Checkmate 2 - Slow History

Building a coherent and cohesive narrative around events of the past is a natural part of our process of understanding. And every good story has a beginning, middle and an end. But what if the end of a particular narrative is still in the future?

Mencius Moldbug coined the term "slow history" in these two posts to describe his hobby of reading really old books and diaries (especially ones written by those outside the political mainstream of their time). He writes: "The student of slow history, who has no faith at all in consensus wisdom, official truth, and 'everybody knows' chestnuts, is willing to rest enormous judgments on a single, indisputable, authentic primary source."

He draws an analogy with fast food versus slow food. Fast history is consensus history. It is that history which "everybody knows" because it has been homogenized for the masses. It is like fast food in that it is theoretically the same as slow food because it contains the same initial ingredients, and yet it has been processed, filtered, packed and shipped, each step of which does its small part to reduce the initial ingredients to little more than flavored styrofoam.

I like the idea of reading that which was written at the time history was unfolding (slowly, as it seems), in addition to the narrative put together by consensus after the fact. They both have their uses of course, but the story you uncover while reading what was written at the time might just be a little different from what you'll read in a history book that has been processed and filtered through societal biases and the consensus perspective.

Since it is in our nature to seek out neatly packaged stories with clear conclusions as part of our process of understanding, the consensus view of individual past events tends to be one that fits a narrative that was also concluded in the past. For example, the Great Depression which ended the gold standard is the conclusion of a story that begins at the end of World War I with the middle being the Roaring 20s. The Nixon Shock is the conclusion of a story that begins in Bretton Woods with the middle being the London Gold Pool in the 1960s. And gold's parabolic blow-off top in 1980 is the conclusion of a story that begins with the Nixon Shock.

These neatly packaged stories, stacked one on top of the other, allow us to view the present as if it was merely the result of the most-recent past, and to look forward to "history repeating" (or at least rhyming as the saying goes). With this kind of a consensus view, we might expect history to repeat the 1970s with regard to the miners, silver and a boom followed by a bust in the metals. Or we might expect to go back onto a US government-managed gold standard after a new "Bretton Woods 2" conference.

But what if the end of a particular narrative that begins after WWI is still in the future? If that's the case, then we are still living through history (slowly, as it seems). And that's the case with ANOTHER's narrative as I see it. So perhaps a better way to view events that play an important role in this narrative is through words written at the time that those events happened, rather than the summary encapsulation (after the fact) by someone who views those events as part of a story from the past rather than part of the present.

With this view, I read ANOTHER differently than I read other gold analysts. When I see a consensus view held by other gold analysts that differs from ANOTHER's view, I know I am reading a form of "fast history". But when I read ANOTHER it feels more like I'm listening to an old-timer explain the slow history he lived through, observed with his own eyes, made with his own hands, with a special emphasis on why and how reality sometimes differs in monumental ways from the consensus view. To me, reading ANOTHER is like I imagine it is for Moldbug reading the diaries of Ulrich von Hassell, Thomas Carlyle or Clarendon's Great Rebellion.

So I thought I'd give you a few bite-sized pieces of slow history—in the form of really old newspaper clippings—to chew on while you are still holding the Checkmate view in your mind's eye. These are a few random selections from a much larger hoard of news clippings that were given to me. In other words, there are plenty more where these came from. To the Moldbug purists (and to MM himself who was kind enough to explain his precise meaning to me by email the other day), I realize I am taking some liberties by using his term "slow history" in this way, and so I apologize.

1947

To begin, we'll start with a short clipping from the Leader Post, a Canadian daily newspaper, from October 9, 1947. The headline is "Britain sells gold". You'll want to click on the newspaper images so they open in your browser, then you may need to click on them a second time to make them readable at full size because some browsers will automatically fit the image to one page.

I hope you noticed some of the neat details in that short article! In Checkmate, I called the period from 1950-1957 "the top of the hill" in terms of the dollar's finite timeline. This was the period in which the US had about 20,000 metric tonnes of gold. For the first five years of the new Bretton Woods monetary system which began in 1945, the US experienced an inflow of gold, including that British gold in the article. This inflow raised the US stockpile from 17848 tonnes in 1945 to 20279 tonnes in 1950. Then in 1958 it started rapidly draining away.

