came for money
to pay for his wars.
But in their bargain with King
William, the moneylenders acquired their most important customer,
the public purse; and, granted the power to coin money by the
King, the moneychangers instead coined credit, an altogether
different beast but one with the government's backing became
the accepted coin of the realm.
Paper debt-based money issued
by the Bank of England replaced the gold and silver coins previously
circulating as money. The people deposited their savings of gold
and silver in government approved banks which were granted the
right to make loans in the amount of ten times their actual deposits
and profit thereby by charging interest on those loans.
Bankers are and [have] always been moneylenders. Vast sums
of credit from the Bank of England, England's central bank, were
thus made available and when the credit inevitably became debt,
the interest charged became profits booked on the ledgers of
To pay the interest due on
the increasing amounts of debt created by credit based economies,
economies have to continually expand. This was as true in Victorian
England as it is today. When credit-based economies contract,
the ability to service previously incurred debt is damaged. If
the contraction is severe enough, the economy will collapse.
This is what is about to happen to us on a very grand scale.
When the US succeeded England
as a world power, the bankers instituted the same system of debt-based
money in the US but with very different results. Now in 2008,
after three centuries of fueling economic expansion, the magic
of the moneychangers has reached its limits. The end of an epoch
is at hand.
WHEN CREDIT FAILED
THE REIGN OF CREDIT II
Restraint is a word
commonly used to describe the English. It is rarely used when
referring to Americans-the cowboys of capitalism.
The effect of credit-driven
expansion on the US was not foreseen except perhaps by those
who opposed it. In 1913, the Federal Reserve Bank, the US version
of the Bank of England, was established thereby replacing savings-based
money in the US with credit-based money; and within ten years,
this credit-based system was to underwrite the largest stock
market bubble in history, a bubble which was to collapse in 1929
and send the US and world economy into its first Great Depression
The significance of the Great
Depression cannot be underestimated. A financial breakdown of
such magnitude was unprecedented. The constant demand necessary
to credit driven economies not only slowed, it contracted; and,
as credit collapsed, the lack of demand led first to recession,
then deflation, and then to the Great Depression.
HISTORY IS ABOUT TO REPEAT ITSELF
The Great Depression is the
great conundrum of economists. No monetary solution has ever
been found that could reverse the coriolis-like effect of decreasing
demand and increasing deflation that occurred during the Great
Humpty Dumpty sat on a wall
Humpty Dumpty had a great fall.
All the king's horses and all the king's men
Couldn't put Humpty together again
The response of the US government
during this unprecedented monetary crisis bears examination.
In 1933, the US government enacted three measures as a result
of the crisis: The Emergency Banking Relief Act, and the Glass-Steagall
Acts, I and II.
The Emergency Banking Relief
Act of 1933 was a measure worthy of any police state. For the
first time in history, citizens were prohibited from owning gold
by their own government.
Such a demand on a citizenry
had never before been ordered. When Americans were told to turn
over their gold to the US government, it was described as confiscation.
It was really an act of tyranny. It was also an indication of
who really controls the US government.
Since the beginning of civilization
and commerce, gold has represented savings, wealth and money.
Prohibiting citizens from lawfully possessing gold is nothing
less than tyranny; and that this occurred in a democracy is clear
evidence of the limitations of constitutional law and what is
believed to be limited government.
The Glass-Steagall Acts I and
II are interesting for different reasons. The first Glass-Steagall
Act went right to the heart of fractional reserve banking. This
system, concocted by England's moneylenders, allows banks to
issue loans in the amount of ten times the money they have on
deposit, sic banks make money by loaning money they don't
FRAUD ISN'T THE REAL PROBLEM
THE REAL PROBLEM IS GETTING FRAUD LEGALLY CODIFIED
The first Glass-Steagall Act
redefined money held on deposit to now include government and
commercial obligations, sic debts. These debts were now
to be considered, alongside "real" money, as a demand
deposit in the US banking system, a radical departure from the
The second Glass-Steagall Act
was enacted to prevent the occurrence of another speculative
bubble such as occurred in 1929. The huge amounts of credit that
fueled the 1920s stock market bubble would not have been available
had not commercial and investment banking been joined.
The access to commercial bank
deposits by investment bankers contributed to the excessive amounts
of credit that fueled the 1920s stock market bubble. The primary
purpose of Glass-Steagall Act II was to prevent another bubble
by separating investment banks from commercial banks.
All attempts, however, by the
US government could not halt the downward spiral of price deflation
set in motion during the Great Depression. Indeed, some measures
even had the opposite effect, i.e. the Smoot-Hawley Tariff Act
of 1930 is widely considered to have been a contributing cause
of the ensuing collapse of the world economy.
The collapse of the US dot.com
bubble in 2000 - a speculative bubble even larger than the 1929
bubble and Japan's 1990 Nikkei - was to give Alan Greenspan and
central bankers another chance at solving the economists' great
conundrum. This time, Greenspan's solution was to preemptively
make so much credit available a contraction of demand and credit
might not occur.
