By David Dayen, a lapsed blogger, now a freelance writer based in Los Angeles, CA. Follow him on Twitter ddayen. This week marks the th anniversary of a nearly forgotten yet critical moment in global finance. As the looming outbreak of World War I became more and more imminent when Austria made an ultimatum to Serbia in the last week of July , the resulting fear in global markets set off a massive financial panic.

Investors, fearing unpaid debts, pulled out of stocks and bonds in a scramble for cash, which at this point in history meant gold. The London Stock Exchange reacted by closing on July 31 and staying closed for five straight months. Britain declared war while on a bank holiday. Over 50 countries experienced some form of asset depletion or bank run.

But with markets wholly unprepared for the impact of a global military conflict, the crisis would shape the financial order for decades to come. The two major books on this subject are Saving the City: So bear with me.

In general, officials provided more support as a share of the economy in than they did in But the experience appears to have been different on either side of the Atlantic. But the United States had just passed legislation authorizing the Federal Reserve in Christmas , and it was still being organized when the crisis hit. Morgan, a former associate; he may have merely agreed to a policy already decided by the banking elites.

Then he used the emergency currency provisions of the Aldrich-Vreeland Act to allow banks to issue additional bank notes, increasing the money supply. He also sought to increase agricultural exports the main farmland in Europe being otherwise indisposed through the Bureau of War Risk Insurance, which brought some inflows of gold back into the country.

The fact that the United States emerged with their financial system relatively intact facilitated a shift from London to New York as the seat of global financial power, although the fact that the war never touched American soil probably also had something to do with it. But he also sought, again with the help of his banker friends, to position the U. That may have informed his responses as much as the immediate desire to avoid economic collapse; certainly, refusing to abandon the gold standard was driven by a need to remain credible globally.

McAdoo tried to both save the system and push ahead in line among industrialized nations; I suppose he succeeded, though it would be only fifteen years until the stock market crashed entirely. In an interesting piece this month in The Guardian, Larry Elliott points out that the short-term positioning in overlooked the signaling of a new economic normal:. The next 30 years saw the end of the gold standard, the collapse of global trade, a marked reduction in migration flows, the rise of protectionism and the biggest depression the world has ever seen.

Annual growth rates per person in the 12 biggest western European countries fell from 1. Roll forward 93 years from A few hedge funds have hit problems with their investments in US sub-prime mortgages but most traders are blissfully unconcerned. The assumption is that any difficulties are localised, minor and soluble. Again, the optimism was unfounded. When the financial markets froze up in early August it created the conditions for the near-collapse of the western banking system 13 months later.

We know far less than we think we do. In retrospect, it was obvious that the financial markets were in a highly fragile state in , just as historians can find umpteen reasons why the assassination in Sarajevo led to war.

The Largest Ever One-Day Percentage Drop in the Dow Jones Industrial Average Occurred on December 12, by Worst Stock Market Crashes

Warning signs were ignored, with disastrous consequences. The foreign secretary, Sir Edward Grey, was right with his famous warning: Then as now, crisis measures were undertaken to forestall a near-term catastrophe, and the weakness of the overall model never contemplated.

It would take nearly 40 years to return to a trajectory of progress. Really I wanted to recall to this incredible moment when world stock markets shut down for months at a time, revealing the incredible power governments retain to respond to events. But the Panic of was a symptom of a greater disease, of a world being dragged into the modern age. David is a contributing writer to Salon.

He has been writing about politics since His has been a guest on MSNBC, CNN, Aljazeera, Russia Today, NPR, Pacifica Radio and Air America Radio. He has contributed to two anthology books, one about the Wisconsin labor uprising and another on the fight against the Stop Online Piracy Act in Congress.

Prior to writing about politics he worked for two decades as a television producer and editor. You can follow him on Twitter at ddayen. A fascinating footnote of history. What a shame that would have been, eh? The Great War averted because no-one could afford to go off and kill each other? At least, not without sorting out their domestic bank crisis first, and that could take months, ugh, by which point your war lust has gone all flaccid.

I suppose its just a fantasy of mine. By the time the printers fail and the debased currency has hit up against real-world constraints, millions of people have had their lives ruined or cut short. Is a finite money supply and its boom-bust cycles such a horrible price to pay in comparison to our current unending war machine?

How would World War I have been avoided? How would a fixed-rate monetary system have stopped the war when there already was one in place? Germany would never have lost WW1 likely because Germany also could not have afforded to fight it therefore the Nazis would never have come into existence. Instead, thanks to central banking, we have Nazis running the USA and they have the resources to make the German Nazis look like some kids throwing a kindergarten temper tantrum.

Japan is a different matter but how many millions of Europeans and Americans needed to die for China? Really, unopposed, the Japanese Empire would simply have replace the empires of the British, Dutch and French in Asia. It does kinda seem like the birth rate is at odds with the gold rate.

If the human population crashed like the stock market all could be solved! Praise be to your favorite god. But, alas, it does not. Even with the hubris of all our pointless wars. Annual Gold Production vs Annual Population Growth. How could Germany not have afforded to fight WWI? Do you think they built their tanks out of paper marks?