For reference, here is the size of the US gold stockpile during the years from 1945-1972:

1960

Next we jump to November 23, 1960, with an article from the Reading Eagle, a daily newspaper in Reading, Pennsylvania. The headline is "U.S. Action About Gold Is Explained" and it is referring to actions taken while attempting to stem the bleeding-out of US gold.

More fantastic details in this article! One that especially caught my eye was that it was common knowledge in 1960 that $11.5B of the US gold was never going to be shipped as it was the required reserve backing the US money supply. That left only $6.5B, or 36%, of the remaining stockpile for the rest of the world, as long as the price remained $35/ounce. And at the rate it was draining away in late 1960, it would be game over in a little more than a year.

No wonder so many people were betting on a gold revaluation all throughout the 60s. It was simple math, and it was in the newspapers as early as 1960, even in Reading, PA. Talk about overdue! If I pull out my calculator, I see that the US stockpile in 1972 (8584t) had fallen to only $9.66B at $35/oz., well below the $11.5B limit. But let's see, if I revalue that same amount of gold up to $42.22, well then it's back up to $11.65B. Voila!

1961

Here's a quick little article from the New York Times on January 13, 1961. You may have clicked on my link in Checkmate to US Mints ‘Gold Disks’ for Oil Payments to Saudi Arabia. I included this article because it mentions the Aramco fleet of three DC-6s carrying "8,000-pound cargoes of gold to Saudi Arabia's late King Ibn Saud, who distrusted paper money."

1967

Our first newspaper clipping from 1967 comes from The Miami News on July 17. The headline is "U.S. Pushes 'Paper Gold'".

And the second one comes from the Modesto Bee on December 13, 1967, the beginning of the end of the London Gold Pool.

1968

This next one is a great article that was written only three months after the London Gold Pool came to an abrupt end. It comes from the Milwaukee Journal on June 27, 1968. It talks about France dropping out of the pool and the US picking up France's 9% share which raised the US share to 59%. It details several meetings leading up to the end of the gold pool, including one at the BIS which it says cost the US $210 million in gold for the simple mistake of having a Treasury official fly to Basel which is a central banker sanctuary where the US Treasury would not normally be present. And it explains how it all ended just four days after the US said it would defend $35/oz. "down to the last ingot", when the US Senate passed an emergency bill on March 14 making the dollar a strictly fiat currency.

1969

This next one comes from Henry J. Taylor, former US Ambassador to Switzerland and a syndicated columnist in the 60s and 70s. It is titled "Our 'Paper Gold' Quite Uncomfortable" and comes from the Herald-Journal on March 16, 1969. It talks about the new "two-tier paper gold system" and concludes that "paper gold is no remedy."

1973

We next jump to 1973 with a short article from the Vancouver Sun on June 27. In it we find Treasury Undersecretary Paul Volcker speaking to Congress about the "free market" for gold in the context of—and giving his tacit approval for—foreign central banks selling gold directly to the free market. This would, of course, happen at the free market price which was $122/oz. at that time, making foreign central bank gold reserves de facto worth the free market price in dollars rather than the official price of $38. The official price was changed one last time, four months later, to $42.22 where it remains today.

1974

In the first of six newspaper clippings from 1974, we hear from Rene Larre, the general manager of the BIS who also happens to be French. This one comes from The Morning Record in Meriden, Connecticut on January 19, 1974. In it, the general manager of the BIS says he sees a time coming when the CBs will trade gold "at the free market price" as opposed to "the fixed monetary rate of $42.22 an ounce." Furthermore, he says that by trading at the free market price, "the central banks will be able to revalue their reserves" which will help their countries pay for oil.

Next we go to the Montreal Gazette on March 1st where we learn that an "Arab buying spree increases gold prices" when three Arab countries plus Iran buy about a billion dollars in gold in only two weeks. At the going price of $167/oz., that would have been about 186 metric tonnes flowing from the West to the East in exchange for their oil. To put that into perspective, annualized that would have been a West to East flow of 4,842 tonnes of gold going to only four Middle Eastern oil producers, not including Saudi Arabia!

