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The party’s over

It’s time to call it a day

They’ve burst your pretty balloon

And taken the moon away

It’s time to wind up the masquerade

Just make your mind up the piper must be paid

The party’s over

The candles flicker and dim

You danced and dreamed through the night

It seemed to be right just being with him

Now you must wake up, all dreams must end

Take off your makeup, the party’s over

It’s all over my friend.

This huge monetary expan-sion perpetrated by the Fed-eral Reserve has contributedto the biggest speculation inevery conceivable asset cate-gory and has been accompa-nied by unprecedented hu-bris, greed and outright fraud.This will be punished. Thepunishment is likely to fit the

crime.

All cycles are forecasting a

major peak not only in stockprices but in the economy aswell. This includes, not onlythe Kondratieff cycle, but alsoGann cycles such as the 100year, the 50 year, the 20 year,the 10 year and the 5 yearcycles and according to Gannyears ending in 7 are also

likely to be bad.

This is it. The Kondratieff win-ter is now underway in ear-nest and nothing can stop it.The huge credit expansioninitiated by the Maestro, thepast Federal Reserve Chair-man, Alan Greenspan, hasnow reversed. The ensuing credit contraction will be dev-astating. It will take downcreditor and debtor alike andwill result in a destructive andfrightening deflationary de-

pression.

During the roaring 20s (theprevious Kondratieff autumn),the large credit expansionand accompanying stock mar-ket boom was pretty much anall American affair. The Euro-pean economies were strug-gling to recover from the dev-astation and cost of WorldWar 1. The Europeans, for the

most part, were not partici-pants in the credit and specu-lative bubbles that so capti-vated their American cousins.However, when these bubblescollapsed following the 1929stock market peak and Octo-ber crash, no one, anywhere,could escape the horrendousdepression that was its after-

math.

This time it is different. As the

4th Kondratieff winter unfolds,most of the world is party tothe debt bubble and the con-gruent speculative mania. Thesheer size of this situation isat least 100 times greaterthan 1920s. Thus, the reper-cussions are likely to be farmore punitive than during the

‘dirty 30s’.

THIS IS I T!

The Long Wave Analyst Special Addit ion August - November 2007

I N S I D E T H I S I S S U E : The Credit Crunch 3

Psychology of Crowds 4

Hubris and Greed 5

Money 7

The Federal Reserve 9

Cycles 11

W.D. Gann Cycles 12

The Kondratieff Cycle 13

Bulls and Bears 18

Anatomy of a Crash 18

The Misuse of Credit 22

World Monetary Crisis 24

Gold is Money 25

Winter of Discontent 28

Words by Betty Comden and Adolph Green; Music by Julie Styne; Sung by Nat King Cole

Those who cannot remember the past are condemned to repeat i t . Santayana



Every great credit expansionhas always been accompa-nied by speculative excess.The South Sea Bubble, Johnlaw’s Mississippi scheme, thegreat autumn bull markets of the Kondratieff cycle; all are

fashioned by massive in-creases to the supply of fiat

money.

None of these can compare insheer magnitude and diversityto the autumn bull marketthat commenced in August1982 when the Dow bot-tomed at 777 points. Every-thing and anything that couldbe packaged was sold as aninvestment. The sub-primemortgage was just one of

these new investment con-cepts. But the death of thismarket spells the death of theoverall stock market. Confi-dence has been lost and acontagion of panic will likely

ensue.

This bull market is now fin-ished and cannot be resur-rected as Alan Greenspanwas to able breathe new lifeinto the stock market follow-ing its peak in the winter of 2000. At that time there wasno sub-prime mess to scuttlehis efforts. His actions in low-ering administered interestrates from 6% to 1% andflooding the banks withmoney were the very instru-ments to create the mess in

which we now find ourselves.

The great Austrian SchoolEconomist, Ludwig von Miseswrote, “There is no means of avoiding the final collapse of a boom brought about by

credit expansion. The ques-tion is only whether the crisisshould come sooner as aresult of a voluntary abandon-ment of further credit expan-sion, or later as a final andtotal catastrophe of the cur-rency system involved.” Therehas never been any attemptto abandon the credit expan-sion. Indeed any crisis wassimply an excuse to open the

monetary spigots. This, then, isthe beginning of the total ca-tastrophe of the American dol-lar, indeed the entire worldmonetary and financial struc-

ture.

My deceased friend, TeddyButler-Henderson, met AlanGreenspan in the 1960’s. Theyapparently discussed theKondratieff Cycle. According toTeddy, Alan Greenspan con-fided that he hoped he couldbe Federal Reserve Chairmanat the onset of a Kondratieff winter, because he felt hecould defeat winter by substan-tially increasing the moneysupply and reducing interestrates to near zero. He had his

wish and effected those ac-tions following the 2000 stock

market peak.

This effectively put winter onhold but massively com-pounded already excessivecredit to the extent that peoplewho should never have hadaccess to loans were willinglygiven them. Now the creditbubble that Alan Greenspaninitiated is beginning to un-wind. The process will be hor-rific and cannot be reversed.Incidentally, Mr. Greenspantold Teddy during that sameconversation that if he failed tothwart the Kondratieff winter, itwould make what followed1929 look like a ‘Sundayschool picnic.’ This is what we

have to expect.

The rapidly advancing mone-tary crisis centered on the dol-lar is reminiscent of the previ-ous Kondratieff winter crisis,which was focused on the Brit-

ish Pound. The Pound’s col-lapse in 1931 brought downthe world monetary system andcaused the abandonment of

gold as a backing for money.

But in the coming financial andeconomic chaos that is charac-teristic of the Kondratieff win-ter, gold will reassert its tradi-tional role as money. The de-

mand for gold, just as it wasin the early 1930’s, will beenormous. Since this crisis ismuch greater than the crisisof the 1930’s and interna-tional in scope, the rush toown gold is likely to be far

more pervasive than it wasthen.

The unfolding crisis has envel-oped the globe. Central banksare pouring money into char-

tered banks in an effort tostabilize the situation. In thethree weeks following thefailure of the Bear Stearnsfunds and other hedge funds,the injection of cash by theworld’s central banks totaledalmost half a trillion dollars.

The cash infusions continue.

Page 2

So, cycles are predicting amajor stock market crash thisyear. That is right, this year-

2007.

Gann wrote that when the

time cycle was over there wasnothing that anyone could doto alter the inevitable. Presi-dent Bush, Secretary of theTreasury Paulsen and FederalReserve Board Chairman BenBernanke and anyone elseare powerless to control theapproaching financial on-

slaught.

Regrettably, many peoplebelieve that their leaders canalways positively control thefuture. It is a mistaken belief

that always costs them dearly.

Every market move is alwaysfollowed by a reaction. Thebigger the up move the biggerthe down side. There is nohistorical comparison with thesheer magnitude of the world-wide investment mania that iscurrently in force. Thus, thedown side threatens to rockthe very foundations of capi-talism and democracy. AsEpicitus put it, “the extreme of

any position will ultimatelybecome its opposite.”

As night follows day, a boomis always followed by a bust;the bigger the boom the big-ger the bust. The bust alwayscatches the majority un-awares, coming as it doesfrom a zenith of apparentprosperity and speculativeexcess. At this time, the crowdis imbued with an impetuousfervour encouraged by the

affirmations of its leaders.Caution is abandoned. Sav-ings are depleted and copiousamounts of debt are as-sumed. It is the set up. It mir-rors the mad dash of the lem-mings to the cliffs. In thatmad dash the lemmingsprobably feel the same senseof exhilaration as do thespeculators. Both are

doomed.

“It is well enough

that the people of

the nation do not

understand our

banking system, for

if they did, I believe

there would be a

revolution before

tomorrow morning.”

Henry Ford Sr.



Jochen Sanio, Germany’sFinancial Regulator, com-pared the evolving crisis to

the banking crisis that devel-oped in 1931, following thefailure of the Credit Anstaltbank in Austria. This is aninteresting comparison, com-ing as it did in the lastKondratieff winter. The failureof this relatively unimportantbank was instrumental indestroying the world monetarysystem after Britain aban-doned the gold standard in1931, and followed by thecollapse of the entire USbanking system after Roose-

velt declared a banking holi-day in March, 1933.

The trouble is that no oneknows the value of the collat-eral that banks pledgeagainst their inter-bank bor-rowing. It takes one back to1932, when the great steelmagnate, Charles M. Schwab,said, “I’m afraid, every man isafraid. I don’t know, we don’tknow, whether values wehave are going to be real next

month or not.” (The Lords of Creation. P.418).

Altogether, Central Banksadded $320 billion, during the week ending August 11th 2007, to offset the emerging credit crunch. “Central bankscan ultimately fix a liquiditycrunch by shipping in boat-loads of cash and they areeffectively doing that,” saidAlan Ruskin of RBS Green-wich Capital. “There is verylittle doubt that they will comethrough in the end.” (The Fi-nancial Times. August 11th /

August 12th, 2007).

There is hope that FederalReserve Chairman, Ben Ber-nanke will right the ship, justas his predecessor had doneon numerous occasions. He isinjecting money into the over-night lending market and has

cut the Federal Funds rate by0.5%. Today (September 18th,2007), he reduced the Dis-

count rate by 0.5%. Typically,the stock market responded in

joyous fashion. The DJIA

jumped 345 points.

Similarly, John Johnson inter-viewed on BNN (Business NewsNetwork) on September 11th,2007, replied to one questionsubmitted by the interviewer,“we’ve been here before andwe’ve always gotten throughit.” But the truth is that wehave only been here before in

1837, 1873 and 1929; allclimaxes to their respectiveKondratieff autumns. It is truethat we did get through each of those times, but only after adebilitating deflationary depres-sion had destroyed the wealth

of many people.

That so many people trust inthe power of their leaders tooffset the natural progressionfrom boom to bust in the econ-omy is incredible. It can bedemonstrated time and timeagain that leaders have alwaysfailed in their quest to arresteconomic and financial decline.In fact, the more that theseleaders believed in their power

to maintain the status quo,the greater the ultimate dam-age and the greater the suf-

fering endured by the peoplewho had blindly placed their

trust in them.

“There seems to a generalconviction, cultivated not justby Mr. Greenspan, that the USeconomy has become virtuallyimmune to recession. It iswidely seen just as a bursting of strength due to ingrained‘flexibility’ and ‘dynamism’. Inaddition, of course there isunbound faith in the virtuosity

of the Fed to avoid a seriousrecession.” (Dr. Kurt Riche-bacher, The Daily Reckoning.

3rd August 2003).

