Who's Been Goosing Goldilocks?
America & The Myth Of Free Markets
Darryl Robert Schoon
Feb 5, 2008
The power of myth is extraordinary.
Correctly applied, the ignorant will believe themselves enlightened
and slaves will believe themselves free.
When credit markets began to
unravel in the summer of 2007, central bankers and economists
were surprised. In retrospect, they should not have been. Warnings
of a speculative bubble were issued as soon as cheap credit began
distorting housing prices in 2003. Denial, however, always trumps
reason in the presence of profits - or ulterior motive in the
case of Greenspan.
So it was in the 1920s in the
US, in the 1980s in Japan, in the 1990s in the US and it will
be so again in the 2000s in the US - all large speculative bubbles
ending in collapse; but this time, like in the 1930s, the collapse
will affect the entire world, for another global depression may
be in the offing.
Credit, like steroids, is a
potent tool and is now the prime mover of financial markets in
New York, London, Tokyo, Hong Kong, etc. The interest rate of
central banks measures the flow of liquidity in the form of credit
that credit - addicted global markets depend on and crave; but
credit like steroids, with continued usage will destroy the body
it once helped - Parcus nex, sic economic death,
is the next stage in our deadly dance with debt.
CAPITALISM REPLACES COMMERCE
Prior to central banking and
credit - based capital markets, commercial markets were not dependent
on credit. They were free markets, unaffected by the spigots
of credit and debt. Free markets operate without the artificial
stimulation of credit - based money; free markets respond to
real needs and real demands, not to the incessant need of bankers
to indebt society in their drive to enrich themselves - a drive
that produces individual profits in the short run and collective
economic ruin later.
BAD MONEY DRIVES OUT GOOD
Credit - based capital markets
were introduced in 1694 in England; and for the next three hundred
years, England's bankers and their allies overpowered and replaced
savings - based markets all over the world. Now, for the first
time all economies are based on a foundation of credit - based
capital with hard currencies, gold and silver, now replaced by
the capital of capitalists, credit - based paper currencies.
This is where we are today.
It will not be where we are tomorrow. Endings imply beginnings;
and choice implies the possibility of change - especially when
the foundation of today's financial world is credit, debt, and
speculative greed; the bankers' amalgam - with government deceit
and power added to keep the unstable amalgam intact.
Today, financial markets built
on debt based paper are in trouble and the keepers of capitalism's
crown jewels, the central bankers, are hard pressed to stay ahead
of the problems posed by collapsing markets.
The solutions being proposed
by central bankers increasingly resemble those of retreating
armies - feints instead of advances, bold proclamations betrayed
by flaccid follow - through, all obviously concocted on the fly
in the face of unexpected crises. The central bankers' limited
arsenal of rate cuts. is clearly inadequate regarding the rapidly
evaporating liquidity of credit markets.
In January 2007, corporations
at risk of default were able to borrow $8.5 billion in the markets.
One year later in January 2008, only 10 % of the previous year's
sum was available, $850 million instead of $8.5 billion. This
extraordinary contraction of credit occurred even as central
bankers slashed borrowing costs.
With credit markets in disarray,
news issued by today's financial spinmeisters, is increasingly
based on deceptive figures and distorted markets. Today's so
- called free markets are not free at all. Today's markets, especially
in the US, are being manipulated in order to keep them afloat.
WHO'S GOOSING GOLDILOCKS
For over a century, a 10%
or greater correction could be expected to occur every 15 months
on average, yet the last correction of that magnitude occurred
more than four - and
- a - half years ago. In the past, this would have
been termed a Goldilocks scenario.
Alan Newman, Crosscurrents
November 6, 2007
Credit - based capital markets
need to expand in order to service previously created debt; the
amount of which is ever - expanding because of accruing compound
interest. This is no small task because the longer credit markets
exist, the greater the debts and the greater the need to expand.
The three hundred year expansion
of credit - based capital has now come to a halt; and it is this
unexpected event that has captivated bankers and government officials
alike. This week in Tokyo, representatives of the G7, the world's
most advanced economies concluded that central bankers can no
longer solve their problems alone. They are correct. They are
wrong in that governments will be able to help.
Government interference in
capital markets is not a new phenomenon. In fact, it has been
accelerating. The US now interferes in the markets at levels
last seen in the Soviet Union, albeit in markedly different ways.
Whether this is good or bad is beside the point; the point is
today's markets today are not free.
The Working Group on Financial
Markets, the Counterparty Risk Management Group, the Exchange
Stabilization Fund etc. all work in concert and collusion with
bankers to keep credit markets afloat; a collusion made possible
by the purchase of politicians by investment banks.
