You never want a serious crisis to go to waste.
Rahm Emanuel, November 21, 2008
SPECTRE IS A FICTIONAL CRIMINAL CONSPIRACY CREATED BY AUTHOR IAN FLEMING. The Name is an acronym for Special Executive for Counterintelligence, Terrorism, Revenge and Extortion. It first appeared in Fleming’s 1961 novel Thunderball as the antagonist to his spy-hero James Bond, MI6 agent 007, licensed to kill.
While SPECTRE is criminal, it is organized in ways similar to a modern NGO or the IMF. It is a transnational organization headquartered in Paris. SPECTRE has an executive board of twenty members (the IMF board has twenty-four) with representation from countries around the world; it is not aligned with any one country or ideology. In Thunderball, SPECTRE’s offices are located behind a front organization that offers assistance to refugees.
The most recent fictional depiction of SPECTRE appears in the eponymous 2015 film featuring Daniel Craig as 007. In the film, the SPECTRE executive board is pictured seated around a large, dark wooden table in a high-ceilinged meeting room in Rome. The board is ethnically and culturally diverse, including women in important leadership roles. The board’s agenda includes reports from executives on the performance and profits from distinct business lines. In these reports, the lines between criminal and legitimate enterprises seem to blur seamlessly.
Pondering the operation of today’s global monetary elites, the image of SPECTRE leaps irresistibly to mind. Its top-down ontology suits the conspiracy minded. Sometimes life seems to imitate art as in the annual meetings of the elite Bilderberg Group, which are closed, secretive, and in all the best places. But if the Bilderberg Group is real, there is scant evidence for a central committee to subdue humanity. Besides, a top-down process is unneeded to control the world through money. The real process is more subtle.
True elites operate inside spheres of influence. These include finance, media, technology, the military, and politics. Denizens of each sphere have their favorite gathering times and places. Media elites gather each July at the Allen & Company Sun Valley conference in Idaho. Central bankers gather in August at the Jackson Hole, Wyoming, conference sponsored by the Kansas City Federal Reserve. Military and intelligence elites gather at the Munich Security Conference in early February. Thought leaders and public intellectuals can take their pick from among the World Economic Forum in Davos, Switzerland, the Milken Institute Global Conference in Beverly Hills, and the TED (Technology, Entertainment, Design) conference in Vancouver.
These super-elite venues are not run-of-the-mill industry conventions. They are by invitation only, or come with admission and sponsorship conditions that self-select for power elite participation. One encounters heads of state, cabinet officials, CEOs, and billionaires. Hoi polloi need not apply.
The most exclusive gathering, and the one that generates the most conspiracy theories, is the Bilderberg Meeting, held annually since 1954 in various locations. Bilderberg has a core group of about forty regular attendees, and a larger group of about one hundred invitees who vary from year to year depending on topical urgency or political ascendancy. The core group are mostly financial and industrial elites; the broader group leans toward policymakers and public intellectuals.
When I privately briefed the head of Bilderberg in Rockefeller Center a few years ago, he was polite and intensely interested in my views on the euro. I assured him and his associates the euro was here to stay at a time when many economists were shrieking about its imminent demise. At the conclusion of our discussion, he kindly gave me a gift, a Swedish vase designed in a deep blue translucent vortex, which I keep in sight in my writing studio. He did not have horns.
At these and similar gatherings, ideological differences are laid aside. The Sun Valley conference in July 2016 included Fox owner Rupert Murdoch and Brian Roberts, owner of MSNBC. Elite ideology shared by Murdoch and Roberts is more powerful than political shouting matches broadcast for mass consumption. The latter is entertainment. Sun Valley is about power.
The important elite activity at these conferences does not occur at scheduled panels, but at private dinners, and over drinks in suites and secluded bungalows surrounding the main venue. When I appeared at the Milken Institute Global Conference, there were more meaningful conversations in the bar at the Peninsula Hotel, a block away from the main event, than on the stages.