Of course, we should expectthe Federal Reserve to re-spond in exactly the samefashion as it always has. Afterall, while reflation failed towork between 1929 and1933, it has worked everytime since then, particularlyunder Alan Greenspan’swatch. But Alan Greenspannever faced the bursting of acredit bubble. He only knewhow to manufacture them. Infact, no Federal Reservechairman has been chal-lenged with a financial prob-lem of this magnitude sincethe 1930s. Indeed, the prob-lems confronting the FederalReserve after the stock mar-ket crash in 1929 were ratherminer when compared towhat not only faces the Fed-eral Reserve Board, but, also

all Central Banks today.

Page 3

“The turmoil in global bank-ing hit the streets of Britainyesterday as thousands of

Northern Rock customersqueued up to withdraw theirsavings from the UK mortgagelender after it was rescued bythe bank of Eng-land.” (Financial Times. Satur-day September 15th, 2007). Itwas rumoured that customershad withdrawn $2 billion U.S.from Britain’s fifth biggestmortgage lender. This was thefirst bank run in England

since 1866.

The Bank of England has nowinjected almost 8 billionpounds into the floundering mortgage lender. In order totry and reassure the deposi-tors, the British Governmenthas guaranteed all the moneyon deposit at not only North-ern Rock, but also at any Brit-ish bank that experiences

trouble.

In Germany, the IKB bank wassaved from collapse when thevalue of its speculation in USsub-prime mortgage bondsand derivatives plummeted.Other German banks, encour-aged by Peer Steinbruck, Ger-many’s Finance Minister,guaranteed almost $US 11Billion worth of its debts andloans. Axel Weber, presidentof Germany’s Bundesbankcalled this “an isolated, insti-tution specific incident.” Butsoon afterwards, Sachsen LB,a publicly owned Landesbank,or state bank also had to berescued. The German banking crisis prompted AlexanderStuhlmann, chief executive of WestLB, another Landesbankto say that the situation was“not uncritical.” “We sense areluctance on the part of for-eign partners to extend creditto German banks.” (Financial

Times).

T H E C R E D I T CR U N C H



expansion in the supply of fiatmoney. As the great bull mar-ket progresses, it draws every-one into its embrace. It be-comes the centre of attention;the talk on the cocktail circuitand in the factory lunch-

rooms. Everyone follows itsprogress on television and inthe newspapers. In this mi-lieu, a cadre of experts cometo the fore and the investorherd leans on their every

word.

A year after the collapse of The

Mississippi bubble, the SouthSea bubble ensued with hor-rendous losses to its investors,including Sir Isaac Newton, whofamously remarked, “I canmeasure the motion of heav-enly bodies, but not the mad-ness of crowds.” Initially hewas content to take a 100%profit on his investment, but asprices raced upwards he re-

joined the party investing evenmore money than he had done

in his initial foray. That was hismistake. When the bubble col-lapsed, he lost the huge

amount for that time of 20,000pounds. Even he, a very wiseman, could not resist the mag-

netism of the mania.

Strength in numbers gives acrowd a collective feeling of confidence, indeed invincibility,which allows it to do things,which the individuals compris-ing it might have considered

asinine. ‘The theory is, if eve-

ryone is doing it, it must begood,’ or ‘so many people justcan not be wrong,’ well illus-trated by the current non-bank asset backed commer-cial paper (ABCP) debacle.Hence the strategy of contraryinvesting, which proposesthat when the masses aretotally involved in any particu-lar investment medium it isprudent to take an oppositetack. Such a strategy takescourage and an ability to de-

tach oneself from the crowd.

The crowd is always depend-ent upon its leaders. Collec-tively, it displays a lack of confidence and desires itsleaders to make decisions onits behalf. Le Bon put it thisway, “A crowd is a servileflock, that is incapable of everdoing without a master.” (The

Crowd. P.113).

“The leader has most oftenstarted as one of the led. He

has himself been hypnotizedby the idea, whose apostle hehas since become. It hastaken possession of him tosuch a degree that everything outside it vanishes, and thatevery contrary opinion ap-pears to him an error or asuperstition.” (The Crowd.

P.113).

Page 4

It is one thing for the FederalReserve to inject cash into thebanking system, but anotherto lower administered interestrates. In that regard, the Fed-eral Reserve is caught be-tween a rock and a hard

place. In 1929, America wasthe world’s largest creditornation. Today she is the larg-est debtor. Managing admin-istered interest rates in 1929had no effect on her creditors,because America owed noth-ing outside the country. To-day, she owes foreignersabout half of her $9 trilliontotal debt. Under these cir-cumstances if the FederalReserve acts to lower admin-istered interest rates, marketinterest rates are, in fact,

likely to rise when the USdollar slides and foreignersdemand higher rates of inter-est to compensate for the risk

of holding US dollar debt.

Anyway, lowering adminis-tered interest rates at thispoint is unlikely to have thedesired impact. Banks mustwant to lend, and borrowersmust want to borrow. But bothlenders and borrowers havebeen badly burnt and neither

is likely to engage at thispoint; particularly the banks.They are already beginning tofeel a capital strain from the

evolving crisis.

As the debt bubble unwindsand the world enters itsKondratieff winter depression,creditor nations will be forcedto sell their US dollar debt tobring the money home in or-der to shore up their ailing economies and aid their fail-ing banks. Under these cir-cumstances, the effect on theUS dollar and US interestrates in general, will be devas-

tating.

These speculative maniasonly occur once in a lifetimeand that is during theKondratieff autumn. As notedabove, these speculations arealways initiated by a huge

“I can measure the motion of the

heavenly bodies, but

not the madness of

crowds.”

Sir Isaac Newton

The psychology of crowds is

an interesting phenomenonbest described by Gustave LeBon in his classic ‘The Crowd’.Needless to say, the behav-iour of a crowd is very differ-ent from the individuals whocompose it. For our purposes,we are talking about the in-vestor herd, but its collectivebehaviour differs little fromthe behaviour of a crowd atan English football game orthat of a mob hurling rocksand abuse at a police barri-

cade. It is not rational.

“The most striking peculiaritypresented by the psychologi-cal crowd is the following:Whoever be the individualsthat compose it, however likeor unlike be their mode of life,their occupations, their char-acter, or their intelligence, thefact that they have beentransformed into a crowd putsthem in a possession of a sortof collective mind whichmakes them feel, think, and

act in a manner quite differ-ent from that which each indi-vidual of them would feel,think, and act were he in astate of isolation.” (TheCrowd. Pages 5-6). Or asFriedrich von Schiller put it,“Anyone taken as an individ-ual is tolerably sensible andreasonable-as a member of acrowd, he at once becomes a

blockhead.”

“ F A R F R O M T H E M A D D I N G C R O W D ’ S I G N O B L E S T R I F E … ”- T H O M A S G R A Y



gether with similar goals, allemotions are rapidly conta-gious, which explains thedevelopment of financial bub-bles around the world and thesuddenness of panics. This isan example from March,

1929, “On Monday GeneralMotors gained 2 ½ pointsmore, on Tuesday 3 ½; therewas great excitement as thestock crossed 150. Otherstocks were beginning to beaffected by the contagion asday after day the marketmade the front page.” (Only

Yesterday. P.295).

“The opinions and beliefs of crowds are especially propa-gated by contagion, but never

by reason.” (The Crowd.P.125). This is never moreevident in reckless specula-tion. Walter Bagehot, an edi-tor of the Economist and re-nowned financial commenta-tor of the 19th Century said,“All people are most credu-lous when they are most

happy.”

In the latest real estate ma-nia, affirmations were used toconvince the masses that‘real estate was still cheap’and ‘they are not making anymore land’ and that‘mortgage interest rateswould never be this lowagain.’ Mantras like these,constantly repeated, spawneda contagion of buying and themasses abandoned commonsense in their emotional urgeto own homes; in many casesnot just one home , but sev-eral. Now the bubble has

burst.

Once the crowd becomestotally immersed in the specu-lative game, it is blind tocommon sense and reason. Itrefuses to countenance anydiscerning views or contraryopinion. Indeed, it turns onthose that reflect such dissen-sion, by accusing them of ‘sandbagging American pros-perity.’ This accusation wasattached to Paul Warburg in

1929, after he advised that theorgy of speculation would lead

to a disastrous collapse.

But the crowd reveres its lead-ers, who continue to affirm the

glories of being fully investedin the bull market. This crowdadulation causes some of these leaders to assume delu-sions of grandeur. They baskin their glory and begin to be-lieve in their own omnipotence

and sagacity.

debt. When the debt creationbecomes unsustainable, the

bubble bursts. This then leadsto the abject poverty anddespair of many people andthey will turn on the perpetra-

tors of their misfortune.

It is fitting that this catastro-phe should begin during George Bush’s Presidency, forhe has much to answer for,especially the Iraq War, whichhas resulted in the death of many thousands of innocentpeople. The war may not bean issue to many Americans,

but an economic depressionwill be. Those in power at itsonset will be treated with

contempt and loathing.

Perhaps, too, Henry Paulsonas Secretary of the Treasurywill experience the public’swrath as the budding financialcatastrophe unfolds; muchlike his counterpart Andrew

Mellon in the early 1930’s.

While the Federal ReserveBoard should be singled outfor its collective hubris, noone individual more deservesthe punishment that hubrisbrings on those that practiceit, than former Federal Re-serve Chairman, Alan Green-span. By his actions he hasset in place, perhaps thegreatest financial catastrophethat the world has ever faced.

Despite his direct

Page 5

The crowd’s leaders in a stockmarket boom are investmentmanagers, investment advi-sors, stock analysts, econo-mists and in particular theFederal Reserve Board

Chairman.

According to Le Bon, affirma-tion, repetition and contagionare the means by which aleader instills a belief or ideain the collective mind of acrowd. “Their actions aresomewhat slow, but its effectsonce produced are very last-ing. (The Crowd. P.120). Thisis why it takes time for specu-

lation to grow into a bubble.

Alan Greenspan constantlyaffirmed the superiority of USproductivity to countenancehigh stock prices. Even whenstock prices were reaching ridiculous levels by all pastmeasures, stock analystswere touting that stocks werecheap or the old favourite

‘this time it’s different.’

To be really successful, affir-mations must be constantlyrepeated and as far as possi-ble in similar terms, such as

“buy stocks for the long term.” This is always the man-tra in long and prosperousbull markets. The proponentsconveniently forget or do noteven know that it took 25years for stock prices to re-gain their 1929 highs, or thatstock prices went down be-

tween 1966 and 1982.