In 1966, Professor Carroll
Quigley, Professor of History at Georgetown University, member
of the Council on Foreign Relations and mentor to Bill Clinton
published Tragedy and Hope in which he wrote:
The powers of financial
capitalism had (a) far
- reaching aim, nothing less than to create a world system
of financial control in private hands able to dominate the political
system of each country and the economy of the world as a whole.
This system was to be controlled in a feudalist fashion by the
central banks of the world acting in concert, by secret agreements
arrived at in frequent meetings and conferences. The apex of
the systems was to be the Bank for International Settlements
in Basel, Switzerland, a private bank owned and controlled by
the world's central banks which were themselves private corporations.
Each central bank...sought to dominate its government
by its ability to control Treasury loans, to manipulate
foreign exchanges, to influence the level of economic activity
in the country, and to influence cooperative politicians by subsequent
economic rewards in the business world. [bold type
added for emphasis]
On January 10, 2008, Andrew
Sorkin reported in the New York Times:
Tony Blair to Join JPMorgan
The former prime minister
of Britain, Tony Blair, will join the banking giant JPMorgan Chase as a part - time adviser, the bank said.
While the firm did not say
how much it would pay Mr. Blair, one New York recruitment consultant
told The Financial Times that it was likely to be more than $1
million a year.
Joining a finance company
after political life is a familiar route for former prime ministers,
as well as for politicians in the United States. John Major,
Mr. Blair's predecessor, now works for a private equity firm,
the Carlyle Group, as did former President George H.W.
Bush. At Citigroup, James D. Wolfensohn, the former World
Bank president who was Mr. Blair's predecessor as special envoy
to the Middle East, has a senior advisory role. And Robert E.
Rubin, the former Treasury secretary, serves as an influential
Citigroup director and sounding board for its
top executives...Mr. Blair's move also comes a month after Jonathan
Powell, his former chief of staff, landed a full - time job with a JPMorgan rival,
And later, on January 29, 2008,
Philip Webster, in the TimesOnline reported:
Two jobs bring Blair's jackpot
to £2.5m a year...plus millions from speeches
Tony Blair has taken a second
big job with a leading financial player, attracted by the prospect
of working on its climate - change initiative.
The former Prime Minister
has joined Zurich, the Swiss company, as an adviser. The appointment,
thought to be worth at least £500,000 a year, comes less
than three weeks after he took a similar role with J P Morgan
Chase, one of the biggest investment banks on Wall Street. That
was believed to be a package worth about £2 million a year...His
spokesman said that there were no other positions in the offing.
The former Prime Minister is thought to have turned down approaches
from HSBC and Citigroup.
In 1973, Spiro Agnew, was forced
to resign as US Vice - President for accepting $29,500 in bribes
while governor of the state of Maryland. It is obvious from Tony
Blair's compensation in 2008 that the price of politicians has
increased substantially since the 1970s - yet another sign of
GOLD - THE BAROMETER OF MONETARY CHAOS
The fear of central bankers
is that their game of credit - based fiat money will be exposed
for what it is, a confidence game that advantages bankers and
governments at the expense of entrepreneurs, producers and savers;
and, once exposed, their position of privilege and profits will
Because of this, central banks
and government officials are determined to keep the market's
one dependable warning sign - the price of gold - capped. The
price of gold is the nemesis of today's credit based capital
markets. Only when the price of gold rises, are investors alerted
to the dangers resulting from monetary instability.
This is why the custodians
of credit are so intent on keeping the price of gold low. A low
price of gold implies investing in paper IOUs, government and
corporate debt and other credit based instruments is safe and
profitable. A high price of gold implies the opposite - that
the risk of paper and credit based IOUs is on the rise.
In the fall of 2007, as the
price of gold rose from the mid $600s to the mid $800s, the central
bank of Switzerland sold 22 tons of gold into the market. Imagine
how high the price of gold would have been had not the 22 tons
of gold been made suddenly available?
And on February 1st, as gold
suddenly dropped from the $920s down into the $890s, I heard
rumors that several hundred tons of gold had come on the market.
Unlike the 22 tons from the Swiss National Bank, this latest
rumor could not be confirmed.
But confirmed or not, central
bankers in the past and present have been all too willing to
empty their national treasuries in order to ensure their own
positions of privilege in the name of market stability. Current
UK Prime Minister Gordon Brown's future position in the world
of finance is undoubtedly secure.
GOLD SCISSORS PAPER
There is much debate as to
how this will all end. While the particulars are unknowable,
the end is not. The collapse of paper - based paper currencies
and speculative credit markets is certain. Only the time is not.
Be confident. Free markets
will return. Not today, but someday and perhaps sooner than believed.
In the meantime, while paper money still has value, buy gold
and silver. Such bargains do not last forever.
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.