Elite spheres float and overlap like an interactive, three-dimensional Venn diagram. Intersections emerge, blend, and disappear. At interstices are elites who channel power from one sphere to another. Chris Dodd is a good example. As a five-term U.S. senator, and Dodd-Frank sponsor, he is anchored in the political and financial spheres. As head of the Motion Picture Association of America, he is also anchored in the media sphere. When media elites and political elites need to connect, one channel runs through Dodd.
This structure of separate spheres, intersections, and designated channels is how the global power elite rules. This model has greater explanatory power than some imagined close-knit, top-down Committee to Rule the World. Such a committee, if it existed, would be relatively easy to identify, monitor, and expose. In contrast, a floating-spheres model is amorphous, hard to pin down. If an individual member is discredited by scandal or reversal of fortune, she is swiftly sacrificed (with later rehabilitation possible) while the system survives. Media have no interest in elucidating this system; reporters can’t imagine it, and media CEOs take part.
Another meme favored by conspiracy mongers is that the global elite is malevolent. A more serious problem than elites’ doing evil is they believe they’re doing good. This belief insulates elites from self-examination.
While the global elite is amorphous there are individuals, such as George Soros, with across-the-board access in the financial and political worlds who function as supercarriers of the elite program. While Soros is not the unofficial chairman of the power elite (there is no one person in charge), his access to elites everywhere, and his patient embrace of Karl Popper’s piecemeal social engineering, make him an exemplar of the elite type. Other paragons of the elite supercarrier include Christine Lagarde, Michael Bloomberg, and Warren Buffett. Presidents and prime ministers are not unimportant, yet they come and go. Elite supercarriers remain influential for decades.
What is the elite agenda? The agenda is unchanging, pursued in centuries past by Caesar and Napoleon, and in the twentieth century by the Rockefeller, Roosevelt, and Bush dynasties. The agenda thrives today in institutions with anodyne names like United Nations and International Monetary Fund. The agenda is simple: world money, world taxation, and world order.
World Money
World money is not a new concept; it has been used throughout history. World money is gold. The elite agenda is to hoard gold and substitute special drawing rights as the currency of world trade and finance.
Other forms of money, including clamshells, feathers, and paper, have been used at certain times and places with tribal consent, or force of law. Any medium can be money based on confidence in its value in some future exchange. Yet gold is the only money good at all times, and all places, and is therefore true world money.
Before the Renaissance, world money existed as precious metal coins or bullion. Caesars and kings hoarded gold, dispensed it to their troops, fought over it, and stole it from one another. Land was another form of wealth since antiquity. Still, land was not money because, unlike gold, it cannot easily be exchanged and has no uniform grade. A century ago, J. Pierpont Morgan summed up the ancient state of affairs in his cryptic remark, “Money is gold, and nothing else.”
In the fourteenth century, Florentine bankers (called that because they worked on a bench or banco in the piazzas of Florence and other city-states) accepted deposits of gold in exchange for notes, a promise to return the gold on demand. The notes were a more convenient form of exchange than physical gold. Notes could be transported long distances and redeemed for gold at branches of a Florentine family bank
in London or Paris. Bank notes were not unsecured liabilities, but rather warehouse receipts on gold.
Renaissance bankers realized they could put the gold in their custody to other uses, including loans to princes. This left more notes issued than physical gold in custody. Bankers relied on the fact that the notes would not all be redeemed at once, and they could recoup gold from princes and other parties in time to meet redemptions. Thus was born “fractional reserve banking,” in which physical gold held was a fraction of paper promises made. There has been no end of mischief since.
Despite the advent of banking, notes, and fractional reserves, physical gold retained its core role as world money. Princes and merchants still held gold coins in purses and stored gold in vaults. Gold bullion and paper promises stood side by side.
Silver performed a similar role as seen in the success of the Spanish dollar, an eight-real coin, called in Spanish the real de a ocho, or piece of eight. The Spanish dollar contained 0.885 ounces of pure silver. It was a 22-karat coin with a total weight of 0.96 ounces once an alloy was added for durability. The Spanish Empire minted the real de a ocho to compete as currency with the Joachimsthalers of the Holy Roman Empire. The Joachimsthaler was a silver coin minted in the St. Joachim Valley (Thal in German). The word Joachimsthaler was later shortened to taler, cognate with the word “dollar” in English.