But now in 2008, it is evident
that Greenspan's gambit did not work. His cheap credit postponed
the post-dot.com contraction but in the process created an even
larger bubble - the 2002-2006 US property bubble; and, now the
inevitable contraction will be magnified by the additional collapse
of Greenspan's even larger bubble.
The collapse of such large
sequential bubbles will again set in motion the events of the
1930s. As in the 1930s, we will see slowing demand followed by
an economic recession leading into a deflationary depression
even more severe than that of the 1930s - because this time,
money is no longer backed by gold.
The removal of gold from the
monetary system by the US in 1971 removed the very foundation
stone of the moneylender's system of credit. The basis of the
moneylender's credit was gold, albeit highly leveraged but still
convertible on demand.
When the US declared the US
dollar no longer convertible to gold in 1971, all money, all
currencies became fiat currencies, sic government issued
coupons. This had never happened before in the history of the
world; and we are now about to experience the consequences of
David Hackett Fisher noted in THE GREAT WAVE - Price Revolutions
and the Rhythm of History that price waves last from 80 to
120 years; that such waves end in economic collapse and the breakdown
and transformation of societies. The current price wave began
in 1896. Do the math.
On New Years Eve, Martha and
I watched the fireworks over the Thames from our room at the
Langham Hotel. It was a spectacular display and the English people
appeared to be full of hope as the New Year's festivities began.
But I could not hold back the
thought that 2008 will not be as the English want or expect.
While many may fear an economic slowdown is in their future,
few yet are aware of the severity of the coming contraction and
collapse; and fewer still are aware of their government's complicity.
The triumph of the moneylenders
over government is almost complete and because of it, in the
coming crisis governments will protect the interests of bankers,
not the people. The Glass-Steagall Act II, enacted in 1933 to
prevent another depression, was repealed in 1999 by President
Clinton, a Democrat, at the behest of the investment banks.
The very same year, 1999, Gordon
Brown, Chancellor of the Exchequer and a member of the Labour
Party, sold 60 % of England's gold at the bottom of the market
allegedly to protect a US investment bank's bet on gold that
could destabilize the markets. The moneylenders now own both
sides of the aisle on both sides of the Atlantic.
As we watched the New Year's
merriment from the Langham, I could not help but be reminded
of the play, Cabaret, we had seen earlier that evening.
Cabaret, set in 1931 Berlin, begins on New Years Eve and
ends with the participants awaiting their respective fates in
Hitler's Germany. Most were in denial about what was to occur.
The same is true today.
The end of the story has
not yet been written. It could end in many different ways. So
fragile were the major trends that contingencies of various kinds
threatened to disrupt them. A major war in the Middle East or
Eastern Europe or some other trouble spot could reignite inflation.
A collapse of overvalued security markets could cause panic,
depression and deep deflation.
-Page 234, THE GREAT
WAVE - Price Revolutions and the Rhythm of History, 1996,
David Hackett Fisher
We are at the end of a price
wave that marks the end of an epoch, the era of Victorian England.
As Fisher states, such waves always end in economic collapse.
Faith will be needed to get through the difficult times ahead
- and gold will come in handy too.
Fiat money, in extremis,
is accepted by nobody. Gold is always accepted.
-Alan Greenspan in testimony before the US Congress, 1999
Note: I will be speaking at Gold Standard University
Live in Dallas, TX, February 11-17 which is presented by Professor
Antal Fekete. This is a unique opportunity to hear Professor
Fekete who is an expert on gold and its role in monetary matters.
Some scholarships are available. Details are available at www.professorfekete.com.
Darryl Robert Schoon
About Darryl Robert
I majored in political science with a focus on East Asia (B.A.
University of California at Davis, 1966). My in-depth study of
economics did not occur until much later.
In the 1990s,
I became curious about the Great Depression and in the course
of my study, I realized that most of my preconceptions about
money and the economy were just that - preconceptions. I, like
most others, did not really understand the nature of money and
the economy. Now, I have some insights and answers about these
2005, Marshall Thurber, a close friend from law school convened
The Positive Deviant Network (the PDN), a group of individuals
whom Marshall believed to be "out-of-the-box" thinkers
and I was asked to join. The PDN became a major catalyst in my
writings on economic issues.
When I discovered
others in the PDN shared my concerns about the US economy, I
began writing down my thoughts. In March 2007 I presented my
findings to the Positive Deviant Network in the form of an in-depth
148-page analysis, "How
to Survive the Crisis and Prosper In The Process."
to my presentation, though controversial, generated a significant
amount of interest; and in May 2007, "How To Survive The
Crisis And Prosper In The Process" was made available at
www.survivethecrisis.com and I began writing
articles on economic issues.
in the book and my writings has been gratifying. During its first
two months, www.survivethecrisis.com was accessed by over 10,000
viewers from 93 countries. Clearly, we had struck a chord and
www.drschoon.com, has been created
to address this interest.