How Gold Lost Its Luster, How the All-Weather Fund Got Wet, and Other Just-So Stories

Kipling

 “Gold is money. Everything else is credit.” – John Pierpont Morgan

“The relationships of asset performance to growth and inflation are reliable – indeed, timeless and universal – and knowable, rooted in the durations and sources of variability of the assets’ cash flows.” – Bob Prince, Co-Chief Investment Officer, Bridgewater Associates

Like every middle-aged white guy I know, I am a big fan of Rudyard Kipling. I grew up on his Just-So Stories and as an adult found that his novels and poems spoke to me, as they did to my father and his father before that. Kipling writes simply, directly, and evocatively. Whether it’s a poem, a short story, or a novel, the man knows how to tell a story. He was the youngest winner of the Nobel Prize in Literature (as well as the first English-language recipient), and after a too-long period of disfavor in the academy he now enjoys a well-deserved renaissance of interest and acclaim.

But there is also no doubt that what Kipling wrote was used by political and economic entities of his day to support their own self-interests. As George Orwell said, with wildly popular poems like “The White Man’s Burden” he was the “prophet of British imperialism.” Was he a simplistic rah-rah tout for the rewards of Empire? Not in the least. There is tension, nuance, and respect for the human condition in everything Kipling wrote, at least that I’m aware of. And this is exactly why he was such an effective prophet, such an effective Narrator for mainstream British policy in the first three decades of the 20th century. Kipling’s skill as an author allowed British citizens to feel good about themselves and to support their government’s policies without requiring them to check their brains or their scruples at the door.

These are the hallmarks of effective Narratives – they have an intrinsic ring of truth (“truthiness”, to use Stephen Colbert’s wonderful phrase) that speaks to us on an intellectual and emotional level AND they coincide with the goals and preferences of powerful political and economic entities. Neither of these qualities is inherently a bad thing, whatever “bad” means.  Nor is the content of a Narrative necessarily less truthful because it helps serve broader interests, whatever “truthful” means. Questions of truth and falsehood, good and bad, are impossible to assess from the informational content of the Narrative itself and are only meaningful in the broader context of human society at some given point in time. Kipling’s work gave a voice to the orthodoxy of foreign policy Common Knowledge in 1905 and the anti-orthodoxy of foreign policy Common Knowledge in 1965, even though Kipling’s words themselves never changed. In both eras, the Narrative of Imperialism – pro in 1905, anti in 1965 – was highly relevant to political and economic entities, which gave the world a public lens to interpret Kipling’s work. Today no one cares about the Narrative of Imperialism. It is a dead Narrative, like Manifest Destiny or Cultural Revolution. What Kipling wrote 100 years ago is largely irrelevant for the Narratives that shape our world today, which is probably what allows his work to be better appreciated for how it moves us on a personal level.

The Narrative of Gold was relevant 100 years ago and, unlike the Narrative of Imperialism, it remains relevant today. But like the Imperialism Narrative in 1965, it has morphed from a centerpiece of Common Knowledge orthodoxy into the foil or antithesis for a more modern, ascendant Narrative. Just as the Narrative of Imperialism was supplanted by the Narrative of Self-Determination, so has the Narrative of Gold been supplanted by the Narrative of Central Banker Omnipotence.

So long as the Narrative of Self-Determination was useful to powerful political and economic entities, the Narrative of Imperialism was relevant as well. It’s much easier to make an argument for something when you have something to argue against. But when the Narrative of Self-Determination lost its usefulness (not coincidentally with the end of the Cold War), so did the Narrative of Imperialism fade away. Today the Narrative of Central Banker Omnipotence is extremely useful to powerful political and economic entities, which means that the Narrative of Gold is important, too. Gold is just not important in the same way that it was important 100 years ago, and that shift in meaning makes all the difference in understanding the price of gold.

What “Jupiter” Morgan said about the primacy of gold above all other stores of value rang true to almost everyone when he said it. Did his public statements in support of the gold standard also serve his own self-interest? Absolutely. The US Treasury bought 3.5 million ounces of gold in 1895 from the House of Rothschild and … J.P. Morgan, using funds from a massive (for the time) 30-year bond issue syndicated by … J.P. Morgan. In a highly unusual (i.e. unconstitutional) move, this bond issue was carried out by the White House without any Congressional approval, under the authority of a forgotten Civil War era statute that was identified by … J.P. Morgan.