My father lived through the Great Depression, and told me several times that inflation is bad, but deflation is worse.

An inflexible money supply means that we cannot adjust to economic dangers and pitfalls. Prior to the war, there was tension among various countries, such as that between Germany and Great Britain.

Even without a potentially infinite money supply, Austria-Hungary certainly had the resources to fight a war against the Serbs.

There were oil fields in the Austrian province of Galicia, and much of the country was agricultural, so the army could be fed.

The Russians were allied with the Slavic Serbs, and were similarly agricultural, so they were also able to feed their soldiers. So there would have been a significant war, no matter what. The question is whether the countries that were not locally self sufficient would have entered the war.

Those countries that could supply most of their needs domestically would have circulated their gold or claims on gold within their borders, and would not have been limited by their money supply. After buying locally, the governments would tax the sellers, and the cycle would continue. I know that Great Britain had to get much of their petroleum from the United States, so they might not have been able to enter the war, because they would have run out of gold.

Whichever of these countries was more self sufficient would have been able to fight for a longer period of time than the others. Does anyone know how effective or ineffective these countries were are supplying their own needs in ?

I hope someone can sift back thru all the accounting and give us some insight. Self sufficiency is one good firewall against the spread of war. GH, what a great comment. Without the will to forego war, our Congress will have a heyday. So war is a Big Problem. It is always sensible for an enterprise to separate the questions of what it can do capability , what it will do policy , and how it will measure them accounting and finance.

War may be the only policy decision left where national politicians still reliably make these distinctions. How did I, a complete financial ignoramus, know this? The stock price dropped precipitously, and I got a little alert from AOL.

I did a quick search as to why the stock price was falling off a cliff… and got really scared. A major ratings agency making up ratings? But I knew the crash was coming, and I knew it in August And if it was clear to me, it should have been clear to anyone with eyes to see.

I have been banging on about this for years now. This is where Keynes learned his trade as a young MMT man. To essentially reduce internal claims on gold which would free up gold for external release so as to save his precious Central bank.

Its important to undertand that the UK had a printing press back then. It infact had 2!!!! They were called South Africa and Canada. The Gold from these printing presses found there way into friendly France modern day Japan with its US debt and hostile Germany China and its vast hoarde of US debt. Back then the Gold became more and more useless over time as it could not be spent until mobilization. Now US Debt has replaced Gold but with almost identical effects. However its important to understand this overproduction known as war was to save central banks and not debtors who were subsequently vaporized.

Thus maintaining the concentration of power. So much so that I had to go back 3 times. Is it 35 pounds per ounce of debt? Or maybe, as debts can sometimes be on paper, the pound is pegged per inch of debt.

As I might also say that Dork of Cork is a regular Jew basher over at Stormfront. A lie is just as good as the truth and for you, apparently, easier to write. After European mobilization the gold was spent and thus found its way into the US of A. I wanted to signal another great book about de first world war and its connections with our moderns times.

Adam Tooze, in The Deluge, wrote a splendid book about this. It is a great book. Also I gleaned from the book, at the beginning of WW1, most of the major parties involved in the war thought it would be a short event. Which is something citizens of all countries should keep in mind when their nation begins military activities.

Certainly, that is a lesson the US has recently learned. The first is that money is nothing but an effect- tive demand. It is not wealth, it is not production, and it has no inherent and indissoluble connection with anything whatever except effective demand.

That is the first point, and it would be difficult to overrate the importance of a clear grasp of it. It lies at the root of the question as to the true ownership of credit-purchasing-power.

The second point is that, so far as we can conceive, the co-operative industrial system cannot exist without a satisfactory form of effective-demand system, and the result of an unsatisfactory money system that is to say, a money system which fails to function as effective demand to the general satisfaction is that mankind will be driven back to the distinguishing characteristic of barbarism, which is individual production.

And the third point, and the point which is perhaps of most immediate importance at the present time, is that the control of the money system means the control of civilised humanity. The guy you refered to in the Saving the City Utube clip got it wrong — very wrong. The crisis in the Uk reached its peak a year earlier at the very least AND NOT IN THE SUMMER OF The Dublin lockout of rocked the British system to its core. Dublin was the second city of the British Isles at that time — it was the center of extraction from the Irish vassal.

The workers of Dublin were unable to consume the industrial surplus.

The UK Industrial system was unable to supply effective demand as the gilded goods produced extracted from basic demand. IT WAS IN TOTAL FAILURE MODE IN Inter arma silent leges.

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That is why legalists and financiers, although their existing systems tend inevitably to produce wars, are so afraid of them, and why war, terrible in itself, has so often released humanity from bonds which threaten to strangle it.

As a result of this situation, the bounds which are placed upon production for war purposes are defined by intrinsic forces and not by artificial limitations. That is to say, in order to maintain a connection between finance and production, finance has to follow production instead of, as in the normal case, production having to follow finance. The extension of production to its utmost intrinsic limits, therefore, involves an extension of finance at a rate out of all proportion to that which obtains in the normal course of events, and this extension at once reveals the artificial character of normal finance.