Once affirmations have beensufficiently repeated in orderto attract the attention of the

crowd, contagion intervenes.“Ideas, sentiments, emotions,and beliefs possess in crowdsa contagious power as in-tense of that of mi-crobes.” (The Crowd. P.122).People do not have to be inthe same place to be sweptup by this contagion. Think of the worldwide demonstrationsagainst the Iraq War. Butwithin a crowd bound to-

HU B R I S A N D GR E E D

The Greeks had a word for thisreckless arrogance, which in-

evitably leads nations and peo-ple to disaster. They called it‘hubris’. “It is the kind of su-preme arrogance that causesan individual or a nation toboldly defy all the accumulatedwisdom of the past, to ignorehistory, to break all the estab-lished rules and imagine them-selves masters of fate. Or asthe Greeks would put it, ‘to defythe immortal gods.'" TheKondratieff Wave Analyst. April,

1988. P.37).

Hubris is always punished. InGreek mythology, those peopleor nations guilty of hubris weredelivered to Ate, the goddess of infatuation and ruin. Her pun-ishment was to confuse the

judgment of her arrogant vic-tims. The actions that theytook, which they thought weregood and could save themwere, in fact destructive. Thus,those afflicted by hubris weredeluded into becoming agents

of their own ruin.

Consider the actions of theFederal Reserve Board’s openmarket committee (FOME) Assoon as it appears that the U.S.economy might be facing aslowdown, the Central Banklowers administered interestrates and increases the moneysupply. This response the Bankobviously thinks is good, but in

fact it is bad, because it grows



to their investment gurusgreat power and treats them

with a reverence normallyreserved for the gods. Thishero worship goes to theirheads. Many of them believethat they are solely responsi-ble for the investment suc-

cess that the crowd enjoys.

At these massive bull marketpeaks, these analysts con-tinue to recommend the pur-chase of specific stocks andother newly contrived invest-ment products. They believethat their advice is good,

when in fact it is bad, be-cause inevitably a terriblebear market follows and allthe wealth that they take thecredit for having created is

destroyed.

While these analysts mighthave succumbed to hubris sotoo, did many of corporateleaders. Men like Bernie Eb-bers, Denis Koslowski, Sam-uel Waksal, Kenneth Lay andJeffrey Skilling and now Con-

rad Black have paid a hum-bling price for their unduearrogance. There will be moreto follow as the next stage of the stock bear market gets

underway.

Following the previousKondratieff autumn stock bullmarket in peak in 1929,many former heroes paid

dearly for their hubris.

Up to 1930, Andrew Mellon

was touted as perhaps thegreatest Secretary of the Treas-ury since Alexander Hamilton,who was appointed to thatposition in 1789. Thereafter, tosave Mr. Mellon from possibleimpeachment, PresidentHoover appointed him as Am-bassador to Great Britain in

1932.

During the later stages of the1920s, Samuel Insull built anenormous empire of utility com-

panies, which were connectedin a complex pyramid and fi-nanced with massive debt. “Hisprestige was colossal. He waschairman of the board of direc-tors of 65 different concernsand president of 11 others. Hiswealth was reputedlyvast.” (The Lords of Creation.

P.281).

When the end came, the houseof cards collapsed.“Investigation, flight, indict-ment, refuge in Greece, cap-

ture, and trial in Chicago werestill to come-grimly underscor-ing the tragic conclusion of financial adventure in which abrilliant career had beenwrecked, and American inves-tors had lost nearly three-quarters of a billion dollars,and the economic system of the whole country had beengravely shaken.” (The Lords Of

Creation. P.286).

Richard Whitney, a scion of

the Wall Street establishment,and acting President of theNew York Stock Exchange atthe time of the crash and in1930 the President of theExchange, resorted to embez-zlement to make good hissubstantial losses during the

crash.

In 1938, the NYSE comptrol-ler reported to his superiorshis proof of Whitney’s theft.From that point events snow-

balled. Whitney and his bro-kerage company both de-clared bankruptcy. He wasarrested, charged with embez-zlement, found guilty andsentenced to a term of be-tween 5 to 10 years in Sing

Sing prison at Ossining, N.Y.

His brother, George Whitney,a partner at J. P. Morgan,eventually made restitutionon all the money that he

owed.

Charles Mitchell, President of the National City Bank, whodefied the Federal Reserve in1929 and one the maincheerleaders of the stockmarket boom was investi-gated by the US Senate com-mittee where he admitted tospeculating in his own bank’ssecurities and was fined $1.4

million.

Page 6

responsibility for this looming disaster, he was named a‘national treasure’ by a grovel-ing U.S. Senator, given a hon-ourary knighthood by QueenElizabeth and dubbed the‘Maestro’ in a recently pub-

lished book.

Still, Sir Alan’s fawning fanslean on his every word. Andhis retirement has notdimmed his penchant forpontificating on current eco-nomic and other events. In-deed, one can reserve a tablefor 10 people at a cost of $4,000 (CAD) to attend aluncheon presentation byAlan Greenspan at the Van-couver Westin Bayshore hotel

on Thursday, January 24,2008. This of course, allsponsored by the BMO Finan-cial Group. Now he is an advi-sor to the British Government.His fall from grace is likely to

be very painful.

There is plenty of hubris evi-dent in the great stock bullmarkets, which are a once ina lifetime experience andalways occur during the

Kondratieff autumn.“Prosperity has this property-itpuffs up narrow souls, makesthem imagine themselveshigh and mighty and looksdown on the world with con-tempt.” (Plutarch, 46-120A.D.). During the latter stagesof these great bull markets,the investor herd, which hasgreatly benefited from theboom in stock prices ascribes

“Prosperity has this

property-it puffs up

narrow souls, makes

them imagine

themselves high and

mighty and looks

down on the world

with contempt.”

Plutarch, 46-120 A.D.

National Post



dreamed-up by Wall Street isunprecedented. There is noth-ing to compare this experi-ence with anything in history.Perhaps John Law’s Missis-sippi stock scheme and itsimmediate successor the

South Sea Bubble sharessome comparisons such as

the massive increase in the

fiat money supply to fundshare purchases and the hugeincreases in the respective

share prices and the degreeto which speculation en-grossed lord and servantalike; or how the new foundwealth gravitated to the pur-chase of luxury goods likecarriages (automobiles today),gold and silver plate, furnitureand lace. At the time the Re-gent’s mother wrote: “It isinconceivable what immensewealth there is in France now.Everybody speaks in millions. Idon’t understand it at all, but Isee clearly that the god Mam-

mon reigns an absolute mon-arch in Paris.” (Millionaire.

P.148).

Today the god Mammon sits ontwo thrones in New York andLondon and to a lesser degree

in most of the other financialcentres of the world.

The two financial world capitalshave enjoyed unrivalled pros-perity during this unprece-dented speculative fever. Theytoo have developed massivehubris, which has allowed themto develop and sell all over theworld huge swaths of question-

able securities.

New York, however, takes theprize, because the investmentfirms housed in that city controlmany of the London firms. Dur-ing these major investment bullmarkets, New York becomesthe centre of the universe, or atleast in the minds of most of those living there. The city pul-sates on money. The greatinvestment houses become theepitome of wealth. Some of thiswealth is transferred to part-ners and key employees in theform of huge performance bo-

nuses.

“Profits on Wall Street havebeen boosted by a surge inmergers, takeovers, as well assharp increases in trading lev-els of stocks and derivatives.Figures suggest leveraged buy-out firms have attracted morethan $170 billion of newmoney so far this year, helping drive $2,900 billion in an-nounced mergers and acquisi-tions. In addition, more than$110 billion poured into hedge

funds in the first nine months,beating the last annual peak in2002 and fueling demand forstocks, bonds, commoditiesand derivatives.” (Gulf News,David Litterick and KatherineGriffiths, Saturday, November

25th, 2006).

In 2007, five of the largest USbrokerages paid out $36 billion

in bonuses based on 2006performances. This was anincrease of 30% over the

2005 payouts. The averageannual pay cheque in New

York is about $300,000 orfive times more than the aver-age annual pay in the remain-

der of the United States.

Most of the people working inthese investment firms attrib-ute these enormous profits tothe business acumen of thefirms’ leaders. Few of themgive credit to the massive bullmarket. “We compulsively

associate unusual intelligencewith the leadership of thegreat financial institutions-thelarge banking, investmentbanking, insurance, and bro-kerage houses. The largerthe capital assets and incomeflow controlled, the deeperthe presumed financial, eco-nomic and social percep-tion.”- “Financial genius isbefore the fall.” (A Short His-tory of Financial Euphoria.

P.15 and P.17).

Much as it might appear to-day that the amazing wealthenjoyed collectively in New

York and London is a perma-nent affair, it is not. Invest-ment bull markets do not lastforever. And the bigger andmore speculative the bullmarket, the greater and moredevastating is the ensuing bear market- To this end wecan anticipate that themother of all stock bear mar-kets is about to descend onNew York and London. Whenit does, these two cities willbear the brunt. In 1975, theCity of New York was forced togo hat in hand to the Stateand Federal governments tobail it out of bankruptcy; allbecause, stocks had been ina bear market since 1966,which had been exacerbated

by a mini stock crash in 1974.

Page 7

The Van Sweringen brothers,

who built their fortune in rail-ways and in Cleveland realestate by forming holding companies built upon holding companies. Their companieswere well managed. “But onthis solid foundation of oper-ating skill they had raised animmense financial pyramidbuilt of debt and of hope.” (The Lords of Creation.

P.299).

“Then came October and No-vember, 1929, and–worsethan that the decline in val-ues in the fall of 1930, andthe slow avalanche of 1931and 1932. An ugly time forborrowers and for lenders

too.” (The Lords of Creation.P.301).

“Not all the things done inthose years of collapse makeagreeable reading. Debt hadhitherto weighed lightly on theVan Sweringens: now its bur-den was terrific. They had tohave money.” (The Lords of Creation. P.301). But there

was not any to be had.

Ivar Krueger, the Swedishmatch king, did not limit him-self to just matches, but alsocontrolled most of the forestindustry in northern Sweden.He was able to acquire themajority shares in the tele-phone company, Ericsson, themining company Boliden andbanks in Sweden and Ger-many. At the peak of his ca-reer in 1929 he controlledsome 200 companies and hisfortune was estimated to be

30 billion Swedish Kroner.

It all came crashing down in1932. The claimed assets of $250 million were non exis-tent. On March 12th, 1932Krueger was found dead inhis Paris hotel room; appar-ently from self inflicted gun-

shot wounds.

This world-wide preoccupationwith any investment scheme

“Money has no

Motherland;

financiers are

without patriotism

and without decency; their sole

object is gain.”

Napoleon

I N N E W Y O R K M O N E Y I S G O D A N D G O D I S M O N E Y . L O U I S H E N R Y S U L L I V A N , 1 9 0 8



Michael Bloomberg, New York’s mayor has initiatedmunicipal budget cuts and a hiring freeze in antici-

pation of reduced tax revenues.

While hubris is generally a domain of powerful indi-

viduals, greed can become the sin of lesser mor-tals. And nowhere is greed more apparent than

during huge speculative markets.

