When Money Changes

Global financial systems tend to last around fifty years, before dying and being replaced by something new. Normally in both a mix of managed and big bang, if that makes sense. Certainly, this is what happened in the late 1960s, leading to the USA closing the Gold window in 1971 and ending the convertibility of US Dollars to Gold at the fixed price of $35 an ounce. What a significant year 1971 was, for personal reasons too.

How Ironic he interrupted Bonanza to make an announcement about gold…

1980 was also significant, being the year it took $850 to exchange for one ounce of Gold. Yes, a twenty-times increase in nine years, for purchasing something and hiding it under the floorboards for the whole time. Sounds great, doesn’t it? And so it probably was, for those in the know, who had the opportunity to prepare early before the masses panic and pile in.

So, knowing that global financial systems change approximately every fifty years, we should be able to work out another monetary switch took place in 1921. This one wasn’t so clear, but it most certainly did.

Prior to world war one, the world largely operated on a gold standard, where prices were relatively fixed, or even falling with productivity improvements and living standards were rising. La Belle Epoque, as the French called it. A high point of human civilisation, that must have seemed at the time as if it would go on forever. Many in 1914 declared war too impossible to take place, as the world had become so intertwined and living standards had risen so high, only fools would want to destroy such a perfect world. Well, with the benefits of hindsight, perhaps not fools, but most definitely those with darker intentions and few scruples about the natural universal laws.

Naturally, wars are expensive, both in human and financial capital. Governments issued new bonds and demanded patriotism of their citizens, both in sacrificing their lives and investing their funds in pathetic investments that over the long term were guaranteed to dilute their purchasing power. Interestingly, when I first followed financial markets in the 1980s, £100 war loan bonds were still trading in the UK, but with a terrible yield of perhaps, 3% and trading for around £40. Imagine what £100 could buy in 1940, versus what it could buy in 1990. As usual, the deal with government is a one-sided one and in this respect, nothing has changed for the better in one hundred years, but got markedly worse. By 1918, all sides were experiencing inflation (definition : increasing number of currency units chasing same quantity of goods) for the first time in generations and as the war ended, there was a chance that if the economies of the nations returned to anything like pre-war normal and soldiers spent the dormant earnings of the past years, inflation could’ve occurred massively. Also, there was a big question around gold no longer being able to back the number of currency units now in existence. Over the coming years, gold coins were quietly withdrawn from general circulation and replaced with pieces of paper promising the same thing, but now buying much, much less when it came to exchanges. The wisest members of the public surely kept a few gold sovereigns, if they had them, in the drawer for a rainy day. How interesting then, that a serious pandemic – Spanish Flu – came along for and semi-shut down these economies, causing large-scale unemployment and distortions for around two years.

Let’s compare it to now. In 2008, a great financial war began. One where if the natural laws were followed, the banks would’ve collapsed. Instead, they were put on life support at multi-trillion cost to the citizens of those countries affected. The war quietly continued for 11 years, with various actors and players of roles appearing to assuage and distract the public in the style of master magicians, watch what this hand is doing, don’t look at the other hand. It’s largely worked, unfortunately and people have been tricked, while the banks have recapitalised, made billions and are now perhaps good long-term investments for the next ten years, while they unscrupulously build large property portfolios of repossessed properties to be rented back to the dispossessed. In September 2019, the financial world creaked when interest rates on the repo market (short term overnight lending between businesses) spiked and everyone stopped lending to each other. All in one night. It’s very hard to find details on this, since the media completely failed to report it at the time, but the US Federal reserve began pumping billions nightly in to keep that market functioning, before Corona conveniently appeared and shutdown the world, just as Spanish flu did one hundred years ago.

I make no judgement on whether these pandemics are real or not. Only their mirrored effects in creating similar situations in the world. On this basis, they have been near-identical, so now for a prediction – Spanish flu, the mostly appalling misnamed illness of all time, considering the first case was reported in a Kansas military camp, began in 1918 and swept across the world in two years, dying out around 1920. From there, there was economic hardship and a stock market collapse during the period 1921-23, along with gigantic hyperinflation in Germany, which I covered in my book. After that, famously, the stock markets began a dramatic rise, peaking in 1929 and not finding their nadir until 1932. Perhaps the idea of a rhyming, roaring twenties is not yet done? Let’s imagine this scenario – Corona came in 2020 and perhaps Moronic Omicron is the one that dampens it down and things reopen after two years. Then economies readjust over the next few years with a destruction of money in the old system, before the new system is established. One thing is for sure, unless you are an insider, and I am clearly not, we need to retain our wits about us to survive and, just perhaps, prosper. Good luck!

As an aside, it fascinates me that the war ended on 11/11/18. An interesting date in itself. One that cleverly works worldwide, regardless of how you arrange the days and months, a bit like 6/6/44, or 7/7/05 – feel free to look those up if you are requiring historical insight. Few know that the war began on 111118 too. Oh wait no, I hear you say, it began in August 1914, when Archduke Ferdinand was amateurly assasinated by Gavrilov Princip in Belgrade, an assassination attempt so botched the driver had to help it happen. No, it began on 111118, as that was the number plate of the car the Archduke was on. 118 and gematria, you really can’t make this stuff up. Wake up and see the signs.

Gold Reserves and Confiscation

Once governments got you used to the concept of using just one currency in your everyday transactions and got you used to the trust that they were looking after your gold – they began loaning it out and selling it off, often without your knowledge or consent.

(Chart: source: Wikipedia By Tsange – CC BY-SA 4.0)

Looking at the chart, it’s easy to see the UK gold reserves have declined massively, especially in the 1960s – leading to the famous ‘Pound in your Pocket’ speech by Prime Minister Harold Wilson in 1967, trying to assuage voters that their pound was still worth a pound, as the value plunged against other currencies. A pound of what, Harold? In 1999, the UK decided to sell off over half the nations’ remaining gold reserves, some 400 tonnes. At the time, gold was at the end of a major 20-year bear market, and the price was at an all-time low, a price last seen in the 1970s. The Bank of England, the custodian of the countries’ gold reserves, insists that it was never consulted in the decision, and some leaks, in fact, suggest that many of their staff vigorously opposed the move. They claim that Her Majesty’s Treasury and them alone made the decision. At the time, the Chancellor of the Exchequer was a Mr. Gordon “Golden” Brown, who subsequently became Prime Minister.

Even worse, the huge gold sales and auctions were publicly announced well in advance, thus giving gold dealers the chance to prepare for the glut of gold that was about to be released onto the market, and force the price down still further as a result. The normal strategy is to keep intended government gold sales quiet, then simply conduct the sales on the open market, obtaining the best prices possible, then announce the results afterward.

Why might a government decide to sell off one of the main assets of its people at the lowest price possible? There were rumours and accusations that the gold was sold to prevent top Hedge Funds who had got it wrong gambling on the price of gold from going bust and destroying the worldwide economy, among others.

Regardless of the truth of the rumours, 1999-2002 has subsequently been proved to have been exactly the right time to start buying gold, not selling it; in fact, the value of the gold sold by the UK has risen by over ten billion dollars since that time. This period in gold price history is now referred to as ‘The Brown Bottom.’