On the same day, March 1, 1974, we get a similar article from the New Straits Times, an English language paper out of Kuala Lumpur, Malaysia.

This next one comes from the Wall Street Journal on April 23, 1974. The poor quality of the scan makes it difficult to read, but I'm including it for the headline alone as it mentions European gold for ME oil: "Gold Price Rises as EC Nations Get Closer To Using Official Holdings to Pay for Oil."

A day later, on April 24, 1974, in the St. Petersburg Times, we learn that European Finance Ministers led by Wim Duisenberg have tentatively agreed that central banks should be allowed to buy and sell gold on the free market and thereby settle official debts at the going market price. The article also notes that by the simple act of selling gold on the free market, central banks will be able to quadruple the worth of their gold holdings. Can anyone say MTM gold? The price of gold on April 24th was $170/oz., quadruple the official price of $42.22.

On November 12, 1974, from the Montreal Gazette, we learn that OPEC revenues have increased even more than the price of gold. While gold has risen from $35 an ounce to $180, the revenues of the oil producing countries has jumped from $15B to $110B in two years. In oil terms, gold hasn't been revalued at all.

I don't know about you, but when I read this article it is just so obvious that Freegold is the solution to the problems explained in the article. The article talks about vendor financing, "a common enough practice," but even the Fed chairman Arthur Burns admits that with a consistent net-producer like OPEC, vendor financing equates to "piling debt upon debt and more realistically piling bad debt on top of good debt." And yet the real problem is that the consistent net-producer is consistently accumulating excess currency that needs to be recycled. Two solutions: lend it or spend it. How about if they spend it on a physical asset with no counterparty, so there's no piling up of liabilities? And how about if that asset can simply float in relative value without ravaging the economy with inflation or deflation since it is only used as a reserve asset? All of the currency will still be recycled, whether they lend it or spend it.

1975

On January 10, 1975, from the Windsor Star in Windsor, Ontario, Canada, we learn of the very first Snapshot day (January 7, 1975, when the London afternoon gold price fix was $169.50) and its subsequent MTM party!

1979

Finally, I thought I would conclude this post with a secretive "gold for oil" deal in 1979. This one comes to us courtesy of the Gadsden Times out of Gadsden, Alabama on February 5, 1979. This paragraph in particular caught my eye:

"Officially, the [South African] government refuses to say where its oil is flowing from. But Western diplomats here believe that gold-for-fuel deals were struck with Saudi Arabia and other conservative Middle East states 'at a high premium.'"

I called this post Checkmate 2 not because it details the checkmate scenario, but because it is meant to be a companion piece to my last post which explains the narrative. Perhaps I will do a Checkmate 3. I don't know, because I never plan future posts ahead of time. I just do them as I please. But like I said, there are a lot more newspaper clippings where these came from, and I haven't even gone through them yet!

As for the slowness of history, it would be a mistake to think that my intention with this post was to imply that it will continue unfolding slowly. At the end of the line, change transpires in the relative short term:

FOA: Over time, one could never compare the returns of investing in stocks and bonds to owning gold. This is simply because when gold is entangled in currency schemes, its fiat value is falsely presented while the currency system ages. Only the commodity use of gold is reflected, not its much higher wealth "reserve asset" function.

However, this present era has become one of those unique periods in paper money history when gold will take a great leap in value during the relative short term.

One day this blog will end with little or no notice, just like The Gold Trail and the USAGOLD forum. One day I will grow tired of doing this, or perhaps I will find a better use of my time. Bear in mind that I am not selling anything, and so far I've been here for 4 ½ years, longer than ANOTHER (THOUGHTS!) and The Gold Trail combined. But unlike the original Gold Trail, here you can at least cast your vote to postpone the arrival of that inevitable day by clicking on this button. If, on the other hand, you'd prefer to vote for me to move on to something else, that's even easier… don't click the donate button. ;D

Sincerely,
FOFOA