Wealth disparity is most obvious in the UnitedStates, where 70% of that country’s wealth is

owned by a mere 10% of its citizens.

“Today the top 5% of Americans have all themoney, while the bottom 95% seem to have all thedebt. Why so much damn debt on the part of thebottom 95%? Well, they’re to keep up their stan-dard of living, and can’t do it on what they make.So how do they manage? This is how…today both

the husband and wife work, and they also do a lotof borrowing.” (Richard’s Remarks – Dow Theory

Letters Inc.).

For the most part US consumers are in a hopelessposition. Their debt obligations stretch as far as theeye can see. Their ability to honour these promisesrests upon an economy that can only be sustainedby even more debt. Their assets are pledged; theirhomes, their cars, everything. They have become

slaves to the banks. Vast portions of their incomes

are paid out in interest payments and debt reduc-tion. Will they ever recover from this nightmare?Many will not. They will go to their graves in debt to

the banks. Until that time, they will continue tomake their onerous payments for fear that they will

lose everything.

In the 1970’s, corporate bosses earned about 40times as much as the average worker. Todaythanks to stock options, generous bonuses andpay, bosses earn about 370 times the average payof their employees. There are 140 companies un-der investigation for back dating options, which

was done to give the bosses cheap company stock.

A good example of this boss/worker wage disparityis the firing of Richard Nardelli as CEO of Home

Depot. For this, he received the princely sum of $210 million. His sacked underlings were, perhaps,lucky to receive a mere boot in the backside. Youwould think that with all that money in his jeans,Mr. Nardelli would quietly ride into obscurity. Butno; “That’s right, Cerebrus has confirmed that thedisgraced former CEO of Home Depot, who becamethe poster child for excessive CEO compensation,has taken the reigns at Chrysler.” (Forbes. August

6th, 2007).

Page 8

The beginnings of Ate’s punishment for New York’s hubris are becoming evi-dent. “---there are signs that the latest boom in New York -evidenced by a pro-liferation of high-end restaurants, up market boutiques sprouting in once grittyareas is grinding to a halt.” (Financial Times. November 3rd /4th 2007). So farthis year (2007), job losses in the financial services industry in the City total47,000. This includes the recent firing of Stan O’Neil, the Merrill Lynch boss,after the company was forced to take $8.4 billion write down related to thesub-prime mortgage fiasco. For his performance Mr. O’Neill was rewarded with

a $160 million severance package.

H E R E T O D A Y

G O N E T O M O R R O W

P I C T U R E S O U R C E D F R O M T H E S U N D A Y T E L E G R A P H

A D E A L E R I S R E A D Y I N G A U . S . $ 1 5 0 , 0 0 0 F E R R A R I M O D E N A 3 6 0

F O R A C L I E N T W H O W I L L B E G E T T I N G H I S F I R S T B O N U S S I N C E

G R A D U A T I N G T W O Y E A R S A G O .

N E W Y O R K T I M E S A N D G L O B E A N D M A I L . N O V E M B E R , 2 0 0 6



Not long ago, Treasury Secre-tary, Henry Paulson was

asked by a Chinese student atBeijing University what ac-counted for the great successof Goldman Sachs. He saidthat since he was no longerChairman of the firm, hecould not comment on thequestion. If he had answeredhonestly he should havestated that the firm’s successand for that matter the suc-cess of all the major US in-vestment houses and banks

was attributable to the benefi-

cence of the Federal ReserveBoard, which is partly ownedby his ex-firm. The centralbank has provided copiousamounts of money and lowadministered interest rates tokeep the great speculativegame going; just as it did inthe previous Kondratieff au-tumn between 1921 and

1929.

Joshua Stamp was appointeda director of the Bank of Eng-

land in 1928. This is what hehad to say about centralbanks-“Banking was con-ceived in iniquity and wasborn in sin. The bankers ownthe earth. Take it away fromthem, but leave them thepower to create money, andwith a flick of the pen they willcreate enough deposits to buyit back again. However, take itaway from them, and all the

great fortunes, like mine willdisappear and they ought to

disappear, for this would be ahappier and better world to livein. But if you wish to remainslaves of bankers and pay thecost of your own slavery, let

them create money.”

Creating money is exactly whatthe Bank is doing and it is cre-ating money out of nothing.Amschel Mayer Rothschild, theson of Mayer Amschel Roths-child, the founder of the Roths-child dynasty is purported to

have said in 1838, “Permit meto control the issue of money of a nation, and I care not whomakes the laws.” The familyhas controlled the issuance of money in Europe since the1800s and the United Statessince the founding of the Fed-

eral Reserve Board in 1913.

In August 1911, John Moodywrote an article in McClure’sMagazine titled ‘The SevenMen.’ “Seven men in WallStreet now control a great

share of the fundamental in-dustry and resources of theUnited States. Three of theseven men, J. P. Morgan,James J. Hill and George F.Baker, head of the so-calledMorgan group; four of them,John D. and William Rockefel-ler, James Stillman, head of theNational City bank, and JacobH. Schiff of the private banking firm of Kuhn, Loeb Company, tothe so-called Standard Oil CityBank group….the central ma-chine of capital extends itscontrol over the United States.Moody, John, The Seven Men,McClure’s Magazine, August1911. (The Secrets of the Fed-

eral Reserve. P.47).

“What John Moody did notknow, or did not tell his read-ers, was that the most powerfulmen in the United States werethemselves answerable to

another power, a foreignpower, and a power which

had been steadfastly seeking to extend its control over theyoung republic of the UnitedStates since its very incep-tion. This power was the fi-nancial power of Englandcentered in the LondonBranch of the House of Roths-child. The fact was that in1910, the United States wasfor all practical purposes be-ing ruled from England and soit is today. (The Secrets of .the

Federal Reserve. P. 47-48).

The Federal Reserve Board isnot a US government institu-tion, but a privately held cor-poration owned by sharehold-ers, whose names were keptsecret under the provision of the Federal Reserve Act. But,“In our circles it becamewidely known that the Fed’sprincipal owners or stockhold-ers as they prefer to be calledwere the ROTHSCHILD banksof London and Berlin; LAZARDBROTHERS Banks of Paris;

ISRAEL MOSES SEIF Bank of Italy; WARBURG Bank of Ham-burg and Amsterdam; LEH-MAN BROTHERS Bank of New

York; and GOLDMAN SACHSBanks of New York; KUHNLOEB Bank of New York;CHASE MANHATTAN (TheRockefellers) Bank of New

York. These interests own andoperate The Federal Reservesystem through approximatelythree hundred stockholders,all of whom are very wellknown to each other, and

frequently related.”(Russbacher, Gunther, TheShort Road to Chaos andDestruction; An Expose of theFederal Reserve System.http://www.worldnewstand.net/

today/articles/chaos.htm).

“I still can’t get over the whole

Federal Reserve racket.

Page 9

In 2006, the top three UShedge fund managers drewmore than $1 billion in sala-ries. The top 25 managersreceived a total of more than$ 14 billion, which is largerthan the GDP of Jordan and

Uruguay and would beenough to pay the salaries of the 80,000 New York publicschool teachers for almostthree years. (Source-CNN,

New York Times).

“The world is flooded withliquidity. Every central bankhas been creating liquidity.Today the big money is madeby bankers taking over com-panies, and by companiesand venture capitalists taking

over companies. It’s a papertrading world-casino, run bybig-time financiers and world-class investment bankers. It’squite a game, and it’s notplayed by the middle class,it’s played by Wall Street and

the new entrepreneurs.”

(Richard’s Remarks – Dow

Theory Letters Inc.).

“But if you wish to remain slaves of

bankers and pay the

cost of your own

slavery, let them

create money”

Joshua Stamp

T H E F E D E R A L R E S E R V E … . W H A T H A S I T D O N E F O R Y O U L A T E L Y ?



the US forever in debt-orshould I say in increasing debtalong with ever rising interest

payments.”

“How did the Fed get away

with this outrage? A tiny se-cretive group of bankerssneaked through a bill in1913 at a time when many inCongress were absent. Thosewho were there and voted forthe bill didn’t realize (as sooften happens) what theywere voting for. (shades of theshameful 2002 vote to handPresident Bush the power to

decide on war with Iraq)”

(Richards Remarks-www.dowtheoryletters.com.

March 27, 2007).

After Woodrow Wilson hadsigned the Federal ReserveAct into law he is purported tohave told a friend-“I am amost unhappy man, I haveunwittingly ruined my country.A great industrial nation isnow controlled by its systemof credit. Our system of creditis concentrated. The growth of the nation, therefore, and allour activities are in the handsof a few men. We have come

to be one of the worst ruled,one of the most completelycontrolled and dominatedGovernments in the civilizedworld; no longer a Govern-ment by free opinion, nolonger a Government by con-viction and the vote of themajority, but a Government bythe opinion and duress of asmall group of dominantmen.” (The Money Masters

Video).

A few days before the FederalReserve Bill came to the Sen-ate floor for a vote, SenatorHenry Cabot Lodge wrote toSenator Weeks outlining hisopposition to the Bill.“…..The Bill as it standsseems to me to open the wayto a vast inflation of

currency.”

“I had hoped to support thisBill, but I can not vote for it as itstands, because it seems tome to contain features and torest upon principles in the high-est degree menacing to ourprosperity, to stability in busi-ness, and to the general wel-fare of the people of the UnitedStates”. (December 17th,1913, Quoted by CongressmanLois McFadden in his speech toCongress denouncing the Fed-

eral Reserve on June 10th,1932).

When the Federal ReserveBoard wants to inject liquidityinto the banks, it buys bondsfrom the banks and pays for itspurchase with money it createsout of nothing. The banks inturn lend out this money andsupposedly the economy ex-pands. This scam has beengoing on ever since the incep-tion of the Federal Reserve. Itwas done to fund the great

stock market boom of the1920s. The money creationsince 1980 has been unprece-dented and this has providedthe fuel for the biggest specula-

tive market ever.

The banks have reaped trillionsof dollars in interest, while theAmerican people for the mostpart have been sold into

slavery. “The millions of work-ing families of America arenow indebted to a few thou-sand banking families fortwice the assessed value of the entire United States. Andthose banking families ob-tained that debt against us forthe cost of paper, ink andbookkeeping. Emry, Sheldon,(The Real Story of Money Con-

trol over America).

President Thomas Jeffersonwarned, “If the American peo-ple ever allow private banksto control the issue of theircurrency, first by inflation,then by deflation, the bankswill deprive the people of allproperty until their childrenwake up homeless on thecontinent their fathers con-quered. The issuing powershould be taken from thebanks and restored to thepeople, to whom it properlybelongs.” (Money Masters

Video).