It has been pointed out at some length, and probably sufficiently, that the Gold Standard, on which British finance was supposed to be based, broke down within a few hours of the outbreak of war. That is important; but it is only the first step, just as the Gold Standard itself is only one aspect of a system of finance in which currency is the basis of credit. What is more fundamentally important, is to observe that immediately production is expanded at anything like its possible rate, the idea that the financial costs of that expansion can be recovered in prices is seen in its full absurdity.

It will be understood that by far the major portion of the muniments of war including not only warlike weapons and munitions, but the million articles required by the supply services of the armies engaged were produced by so-called private undertakings, and paid for by the Government.

Now, the normal method by which a Government obtains the money wherewith to pay for its purchases, is by taxation, and a balanced Budget means that the proceeds from taxation at least cover the expenditure on public services. Under these conditions, costs and profits of production are recovered by the Governments through the medium of taxation in prices; that amount of taxation which is represented by the supply services, representing the price of the goods delivered to the Government with all costs included.

The National Debt rose between August and December from about six hundred and sixty millions sterling, to about seven thousand seven hundred millions sterling.

And this rise represents, on the whole, the expenditure over that period which it was deemed impracticable to recover in current taxation. That is to say, if we take the average taxation for supply purposes over that period , as being about three hundred millions per annum, the amount paid by the public as consumer for the goods and services supplied to it for war purposes, was about thirteen hundred and fifty millions, and the financial cost of those goods and services was about eight thousand three hundred and fifty millions, a ratio of cost to price of about roughly 1: In other words, goods were sold to the public at one-sixth of their apparent financial cost, and no one lost any money over it at the time.

How was this done? Douglas was very much aganist the full employment war economy. He described the war economy as a release from the burdens of debt but at a huge cost. Only loose money can keep poor Ben safe—not courage or loyalty or self-sacrifice. But for Ben, all victory was owed to MMT…. Now I say you might well resort to soft money in the midst of a major war. But does that mean that soft money should be your standard policy?

We see it again and again. Loose money means malvestment almost everywhere it is employed. Loose money makes it easier for regimes to wage wars, and makes it easier for rulers to reward their cronies. Loose money makes it easier to pursue grandiose plans for dramatic change without answering to those affected by those changes. Loose money makes it easier for powerful people and governments to externalize the consequences of all their mistakes.

With hard money, all distributions and redistributions of wealth become more visible. Theft is more visible. Exploitation is plainer to see. Political consequences of misgovernment tend to arrive sooner. We can have socialism and hard money at the same time. Of course, with socialism, monetary policy no longer inhabits the summit of economic decision-making.

We could have socialism with soft money, too, but I think political accountability is always better under a hard money system. And it would make plenty of sense to many of us in the working class. In my own experiences, I find that most working class people prefer the idea of hard money.

August When Global Stock Markets Closed | Global Financial Data

Thank you for the historic summary of those events. Mankind can only channel our competetive nature, we cannot escape evolution but it appears to be accelerating based on our tools which reflect such. At this point, the solution to one party needing to operate death controls is to globally wage war against death itself.

First by biomechanical medicine to extend life and then seeding of our DNA into 4D considering science knows this place exists. The process is quantum tunneling using reverse polarity, a portion of your DNA code being positive or negatively charged electrons. I am not aware of any possibility that ones ego or immediate personality can survive this process. But knowing the destination and process would eliminate the fear factor by transition at will.

Without channeling our competitive nature for such a cause there will be war, even in a world where resources in real terms are less scarce or can be supplied with minimul focus. Operation Eternity has a nice ring to it, the focus and inventions is something I would complain less about in regards to taxes for universal healthcare. At the end of the day we gather nuts for old age and this is the root of why wars begin when all arguments are all boiled down.

Butit is of little comfort when one is defacating in ones underwear and mobility is severely impaired while some or many of those you loved have perished and your lonely. The saying by a wise man still applies and may contain more meaning than I once realized: Fearless commentary on finance, economics, politics and power Follow yvessmith on Twitter Feedburner RSS Feed RSS Feed for Comments Subscribe via Email SUBSCRIBE.

Home About Archives Bloggers Policies Documents Limited Partnership Agreements Contact. Posted on July 30, by David Dayen By David Dayen, a lapsed blogger, now a freelance writer based in Los Angeles, CA. Follow him on Twitter ddayen This week marks the th anniversary of a nearly forgotten yet critical moment in global finance. In an interesting piece this month in The Guardian, Larry Elliott points out that the short-term positioning in overlooked the signaling of a new economic normal: Certain conclusions can be drawn from these two incidents.

The after-effects of the crash also linger. The question is what happens next.

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About David Dayen David is a contributing writer to Salon. Subscribe to Post Comments. Tip Jar Please Donate or Subscribe! Lambert Strether on Photographs from Grenfell Tower Thank you.

Lambert Strether on Photographs from Grenfell Tower There was a demonstration of several hundred under