Both the Spanish piece of eight and the German taler were predecessors of the American silver dollar. Spanish dollars were legal tender in the United States until 1857. As late as 1997, the New York Stock Exchange traded shares in units of one-eighth of a dollar, a legacy of the original silver piece of eight.
Similar silver coinage was adopted in Burgundy, the Netherlands (called the leeuwendaalder or “lion dollar”), and Mexico in the seventeenth century. Spanish dollars were widely used in world trade. Silver was almost the only commodity accepted by China in exchange for Chinese manufactures until the nineteenth century. China put its own chop on the Spanish coins to make them a circulating currency in China. If gold was the first world money, silver was the first world currency.
Silver’s popularity as a monetary standard was based on supply and demand. Gold was always scarce; silver more readily available. Charlemagne invented quantitative easing in the ninth century by substituting silver for gold coinage to increase the money supply in his empire. Spain did the same in the sixteenth century.
Silver has most of gold’s attractions. Silver is of uniform grade, malleable, relatively scarce, and pleasing to the eye. After the United States made gold possession a crime in 1933, silver coins circulated freely. The United States minted 90 percent solid silver coins until 1964. Debasement started in 1965. Depending on the particular coin—dimes, quarters, or half dollars—the silver percentage dropped from 90 percent to 40 percent, and eventually to zero by the early 1970s. Since then, U.S. coins in circulation contain copper and nickel.
From antiquity until the mid-twentieth century, citizens of even modest means might have some gold or silver coins. Today there are no circulating gold or silver coins. Such coins as exist are bullion, kept out of sight.
The disappearance of gold and silver has not obviated world money. Only the form of world money changed. Parallel to the diminution in the role of gold and silver was the rise of bank notes, or fiat currency.
Fiat critics point to August 15, 1971, as the day gold ceased to be money. That day President Richard Nixon temporarily suspended convertibility of foreign dollar holdings into physical gold. That suspension was not by itself dispositive, as France, among others, hoped to return to gold at new parities. The United States technically remained on a gold standard with the dollar devalued from $35.00 per ounce of gold to $38.00 per ounce under the December 18, 1971, Smithsonian Agreement. In October 1973, dollars were devalued again to $42.22 per ounce of gold. These valuations were formalistic because the United States never resumed convertibility after August 1971. On March 19, 1973, most major trading nations moved to floating exchange rates. In June 1974, the IMF formally demonetized gold and adopted a monetary system based on special drawing rights, SDRs. (SDRs created in 1969 were originally linked to gold. By 1973, SDRs were just another form of fiat.) In 1976, the U.S. Congress amended statutes to remove all references to gold or silver as the definition of a dollar.
Yet gold’s decline as money is more complicated and interesting than the official chronology suggests. Nixon and the IMF were undertakers throwing the last shovel of dirt on gold’s grave. The classical gold standard died on July 28, 1914, with the Austro-Hungarian ultimatum to Serbia and the outbreak of the First World War. The sixty-year period from 1914 to 1974 should be seen as a process of dressing gold’s body for burial. This period paved the way for elites to create new forms of world money.
After the Austro-Hungarian ultimatum, events spun out of control. Mobilizations, invasions, and declarations of war came in rapid succession. By August 4, 1914, the United Kingdom, France, and Russia (members of the 1907 Triple Entente) were at war with the so-called Central Alliance of Germany, Austria-Hungary, and the Ottoman Empire. The United States was officially neutral.
The belligerents in 1914 knew gold was a determinant of victory. They immediately suspended redemptions of notes for gold. For the war’s duration, their economies would run on nonredeemable paper money, a form of forced borrowing from citizens. The understanding was that after victory, gold convertibility could resume—although this was problematic if you lost. A mad scramble for gold ensued. Citizens were encouraged to turn over the gold they possessed in exchange for war bonds. These measures were not resisted; they were widely accepted. War is existential.
There were two important exceptions to suspension of gold convertibility in 1914—the United States and the United Kingdom—for decidedly different reasons.