Since its inception in 1913,the Federal Reserve Boardhas been responsible for analmost 95% devaluation of the U.S. dollar. All this hasbeen achieved through itsability to continually inflate

the money supply.

Page 10

Consider the following---let’stake a situation where the USgovernment needs money.The US doesn’t just issueUnited States Notes, which of course it could. These noteswould be dollars backed by

the full faith and credit of theUnited States. No, the USdoesn’t issue dollars straight

out of the Treasury.”

“This is what the US does--- itissues Treasury bonds. TheUS then sells those Treasurybonds to the Fed. The Fedbuys the bonds. Wait, howdoes the Fed pay for thebonds? The Fed simply cre-

ates money ‘out of thinair’ (book-keeping entry) withwhich it buys the bonds. Themoney that the Fed createsfrom nowhere then goes tothe US. The Fed holds the USbonds, and the unbelievableirony is that the US then paysinterest on the very bondsthat the US itself issued. The

mind boggles.”

“The damnable result is thatthe Fed effectively controlsthe US money supply. The Fedis just an agency of the US,it’s not even a branch of theUS government. The Fed isnot mentioned in the constitu-tion of the United States. Noconstitutional amendmentwas ever created or voted onto accept the Fed. The consti-tutionality of the Federal Re-serve has never come beforethe Supreme Court. The fedis a private bank that keeps

“I still can’t get

over the whole

Federal Reserve

racket”



Rhythm or cycles are commonthroughout nature. They areseen in the ebb and flow of the tide; the phases of themoon; the succession of theseasons; the beating of theheart. The rise and fall inpopulation of the CanadianLynx and Atlantic salmon fol-lows a 9.6 year cycle. Lem-mings in Norway dash to theirdeaths into the sea every3.86 years. (We might addthat stock speculators emu-late the lemmings every 60

years or so.)

“Summer follows winter, newmoon follows old, day follows

night… The universe is notstatic; every component froman electron to a galaxy is con-tinually moving and suchmovement cannot proceedforever in the same direction.Sooner or later it must com-plete a cycle, or stop andreturn in the opposite direc-tion.” (J. L. Cloudsley-Thompson quoted in Cycles.

P.33).

“It is fairly easy to accept thenotion of cycles in plants andanimals and even human be-ings, for many of these are wellknown and accepted by biolo-

gists and physicians.”

“But when it comes to the mat-ter of meaningful cycles in eco-nomic affairs, we touch a nervethat initiates unusual reactionand definite rejection from alarge group especially econo-

mists.” (Cycles. P. 78-79).

The propensity to believe inreason and the inevitability of progress makes it difficult for

most people to accept the exis-tence of economic and finan-cial cycles. Leaders in thesespheres seldom comment oncycles, except perhaps to dis-miss their relevance. Like Ed-ward Simmons, President of the New York stock exchange,who bravely announced in Sep-tember 1929, the very monththat the great bull marketpeaked, “We are apparently

finished and done with eco-nomic cycles as we have

known them.”

Or, this story in the JapanTimes on December 26th,1989: ECONOMISTS BELIEVETHE COMING DECADE WILLBE A GOLDEN ERA- Manyeconomists, and the Japa-nese Government as well, saythat the classic theory of busi-ness cycles no longer appliesto Japan, which has mini-mized instability factors andlearned to drive slowly butsteadily when necessary. Twodays later the Nikkei Dowmade its peak at just under

39,000 points (16,500points-October 2007).

In an effort to squelch paganbeliefs, the followers of earlyChristianity were introducedto the idea of linearism, whichpromoted a confidence inperpetual self-improvement.St. Augustine cautioned, “only

the wicked walk in circles.”

Page 11

The only time when it failed tomaintain inflation was from1930 to 1934, during theonset of the Great depres-sion, even though it tried

mightily to do so.

Between 1985 and 2005, theFederal Reserve Board hasincreased the money supplyby five times. This extraordi-nary money creation is merelythe catalyst for debt creation.In a fiat money system,

money is debt.

The total debt in the UnitedStates today is approaching $50 trillion and that does nottake into account the hugeamounts required for thefederal funding of social secu-

rity and Medicare.

There is absolutely no waythat this money can ever berepaid except by continuedinflation. Now that the creditbubble has blown up, inflationis no longer an option; bank-

ruptcy looms.

Notice in the accompanying US debt chart where exactly

debt begins to climb vertically.It is about 1982, which just sohappens to be the onset of the Kondratieff autumn. Au-tumn is always theKondratieff season during which there is massive specu-lation. This speculation re-quires monetary fuel to igniteit and keep it going. Excessmonetary inflation goes hand

in hand with excess debt.

T H E W H E E L I S C O M E F U L L C I R C L E S H A K E S P E A R E , K I N G L E A R



Perhaps the greatest traderever, W. D. Gann was anavowed user of cycles to mas-terful effect. He used his cycle

knowledge to alert his readersof the impending crash in

1929.

“My calculations are based oncycle theory and on mathe-matical sequences. Historyrepeats itself. That is what Ihave always contended thatin order to know and predictthe future of anything you onlyhave to look at what has hap-pened in the past and get acorrect base or starting

point……..Everything worksaccording to past cycles, andthat history repeats itself inthe lives of men, nations andthe stock market.”. (The Tun-

nel Through the Air. P. 75-76).

I have read everything that Icould find written by Mr.Gann, because I am fasci-nated by his remarkable pre-dictive ability. I even havesome obscure manuscriptsthat he produced. Never the

less, it is difficult to uncovermuch about his cycle work,even though it was central tohis exceptional ability to pre-dict market and individualstock movements. As hewrote in Tunnel Though theAir, “IT IS NOT MY AIM TOEXPLAIN THE CAUSE OF CY-CLES (Capitals are his). Thegeneral public is not ready forit and probably would notunderstand or believe it if I

explained it.” P.78

But, he confirmed that themajor cycles occur every 100years, 1,000 years and even5,000 years. He emphasizedthat it was necessary to lookback at least 1,000 years to

‘prove up cycles.’

In the shorter term, Gannconsidered the 20 year cycleto be the most important and

any derivatives based uponthat time period; such as tenand five years and thirty years(20 + 10). “The most important

time cycle is the 20 year cycleor 240 months and moststocks and averages workcloser to this cycle than anyother.” (Method for Forecasting

the Stock Market).

“Seven is a fatal number.” Of course, this is the year 2007.Seven times seven is forty-nine.“The major cycle of stocks oc-curs every 49 to 50 years. Aperiod of ‘jubilee’ years of ex-treme high or low prices, last-ing from 5 to 7 years occur atthe end of the 50 year cy-cle.” (Method for Forecasting

the Stock Market).

This how Richard Russell(www.dowtheoryletters.com)summed up 1957 or 50 yearsago, in his historical stock mar-ket chart for that year: “The1957 market collapse; false‘bear signal’ given as secondphase of the 1949-66 bull mar-ket ends and severe recessionstarts; pessimism on Wall

Street rampant.”

Fifty years before 1957, or 100years from the year 2007 wasof course the panic of 1907,which saw a drop in the Dow of 45% and a run on Knicker-bocker Trust. The US banking system was brought to itsknees by this collapse, whichled to the creation of the Fed-eral Reserve Board some 6

years later.

Three fifty year cycles ago ismarked by the panic of 1857.This is how Graves describes it“From 1853 to 1857 specula-tion ran riot. During this timethe number of banks doubled.A panic was precipitated onAugust 24, 1857, by the failureof the Ohio Life Insurance andTrust Company.” (The Great

Depression and Beyond. P.17).

The anniversary of the 20year cycle is of course the1987 stock market crash. The10 year cycle is marked by

the Asian crisis. The 5 yearcycle coincides with the Octo-ber 9, 2002 DJIA bear market

bottom.

In November 1928, Gannpublished his outlook for theyear 1929. This is his intro-duction to that forecast: “Thisyear occurs in a cycle whichshows the ending of the bullmarket and the beginning of aprolonged bear campaign.The present bull campaignhas lasted longer than anyprevious campaign in the

history of this country. The

fact that it has lasted longerand prices have advanced tosuch abnormal heights meansthat when the decline sets in,it must be in proportion to theadvance. The year 1929 willwitness some sharp, severepanicky declines in many high

priced stocks.”

Page 12

Linearists project the future ina straight line. For them his-tory is irrelevant. They viewthe past as a set of randomevents or a mere compilation

of facts.

“There can be few fields of human endeavor in whichhistory counts for so little asin the world of finance. Pastexperience, to the extent thatit is part of memory at all, isdismissed as the primitiverefuge of those who do nothave the insight to appreciatethe incredible wonders of thepresent.” (A Short History of Financial Euphoria: FinancialGenius is Before the Fall.

P.12).

But financial cycles do existand are a means to anticipat-ing changes in direction, for

better or for worse.

“Economics is a branch of history. The rhythmical riseand fall of human activity ishistory in the making. The riseand decline of business inprosperity and depression ismerely a part of the widerstream of human affairs, and

constitutes a phase of the lifehistory of the social organ-ism.” (The Great Depression

and Beyond. P.8).

In other words economics andinvestment markets respondto natural law, and not man’slaw. This, too, was the belief of that superlative trader, W.D. Gann. “Every movement inthe market is the result of anatural law and of a Cause,which exists long before the

Effect takes place and can bedetermined years in advance.The future is but a repetitionof the past, as the Bibleplainly states: ‘The thing thathath been, it is that whichshall be; and that which isdone is that which shall bedone, and there is no new

thing under the sun.’”

W. D. G A N N C YC L E S

So, all of Gann’s

cycles forecast a

stock market crash

for this year.

Given his amazing

propensity to

predict, it would

be unwise to bet

against him.



Gann’s cycles are time spe-cific. The Kondratieff cycle onthe other hand is event spe-cific and time elastic. Each

Kondratieff cycle last about60 years, which is effectively

one lifetime.

This is the fourth Kondratieff cycle and it has already com-pleted 58 years. TheKondratieff winter is still infront of us. This means thatthis cycle is likely to be atleast 70 years in duration.This is the first of the 4 cycles,which has been governed by afiat monetary system. This

has allowed the Federal Re-serve Board to postpone win-ter, by an excessive increasein the money supply and abenevolent monetary policy.This has served to exacerbatethe debt problem and ensuresthat the coming winter will bemuch colder than any of the

three preceding winters.

Dividing the Kondratieff cycleinto the four seasons is ap-propriate, because eachKondratieff season sharescharacteristics similar to theclimatic seasons. TheKondratieff spring constitutesthe birth of the economy.Summer is when the economybears fruit. Autumn is theseason of satisfaction. During the Kondratieff winter, theeconomy dies. In terms of time, each of the Kondratieff seasons last approximatelyone quarter of the cycle, or,approximately 15 years.Spring and summer in thecurrent cycle both covered

about 16 years.