JP Morgan

But while there’s no question that the bond sale and subsequent gold purchase lined Morgan’s pockets and served the interests of the rich and powerful considerably, there is also no question that these moves effectively ended the Panic of 1893. Why? Because everyone knew that everyone knew that gold was money. And now the US Treasury had lots of it. Huzzah! Confidence is restored as the Republic is saved by Grover Cleveland and Jupiter Morgan.

To be sure, the Narrative of Gold as told by J.P. Morgan was not accepted at the time by everyone as good or wise policy, any more than the Narrative of Imperialism as told by Kipling was accepted by everyone as good or wise policy at the time. Political oratory being what it was back then, in fact, William Jennings Bryan famously compared the imposition of the gold standard as the equivalent of “crucifying mankind on a cross of gold” at the Democratic national convention of 1896 and was nominated by acclamation as his party’s Presidential candidate. This despite Bryan being only 36 years old (the youngest Presidential candidate in American history) and despite Grover Cleveland, the outgoing President who bought the gold from Morgan and Rothschild, being a Democrat and the standard-bearer of the party. Clearly that must have been one hell of a speech!

Bryan 1 
Bryan 2

 

But Bryan and his Free Silver Democrats weren’t opposed to the gold standard because they disagreed with the notion that gold was money; they just thought that silver should be money, too. Whatever you thought about the policy implications, the Common Knowledge about the meaning of gold in 1895 was clear: it was money, and the behavior of market participants in buying and selling gold reflected this meaning.

Now imagine if the current head of the House of Morgan, Jamie Dimon, made the same statement as Jupiter Morgan did, equating gold with money. People would think it was a joke. Everyone knows that everyone knows that gold does not mean the same thing to Jamie Dimon that it did to J.P. Morgan.

To market participants in 2013 gold means lack of confidence in money, and their behavior in buying and selling gold similarly reflects this meaning. Buying gold today is a statement that you believe that global economic events may spiral out of the control of Central Bankers. It is insurance against some sort of massive monetary policy mistake that cannot be fixed without re-conceptualizing the global economic regime – hyperinflation in a developed nation, the collapse of the Euro, something like that – not an expression of a commonly shared belief in some inherent value of gold.

The source of gold’s meaning, whether you are a market participant in 1895 or 2013, comes from the Common Knowledge regarding gold. J.P. Morgan said that gold is money, and he was right, but only because at the time he said it everyone believed that everyone believed that gold is money. Today that same statement is wrong, but only because no one believes that everyone believes that gold is money.

READ ENTIRE ARTICLE HERE: http://epsilontheory.com/how-gold-lost-its-luster-how-the-all-weather-fund-got-wet-and-other-just-so-stories/

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commented 2013-07-10 06:17:02 -0400 · Flag
Spartacus writes:

the single Biggest source of annoyance to me (for the time being)
is the enormous amount of intellectual energy that I have had to expend trying to remain outside the Ponzi scheme that is the US Financial system, it has proved costly (mining share co.‘s decimated) and fruitless just like the NSA surveillance protocols, unless one is living on a solitary rock in Greenland, catching fish each day and living a subsistence
existence They have you in the System and by Extension ’by the Balls’.

If you are lucky enough to own your own house, you own it in partnership
with the local governing council and there permanent lien on your
property via property taxes, If said home is insured you are subjected
to annual premium insurance increases of 6%-8% because
said co.‘s artificially inflate the replacement value of the dwelling & content each year (We are a Service Economy, We Don’t Need Manufacturing) and what is the miracle of Service Based enterprises ?
Why we raise the cost of said services each year, the list is Endless.

The Smash is Gold has been Impressive. Physical Gold Never makes me sleepless, but the Ease in which the Apparchik Tools have been able to manipulate the ’store of
value and wealth for 5,000 years is Nothing Short of Stunning.

I can handle foolishness, bubbles, the mania of crowds, manipulation, what I do have a problem with is Absolute Corruption, and that is what is at the core of this entire Gold assault, it is Robert Rubin and his agent Jack Lew writ Large, the fact that scum-bags like this have the ability to effect and feature themselves in my life to the extent that
have leaves me seething with anger,

I have No Way to escape their reach into my life, that is what I am Most disgusted about,
there is No Opting Out, It is a Closed Loop and the Intellectually
Bankrupt, self-appointed Totalitarian Despots are dealing the cards,

We are a Nation of Apathetic, Dunces and all these fools intrigued with there smart phone applications have subplanted any thought process
(if they ever had such ability) for some made in China gadget device that
they believe will allow them to soar like eagles, they are fools,
every last one of them.