In July 1914, London was the world’s unquestioned financial capital. The bill on London, a sterling instrument guaranteed by a leading U.K. bank, was the heart of money markets. Sterling bills greased the wheels of world trade. With the war’s outbreak, a financial panic emerged and debt moratoria were declared.
The French government sold securities in London for sterling and demanded conversion to gold and shipment to Paris. In order to obtain gold, U.K. banks sold securities in New York and likewise demanded gold for the dollar proceeds. Selling pressure resulted in closure of all major stock exchanges in Europe and New York. Yet demand for gold did not abate.
U.K. Treasury officials and the Bank of England initially leaned toward suspension of gold convertibility. John Maynard Keynes, an adviser to the Treasury at the time, argued persuasively that the United Kingdom should remain on gold. Keynes knew that sound money was the key to military victory. London’s ability to finance the war depended on New York’s faith in the United Kingdom’s credit.
Keynes’s vision proved prescient. In October 1915, Jack Morgan, Pierpont’s son, managed a $500 million syndicated loan for the United Kingdom and France, equivalent to $11.7 billion in today’s dollars. The House of Morgan raised no money for Germany at all.
U.S. banks coped with the gold demand as best they could. The process was complicated by German U-boat attacks in the Atlantic, which made it difficult to ship gold to London. Insurance was impossible to obtain. U-boats also interdicted agricultural exports to the United Kingdom, which the United States needed to earn back the gold owed. In desperation, the Bank of England opened a branch depository in Ottawa, Canada. Gold was shipped from New York to Ottawa by train without risk of German U-boat attack.
The U.S. Treasury intervened with a government-sponsored insurance scheme so transatlantic shipping could resume. Gold flows normalized by November, and the New York Stock Exchange reopened on December 5, 1914.
Despite Keynes’s advice, and Morgan’s financial acrobatics, gold’s continued convertibility in the United Kingdom was mostly for show. U.K. subjects were told it was unpatriotic to hoard gold. They were
expected to leave their gold with the banks. Likewise, banks were threatened with possible gold confiscation if they hoarded gold and did not make it available in commerce.
Gold coins were withdrawn from circulation and refined into 400-ounce bars, the London good delivery standard ever since. Banks were first encouraged, then required, to deliver their gold to the Bank of England where it was stored in a central vault.
These gold bullion bars could be privately owned, yet did not circulate as coins once did. Only the wealthy owned them because the 400-ounce size was larger than the more modest amount most could afford.
Few complained about gold’s absence due to wartime exigencies. By the end of the war in 1918, habits had changed. The new habit of holding bank notes was ingrained, not just in the United Kingdom, but throughout Europe, and increasingly in the United States. Gold was still privately owned, and notes were backed by gold. Yet a change had occurred. After 1918, physical gold was mostly in the form of bulky bullion bars buried by banks, out of sight and out of mind.
Centralization of gold custody heightened on April 5, 1933, when Franklin Roosevelt issued Executive Order 6102 requiring U.S. citizens to surrender private gold to government fiscal agents under pain of prosecution.
Citizens were not the only ones subjected to FDR’s gold sweep. The Gold Reserve Act of 1934, signed into law by President Roosevelt on January 30, 1934, required all monetary gold in the United States, including gold held by the Federal Reserve Banks, to be transferred to the Treasury.
The twelve privately owned regional Federal Reserve Banks located from Boston to San Francisco possessed gold originally contributed by their bank owners after the system was established in 1913. The Gold Reserve Act of 1934 ordered Federal Reserve gold transferred to the U.S. Treasury in exchange for gold certificates, which have appeared on the books of the Federal Reserve ever since.
By 1936, the U.S. Treasury had more gold than it could safely store in existing facilities. The U.S. Bullion Depository at Fort Knox, Kentucky, was opened in 1937 as a secure facility to hold the gold confiscated in 1933 and 1934. Other gold vaults were created at the U.S. Mints, and the military fort at West Point. Gold that was once dispersed in millions of safes and purses from coast to coast now sat in a few vaults protected by the U.S. Army.
The Road to Ruin Page 7