I would argue that autumnended with the stock marketpeak in early 2000, whichwas about 17 ½ years. Sincethat peak, Alan Greenspanwas able to stimulate theeconomy again, through hispanic interest rate cuts and

increasing the

supply of money. Thus, winterhas been very benign and es-sentially unrecognizable thesepast seven years, which

means that what lies ahead,will be very severe.

Gann emphasized that it wasimportant to recognize specificpoints in a cycle to be able tocorrectly identify the future.Fortunately, the Kondratieff cycle clearly identifies the be-ginning and end of each sea-son. This is done through therecognition of bear and bull

market bottoms or tops.

Thus, in the current cycle thebeginning of spring was sig-naled by a bear market bottomin June, 1949 when the DJIAbottomed at 161. The end of spring and the beginning of summer was indicated by thebull market peak in February,1966 when the Dow touched995 points. The end of summerand the beginning of autumnwas signaled by the bear mar-ket bottom in August, 1982

with the Dow at 777 points.

In addition to this bear marketbottom at the end of summer,there are three additional iden-tifiers, which substantiate theonset of autumn. These are apeak in interest rates, a peak inprices and a significant eco-nomic recession. The end of autumn and the beginning of

the chilling Kondratieff winter is

signaled by the euphoric bullmarket peak in the biggest bull

stock market of the cycle.

“In every law of nature there isa major and a minor; a positiveand a negative, and a neutral.Therefore, in cycles there mustbe a lesser, a greater and inter-mediate cycle, or cycles withincycles. Like Ezekiel says:‘Wheel within a wheel.’” (The

Tunnel through the Air. P.78).

Within the principalKondratieff cycle, which isessentially an economic cycleof boom and bust, there are a

multitude of different cycleswhich are closely linked andresponsive to the principalcycle, and are also interactivewith each other. All thesecycles, too, have a greater,lesser and intermediate cycle

within them.

The principal cycles containedwithin the Kondratieff eco-nomic cycle are an invest-ment cycle; an interest ratecycle; a credit/debt cycle; an

inflation cycle and a crowdconfidence cycle.

Page 13

“As long as the public be-lieves that everything is allright they will hold on andhope, but when the publicbuying power has exhausteditself and the largest numberof stock gamblers in history

lose confidence and all startto sell, it requires no stretchof the imagination to picturewhat will happen. When thetime cycle is up, neither Re-publican, Democrat, nor ourgood President Hoover can

stem the tide.”

“It is natural law. Actionequals action in the oppositedirection. We see it in theebb and flow of the tide andwe know that from the full

bloom of summer follows thedead leaves of winter. Gam-

blers do not think; they

always gamble on hope andthat is why they lose. Inves-tors and traders must pauseand think, look and listen, andget out of stocks before thegreat deluge comes.” (W. D.

Gann, The outlook for 1929).

So, all of Gann’s cycles fore-cast a stock market crash forthis year. Given his amazing

propensity to predict, it wouldbe unwise to bet against him.

T H E K O N D R A T I E F F C YC L E

“Panics have there

beginnings in the

boom that precedes

them. Just as all

hurricanes first develop over warm

waters from pre-

existing conditions,

financial storms are

spawned by

surging growth in

money, debt and

speculation.”

Chris Mayer



Page 14

The above chart outlines each of the cycles within the Kondratieff cycle. Perhaps, the only cycle that requires some elucidation is the invest-

ment cycle, because it is so important to be in the right investments during each of the seasons.

Spring represents the birth or rebirth of the economy. Accordingly, it stands to reason that the best investments in this initial season of the

cycle are those which benefit most from a developing economy; that is common stocks and real estate.

Summer has always been the inflationary season of the cycle, because there has been a war in each of the four Kondratieff summers, al-ways financed by excessive monetary expansion. In the first Kondratieff summer, the war was the War of 1812; in the second summer, itwas the US Civil War; the 1st World War (1914-1918) occurred in the 3rd summer and the 4th summer, the summer of the current cycle, it

was the War against Viet Nam.

Real estate, commodities and precious metals are appropriate investments during the inflationary summer; so are ‘things’ like art, dia-

monds, antiques, stamps and coins.

Autumn is always the season during which there is massive speculation, particularly in stocks, bonds and real estate. Investment returns

generated by these markets are a once in a lifetime experience.

This happens because monetary inflation does not stop once the summer war ends. In autumn, the availability of easy credit, based on fal-ling interest rates and large infusions of the money supply to the banks, promotes speculation, principally in stocks and towards the end of the cycle, real estate. Rising equity prices attract more and more money for investment until, near the top, a feeding frenzy of mass specula-

tion captures the imagination of the entire country.

In each of the four Kondratieff cycles, the autumn period has always followed a significant summer-ending recession, which led to a specula-

tive boom based on an inordinate excess of credit.



The 1st World War summer-ending recession was precipitated by a violent break in stock prices in November 1919, which was followed

by a steep decline in commodity prices. These events, and the peak in interest rates in 1920, collectively spelled the end of the thirdKondratieff summer and the onset of autumn, which began at the bottom of the bear market for stocks in 1921.

The ‘Roaring Twenties’ were initiated, like each of the preceding Kondratieff autumns, by easy credit conditions. Like its predecessors,

this credit became the engine which pulled the great autumn speculative stock bull market forward.

“The excess credit which the Fed pumped into the economy spilled over into the stock market- triggering a fantastic speculative

boom.” (Gold and Economic Freedom).

The Dow Jones Industrial Average completed the summer bear market bottom in August, 1921 at 63.90 points. The price gainsthrough the remainder of 1921 and 1922 were steady. In 1923, stock prices were down. By May the next year, prices resumed theirupward trend, which continued into 1925. During 1926, stock prices were mixed. In December 1927, the Dow Jones Industrial Aver-age closed above 200 points. By December 1928, prices had reached above 300 points in celebration of Herbert Hoover’s presiden-

tial victory that year. His victory ushered in, for the first time in its history, 5 million and 6 million share trading volume days on the New York Stock Exchange. During the first four months of 1929 prices were mixed, but from May that year prices increased almost 30% toreach their great bull market peak at 381.17 points, the day after Labor Day, September 1929. The percentage increase from the

1921 bear market bottom to the peak in September 1929 was just shy of 500%.

The great stock market advance captured the attention of America. “The boardrooms of large brokerages were jammed with specula-tors and people who did not own stocks, but were curious about the excitement. The atmosphere was light hearted and carefree. Ayear earlier people who had made fortunes on Wall Street were applauded; now they were commonplace. Speculators, both large andsmall, were beginning to accept continued advances as an expected occurrence. Not even a rise in margin requirements made by

some brokers could dampen the enthusiasm.

The post Civil War summer-ending recession occurred between 1865 and 1866. The autumn boom that followed was centred, particu-larly, on the trans-continental railways. Between 1867 and 1873, 3,200 miles of track were laid, more than doubling the previous mile-

age. Settlement of western lands grew rapidly, which prompted a significant increase in agricultural commodities.

During the Civil War manufacturing was rapidly expanded to service the needs of the Union Army. Since the factory system was intro-duced at this time, this period has been dubbed the dawn of America’s industrial revolution. Enormous profits were generated and the

usual problems of over-borrowing and over-expansion ensued.

There was also a huge monetary inflation. The war had, for the most part, been financed by fiat paper dollars, known as ‘greenbacks’.

Their value was enormously depreciated and this led to huge speculation in commodities and stocks.

“All of these forces of over-expansion and inflation resulted in a series of colossal failures in 1873, which ushered in one of the longest

and most severe depressions in all history.” (The Great Depression and Beyond. P.18).

Page 15

The U.S. summer ending recession of 1819 to 1821 was followed by a speculative boom fostered by the building of canals and high-ways, which were used to link raw material producers in the interior to manufacturing industries on the eastern seaboard. By 1836, aspeculative land boom developed in Iowa, Wisconsin and Minnesota. “Undue amounts of money were sunk into wheat and cottonfarms, also in grist and cotton mills, in canals and even in the beginnings of railroad construction. The number of banks in the West is

said to have increased from 329 in 1829 to 788 in 1837.” (The Great Depression and Beyond. P 16).

Many wildcat banks were formed, which issued currency with little or no backing. “The first collapse came in New Orleans. The New York banks suspended operations on May 10th, 1837. While the worst of this depression was felt in 1837 and 1838, the entire period

preceding 1845 was one of general depression.” (The Great Depression and Beyond. P.17).

1 S T K O N D R A T I E F F A U T U M N - S T O C K B U L L M A R K E T 1 8 2 1 - 1 8 3 7

2 N D K O N D R A T I E F F A U T U M N - S T O C K B U L L M A R K E T 1 8 6 6 - 1 8 7 3

3 R D K O N D R A T I E F F A U T U M N - S T O C K B U L L M A R K E T 1 9 2 1 - 1 9 2 9



of indifference to all the oldtime warnings. As to whetherthis attitude may not itself become a danger-signal, WallStreet is not agreed.’” (TheGreat Bull Market: Wall Street

in the 1920s. P.127/128).

This misplaced confidence isalways apparent near a majorbull market peak. Since themarket advance has beenlengthy, the thinking is that itwill continue on forever. Oneonly has to examine the cur-rent stock market action, inwhich stocks climb to newhighs, in spite of the evolving credit crunch debacle. Inves-tors still anticipate that fur-ther interest rate cuts by the

Federal Reserve Board, willwork as they have alwaysdone during this monsterspeculative market. Therecomes a time when they willnot work. The experience of the early 1930s should be

proof enough of this.

“Belatedly, Federal Reserveofficials attempted to sop upthe excess reserves and fi-nally succeeded in braking the boom. But it was too late:by 1929 the speculative im-balances had become sooverwhelming that the at-tempt precipitated a sharpretrenching and a consequentdemoralizing of business con-fidence. As a result, theAmerican economy col-lapsed.” (Alan Greenspan,Gold and Economic Freedom).He knew what his actionswould cause during the fourthKondratieff autumn and yethe still preceded with inflating the money supply. What anirresponsible, despicable

man!

Contrary to popular opinion, stocks do not always discount thefuture, at least not at major bear market peaks and bottoms. If they did, what were they predicting in August 1982, or what wereJapanese stocks predicting in December 1989, or for that matter,what was the price of gold anticipating in January 1980 and of course what were the price of stocks telling investors on Septem-ber 3rd 1929? These were all major turning points, but investorswere betting with their money that the present would continueinto the future as far as the eye could see and they were dead

wrong.

1981; an inflationary high of 13.5%; a stock bear market

which had taken the DowJones Industrial Averagedown from a high of 1021 inApril 1981 to a low of 777 inAugust 1982 were three otherevents that signaled the endof the Kondratieff summerand the onset of the

Kondratieff autumn.