My gold is Not for Sale, for what ? to have a chance to participate
in the Biggest, Government Sanctioned Ponzi scheme of All Time,
No Thank you.
commented 2013-07-10 06:16:53 -0400 · Flag
Spartacus writes:

the single Biggest source of annoyance to me (for the time being)
is the enormous amount of intellectual energy that I have had to expend trying to remain outside the Ponzi scheme that is the US Financial system, it has proved costly (mining share co.‘s decimated) and fruitless just like the NSA surveillance protocols, unless one is living on a solitary rock in Greenland, catching fish each day and living a subsistence
existence They have you in the System and by Extension ’by the Balls’.

If you are lucky enough to own your own house, you own it in partnership
with the local governing council and there permanent lien on your
property via property taxes, If said home is insured you are subjected
to annual premium insurance increases of 6%-8% because
said co.‘s artificially inflate the replacement value of the dwelling & content each year (We are a Service Economy, We Don’t Need Manufacturing) and what is the miracle of Service Based enterprises ?
Why we raise the cost of said services each year, the list is Endless.

The Smash is Gold has been Impressive. Physical Gold Never makes me sleepless, but the Ease in which the Apparchik Tools have been able to manipulate the ’store of
value and wealth for 5,000 years is Nothing Short of Stunning.

I can handle foolishness, bubbles, the mania of crowds, manipulation, what I do have a problem with is Absolute Corruption, and that is what is at the core of this entire Gold assault, it is Robert Rubin and his agent Jack Lew writ Large, the fact that scum-bags like this have the ability to effect and feature themselves in my life to the extent that
have leaves me seething with anger,

I have No Way to escape their reach into my life, that is what I am Most disgusted about,
there is No Opting Out, It is a Closed Loop and the Intellectually
Bankrupt, self-appointed Totalitarian Despots are dealing the cards,

We are a Nation of Apathetic, Dunces and all these fools intrigued with there smart phone applications have subplanted any thought process
(if they ever had such ability) for some made in China gadget device that
they believe will allow them to soar like eagles, they are fools,
every last one of them.

My gold is Not for Sale, for what ? to have a chance to participate
in the Biggest, Government Sanctioned Ponzi scheme of All Time,
No Thank you.
commented 2013-07-10 06:11:43 -0400 · Flag
Delroi writes:

priceless piece of rudyard kipling-digressing sophistry by ben hunt (‘why gold lost its luster…blah, blah, blah…"), where he masturbates about ’narrative’ and ‘common knowledge’. the 10,000-word ejaculation essentially distilled down to a ‘perception = reality’ thesis. everyone thinks (hopes) the western central bank cabal is the savior entity, therefore it is because nominally (not inflation-adjusted REAL) they will continue to print infinite electronic fiat, goosing up nominal asset prices, and the public will continue to >wink-wink
commented 2013-07-04 09:26:33 -0400 · Flag
Spartacus writes:

it underscores just how Far (the U.S.) has Fallen, the Entire
Article Rests on (1) Premise and One Premise Only, CORRUPTION.

and its wide-spread Acceptance and Embrace of the culture (gutter)
of corruption, all made possible by the adoption of artificial intelligence
- that is what the Entire i-phone technology culture is All About,
Tonic that the Peasant Masses are served up by the Elites as they
Extract there Take from the Corrupt Game which they run and is
Now the ingrained defacto playbook in these here United States.

People like this author are not chroniclers of the game, they are
cowards and opportunists seeking to enrich themselves from the
corruption, i.e. let me sell you my advisory analysis services.

Those peasants rioting and burning tires in Egypt have more
courage, substance and culture than the corrupted fools who
now make up this country’s inhabitants (notice, Not Citizens).

The fools masquarading in this country have No concept of the game
that is being orchestrated by self designated Elite’s whose sole purpose in life is the acquisition of Power to further there own Narrow self-interests.

Independence Day ? hardly, More Like blind, mis-placed celebration of
wearing the Yoke of serfdom (pefect: White is Black, Black is White),
it really underscores just how impertinent and irrelevant this country has become in the long annals of World History & Civilization.