The ensuing stock bull market

was destined to become the

Page 16

The Saturday Evening Postprinted a poem to illustrate

this feeling:

‘Oh, hush thee, my babe,

granny’s bought some more

shares

Daddy’s gone to play with thebulls and the bears,

Mother’s buying on tips, and

she simply can’t lose,

And baby shall have some

expensive new shoes.’” (The

Great Bull Market: Wall Street

in the 1920s. P.127).

On the great ocean linersplying their way to and froacross the Atlantic, stockswere bought and sold viatelegraph. Even the three

week journey offered no limi-tation to those passengers,and that would be most of them, who wished to keep

buying and selling stocks.

“On September 1 (1929) ‘TheTimes,’ convinced of the un-derlying strength of the mar-

ket, wrote:

‘One of the most striking fea-tures of the present chapterin Stock Market history is thefailure of the trading commu-

nity to take serious alarm atportents which once threwWall Street into a state of alarm bordering on demorali-zation. In particular, the re-cent disregard of the succes-sion of smashed high recordsfor brokers’ loans (margin)astonishes the older school of market operators. Undoubt-edly the heavy margins re-quired of traders by the com-mission houses have much tobuild up this assurance. Trad-ers who would formerly taken

the precaution of reducing their commitments just incase a reaction should set in,now feel confident that theycan ride out any storm whichmay develop. But more par-ticularly, the repeated demon-strations which the markethas given of its ability to‘come back’ with renewedstrength after a sharp reac-tion has engendered a spirit

“The excess credit which

the Fed pumped into the

economy spilled over into

the stock market -

triggering a fantastic

speculative boom.” (Gold

and Economic Freedom)

T H E 3 R D K O N D R A T I E F F A U T U M N B U L L M A R K E T A N D T H E W I N T E R B E A R

The post Viet Nam War andKondratieff summer-ending

recession began in July, 1981and ended in November, 1982.It was considered the worstrecession since the Great De-pression. Unemploymentreached 10.8%. There were 42U.S. bank failures during thistime, which was a post depres-

sion high.

A peak in the Fed Funds rate,

which reached 19.1% by June

T H E 4 T H K O N D R A T I E F F A U T U M N S T O C K B U L L M A R K E T 1 9 8 2 - 2 0 0 0



a little in 1988. By 1989,however the 1987 crash wasalready a distant memory andin that year prices reachedabove the point where they

had been prior to the crash.

By 1990 prices touched 3000points. In 1995 two mile-stones were attained. TheDJIA passed through 4000and 5000 points. In Decem-ber the next year prices

reached 6500.

In 1997, the Dow Jones In-dustrial Average breached7000 and 8000 points, inspite of the Asian crisis. ByJuly 1998 the index was

above 9000 points.

Then came the Long Term Capi-tal Management bankruptcy,and of course the bailout by theFederal Reserve Board. TwoFed Funds rate cuts and assur-ances by Alan Greenspanrighted the ship. By October

stock prices were at all timehighs.

In 1999 stock prices passedthrough 10,000 points and theDJIA closed the year at 11,483

points.

In January 2000, The DowJones Industrial Averagetouched 11,750 points. I con-sider this to be the Kondratieff autumn bull market peak. The

rise in stock prices since

October 2002, are attribut-able to the panic actions onthe part of the Federal Re-serve. These actions havefostered the greatest credit(debt) bubble in history andthe associated speculations

in every conceivable assetthat Wall Street could manu-facture. We are just beginning to feel the repercussions for

this gross mismanagement.

Page 17

the largest ever. Typically, likeall other great bull markets itbegan without fanfare andwith a large degree of apathy.The general public had littleinterest in stocks and littleunderstanding about invest-

ing in the stock market.

Awareness began to gathersteam as stock prices beganto increase. Within twomonths, stock prices were atall time highs and by Decem-ber 1982 the Dow Jones In-dustrial Average reached1070. The following yearstock prices had climbed intothe high 1200s. During 1984,stock prices consolidatedtheir rapid gains of the past

two years. But in 1985, theyresumed their uptrend reach-ing above 1550 in Decemberof that year. By 1986 the DowJones Industrial Average hadclimbed above 1950 points.In 1987, prices continuedtheir rapid advance, moving through 2000 points for thefirst time in January andreaching 2722 in August. Bythis time, public participationin the stock market was wide-

spread and enthusiastic.

In September, 1987 stockprices corrected and thenrallied a little into the begin-ning of October. Then theystarted a decline. The declinepresaged the crash of October19th, when the Dow JonesIndustrial lost 508 points,which took the Average downto 1738 or almost 1000points below where it had

been in August.

The new Federal Reserve

Chairman, Alan Greenspan, inthe time honoured tradition of the Central Bank quickly cutadministered interest ratesand increased the supply of

money to the banks.

The crash hurt investor confi-dence and they were some-what slow to re-join the party;so stock prices recovered only

T H E 4 T H K O N D R A T I E F F A U T U M N S T O C K B U L L M A R K E T





outside the Bank of NovaScotia in Toronto, waiting forthe bank to open its doors so

that they could buy gold.

The investment crowd is con-ditioned by routine to believethat whatever their mostrecent experience, they willexperience something similartomorrow and the next dayand the next day and so on,far into the future. So it waswith gold investors. From theprice peak of $850 in January1980, the price droppedviciously to $450 in March of that year, but the still believ-

ing gold investors, throughtheir purchases, were able tobring the price all the wayback up to $730 by

September 1980.

But that was all there was. ByJune 1982 the price of goldhad dipped below $300. Thebear market that had begunin January 1980 following thespectacular bull marketlasted into February 2001when the bear market bottomprice of $255 was reached.The bear market lasted 21

years and lost 70%.

There are very few believersin gold now: perhaps a littlemore than there were in 2001now that the price has risento above $800 per ounce. Butnearly every one believes inthe general stock market.Why so? Because they havebeen conditioned to believethat stock prices always go upand any downward blip will

immediately be countered bythe Federal Reserve.

Bull markets are like rugbyplayers, the bigger they arethe harder they fall. The goldbull market of the 1970’s andthe subsequent bear marketdiscussed above is one exam-ple; so, too, is the Nikkei

stock bull market of the

1980’s. Japanese stocksreached a price high to close at39,000 in December, 1989. Itseemed they were destined to

go higher, at least that is whatevery one believed, but thatwas not to be. Today almost 18years later the Nikkei Dowtrades at about 15,000 points,a mere shadow of its formerself. In 2001, I was in Tokyowith Tammy Matsufugi, hewould point to several different

high rise buildings and remark-

The stock market dropped14.55 points and a further

4.78 points the next day.

On Saturday, October 5th themarket rebounded, gaining alittle better than 16 points.

One report read, “The cloudsof pessimism which hung overWall Street all week driftedaway over night and stocksrallied in one of the swiftestrebounds the Stock Exchange

has ever experienced.”

Stock prices continued tomeander until Wednesday16th of October when a sharpbreak in prices took the DJIAdown to 336. Another fairlysharp drop of 9.42 points

occurred on Saturday 19th

ofOctober.

“The sharp decline of October14-19 did not cause a panic;it was no worse than the bear-ish weeks in previous years,and after each of these, themarket had recovered.” (The

Great Bull Market. P.133).

Page 19

It is a funny thing, but when agreat bull market hasadvanced over a long period,nearly every body thinks that

the rate of advance willcontinue into eternity, or atleast as long as it matters toeach individual who comprisethe investment herd. Simi-larly, when a vicious bearmarket has cut stock pricesby 90% as it did between1929 and 1932, almost eve-ryone thinks prices are going to zero. That is the nature of the market, when almosteveryone believes in theperpetuation of the present itis likely, a turn for better or

worse is in the offing.

A bull market is alwaysfollowed by a bear and viceversa. Neither exists in perpe-tuity. A big bull market isalways followed by a big bearmarket, and the latter lays theground work for the next big bull market. It is the natural

ebb and flow of the markets.

The price of gold rose from$35 U.S. per ounce in 1971to peak at $850 per ounce inJanuary 1980. That is a gainof better than 2000%. Andwhat did investors believeabout the price of gold inJanuary 1980? They believedit was going a lot higher. Somuch so, that here in Canada,the Globe and Mail carried apicture, at about this time, of a large queue of people lined

That is the nature of

the market, when

almost everyone

believes in the

perpetuation of the

present, it is likely a

turn for better or

worse is in the offing

BU L L S A N D B E A R S

Who could acknowledge onSeptember 4th 1929 thatthere was anything differentfrom everything else that hadoccurred throughout the big bull market? It is true thatstocks were down that daybut only marginally. On Thurs-day September 5th they weredown a rather large 12 points.But Friday they recoveredmore than half of Thursday’slosses and Saturday was an-other small gain. On Monday9th of September the Dow lost2.63 points and the next dayanother 7.63 points. But onWednesday 11th September

stock prices rose again.

This pattern of downs andups, but in favour of the

downs, continued throughoutSeptember. September 30th was another down day withthe market losing 3.72 pointsto close the month at 343.45,or nearly 38 points, or 10%below where prices had stood

the day after Labor Day.

The pattern continued. But

on Thursday 3rd of October

A N A T O M Y O F A C R A S H The following excerpt is mainly drawn from an anonymous diary, which

chronicles the peak of the Dow Jones Industrial Averages on September

3rd 1929 to the first crash low on November 14th. It is interesting to note

how hard it was to shake bullish opinion and how much the investment

crowd relied on the banks, their leaders, for encouragement, and how,

conditioned by their experience of the bull market, each v iolent drop was

reason to buy stocks. (The paragraphs in quotation marks without attribu-

tion are attributable to this document)

See that building, owner bank-

rupt, bank bankrupt.”



banking leaders for arresting the decline of the N.Y.S.E at atime when the stock marketwas being overwhelmed byselling orders. The conferenceat which the steps were takenthat reversed the market’s

trend was hurriedly called atthe offices of J. P. Morgan &

Co 12.00 noon.”

“… Wall Street was convincedthat the bankers had agreedto bring to bear upon the mar-ket the immense support of

their buying power.”

“The rally in US Steel wasstarted by a 25,000 sharebuying order placed in thehands of Richard Whitney Of Richard Whitney and CO, abrother of George Whitney,who is a partner in J. P. Mor-gan and Co. His bid at $205electrified the group aroundthe Steel post and communi-cated buying enthusiasm to

other parts of the floor.”

“Steel got the first recognizedsupport. Then strength spreadto all section of the list and by2 o’clock the market hadturned vigorously and

definitely upward. Faintedhearted stockholders, on theverge of selling out, withdrewtheir orders, a vast amount of bear covering was started,and pivotal issues rebounded

in strong fashion.”

Stocks that day closed downonly a little more than 6points bringing the DJIA down

to 299.47.

The actions of the large banks

to prop up the market in Octo-ber 1929 is similar to theWorking Group on FinancialMarkets, aka The Plunge Pro-tection team, which wasestablished after the 508point drop in the Dow JonesIndustrial Average on October19th 1987.This group is com-prised of The Secretary of theTreasury, The Chairman of theFederal Reserve Board, The

Chairman of the Securities andExchange Commission and TheChairman of the CommodityFutures Trading Commission.Investors, therefore considerthe activities of the PlungeProtection Team as a perma-

nent safeguard against a panic.But as we shall see the Bankswere powerless to interveneagainst such an event in 1929.Anyway, markets respond tonatural law and when the timecycle is up no one can turn

back the tide.

Following the intervention bythe banks on October 24th,1929, the stock market held

steady on Friday and Saturday.

On Monday the 28th of October,“The second hurricane of liqui-dation within four days hit thestock market. It came suddenlyand violently after holders of stock had been lulled into asense of security by the ralliesFriday and Saturday. ‘That thestorm has blown itself out, thatthere will be organized supportto put an end to a reactionwhich has ripped billions of dollars from market valuesappeared certain from state-

ments by leading bankers.’”

“It was not so much that thelittle speculator who was struckby the cyclone; it was the richmen of the country, the institu-tions which had purchasedcommon stocks, the invest-ment trusts and investors of allkinds. The little investors weremostly blown out of theiraccounts by the long declinefrom early September.Thousands went headlong out

of the market on Thursday.”

“One prominent banker defi-nitely asserted that he knew of buying on a large scale plannedfor Tuesday and among in-formed members of the finan-cial district the opinion pre-vailed that the banking groupwhich had come to the rescueof the market last Thursday

had made definite plans to

support stocks.”

The crash dropped the Dow

by 35.33 points to 260.64.

The next day, Tuesday 29th ofOctober, “Bankers stoodaside at the opening asblocks of 10,000 to 30,000shares were thrown into themarket for whatever pricethey would bring.” The Dowlost a further 30 points to

close at 230.07.

“Two meetings of the bankerswere held during the day. Atthe noon meeting Owen D.

Young, director of the Federal

Reserve Bank of New York joined the group. It is thoughtthe question of lowering therediscount rate may comebefore the Federal Reserve

Board shortly.”

“Some observers believe thata reduction in rediscountrates might have a stronglypsychological effect not onlyupon business, but the

market as well.”

On Wednesday the 30th ofOctober, “Stocks came backwith a rush, and as the waveof terrified liquidation of thepast two days subsided, themarket regained its poise andstability. It was a vigorous,buoyant rally that lasted frombell to bell. The authorizedstatement of John D. Rocke-feller that ‘he and his sonbelieve that there is nothing in the business situation towarrant the destruction of values which has taken place

during the past week and thatthey are buying and willcontinue to buy commonstocks which represent soundinvestment value,’ had an

electric effect on the market.”

“Rich men bought stocksheavily, poor men bought, too,as evidenced by the tremen-

dous odd lot business

Page 20

Wednesday 23rd of October …”opened calmly enough.Many prices were higher.Trading was quiet in mid-morning, but featured by asudden and unexplainedwave of liquidation in the

motor accessory issues…By 1o’clock the decline hadreached large proportions, butit was not until the last hourthat the full force of the storm

was felt.”

“Frightened by the decline instock prices during the lastmonth and a half, thousandsof shareholders dumped theirshares on the market during the afternoon in such anavalanche of selling as to

bring about one of the wildestdeclines in history.” The DowJones Industrial Average lostbetter than 20 points to close

at 305.85.

“From Washington camePresident Hoover’s commentthat ‘the production and dis-tribution of goods andservices-is on a sound andprosperous basis.’ Newspaperadvertisements pointed outthat not a single bank hadfallen, not a single majorconcern was in trouble.Indeed, record earnings werereported by several large busi-nesses, and it seemed certainthat there would be a finecrop or year-end extra divi-dends.” (The Great Bull Mar-

ket. P.137).

The next day, Thursday 24thof October, “The early marketgave no hint of the smashthat was to follow. Stocksopened moderately steady

although on big volume thatforecast trouble…..Stockswere thrown in, in tremen-dous volume, for just whatthey would bring at forcedsale. The greatest damageand the lowest prices werereached between 11.15 and

12.15.”

“Wall Street gave credit to its



The Dow Jones Industrial Av-erage closed the month of October at 275.51 points,down 68 points from the Sep-

tember close.

The New York Stock Exchangeresumed trading on Monday4th November, 1929 and inanticipation of this opening an unprecedented amount of buying orders had accumu-lated. “Chicago stock brokersreported to day no small partof the unprecedented flood of buying orders that had beenpouring into their offices dur-ing the two day market holi-day had been coming from

the working classes.”

“Iron workers and truck driv-ers, white collar office employ-ees and even domestic ser-vants had drawn their savingsfrom banks, invaded Chicagobrokerage houses with ordersto buy lots from five to fifty

shares.”

“The course of trading on thesecurity exchange was exactlyopposite of what had beenpredicted. A factor contribut-ing to the downtrend at the

opening, according to theimpression on Wall Street,was the sale of large blocks of ‘support stock’ which hadbeen accumulated whenthrough the most acutephases of reaction last week

and the week before.”

The market closed down15.83 points on the day tak-

ing the DJIA to 257.68.

Wednesday 6th of November,

“Wall Street was again envel-oped in gloom as the tickertold the story of the market’slatest collapse.” The market

lost 25.55 points.

The next day, Thursday 7th ofNovember, “After a sensa-tional opening during which atremendous volume of liqui-dation was absorbed on de-

clines of 2 to 12 points, thestock market rallied on the firsteffective buying support seen

this week.”

“The upswing in the market,which served to dispel much of the gloom which hung over thefinancial district, was ascribedto an inflow of buying ordersattracted by lower levels of stocks as well as to organizedsupport by banking interests. Itwas believed that the banking consortium furnished a sub-stantial part of this support,although there was no authori-tative intimation to that effect.”The market closed up by 6

Points.

‘To wall Street the quiet trading on the Stock Exchange sug-gested that possibly the condi-tion of tranquility which hadbeen so ardently wished wasapproaching. Prices movedirregularly lower in a dull mar-ket.” The market ended thatday, closing the week’s trading,

off a little more than a point.

The American Bankers Associa-tion Journal reported“Numerous constructive ele-ments now enter the businesspicture. A genuine bond marketpromises to return. Building construction should revive asfunds are again available forpurchasing real estate andmortgages. Commercial enter-prises should be stimulatedwith the burden of high interestrates removed. Foreign loanscan again provide credits withwhich to build up our export

trade.”

On Monday 11th of November,“Starting as a gentle slide soonafter the opening of the New

York Stock Exchange, securityprices dropped with increasing speed as the three hour ses-sion progressed. In a final burstof liquidation in the final hourof trading most stocks reachedtheir lows for the day.” Stocks

gave up 16.14 points.

“Puzzled by the waves of sell-ing, the senior partner of aleading Broadway commis-sion house telephoned late inthe afternoon to members of a dozen or more large firms inquest of information. The

other brokers were as mysti-fied as was the man making the enquiries. All of themreported that most of theweak margin accounts hadbeen eliminated, eitherthrough forced liquidation orthrough furnishing of addi-tional funds. It was apparentfrom his enquiries, the brokersaid, that the selling was notoriginating in the brokerage

houses.”

“The American Bankers Asso-ciation reported that savingswere down for the first time in20 years. There is scarcelyany reason to doubt that oneof the important factors indraining away savings depos-its and decreasing the num-ber of depositors has beenthe lure of profits to be made

in stocks.”

Tuesday 12th of November themarket was down another10.65 points. “Wall Streetwas frankly puzzled by themarket’s action. There was nonews to account for the fresh

slide.”

“For every stock sold theremust of course be a buyerand Wall Street was ponder-ing as to the identity of thebuyers. The outside public isnot a great factor at the mo-ment, being thoroughly fright-ened at the damaging propen-sities of the market. Bankers

were buyers to a considerableextent, it was reported, but

without bidding for stocks.”

The next day November 13th,stocks were again down andthe Dow Jones Industrial Aver-age closed below 200 points;which was at the level thatthe market had been in early

1928.

Page 21

transacted. The men of me-dium means, with surpluscash rushed it to the market.Most of the big wire housesdid the biggest business intheir history, and the purchas-ing orders came from every

section of the country. Manyinvestment trusts and insur-ance reported that they wereusing their cash reserves topurchase issues which theybelieved were selling at bar-

gain prices.”

“Bankers declared it the mostremarkable celebration of confidence in the country’sprosperity and of its future

they had ever seen.”

On Thursday 31st of October,The New York Federal Re-serve cut the discount rate by1% to 5% and “The postpone-ment of the security market’sopening until 12 0’clock gaveample opportunity for inves-tors in all parts of the countryto pick the securities whichfinancial, industrial and politi-cal leaders had declared tobe sound and at investment

levels.”

“The tremendous overnightaccumulation of odd-lot buy-ing orders was ascribed bymany bankers as the causefor the wide advances thatthe leading stock exchange

issues scored.”

“Such a tremendous torrentof buying power was releasedat the market’s start that thescramble to buy stocks was

just about as disorderly andwild as had been the scram-

ble to sell stocks just two orthree days before.”

“E. F. Hutton and Co. after theclose reported ‘It is hard toimagine any reasons for sell-ing high-grade securities atthese levels and there seemsto be every fundamental andtechnical justification for buy-

ing.’”



government measures thatcould only prolong its dis-eased state. This enormousexpansion was generated toprevent liquidation on thestock market and to permitNew York City banks to takeover the brokers’ loans thatthe ‘other,’ non-banks, lend-

ers were liquidating. The great

bulk of the increased re-serves-all ‘controlled’-werepumped into New York. As aresult, the weekly reporting

member banks expanded theirdeposits during the fateful lastweek of October by $1.8 billion(a monetary expansion of nearly 10 per cent in oneweek), of which $1.6 billionwere increased deposits in New

York City banks, and only $0.2billion were in banks outside

New York. The Federal Reservealso promptly and sharply low-ered its rediscount rate, from 6per cent at the beginning of thecrash, to 4.5 per cent by mid-November, Acceptance rateswere also reduced considera-bly.” (America’s Great Depres-

sion. P.191).

“By mid-November, the greatstock break was over, and themarket falsely stimulated byartificial credit, began to move

upward again.” (America’sGreat Depression. P.191).

Stock prices rose into April1930. The Dow Jones reacheda peak of 294.07, which re-gained about 50% of the lossesincurred from September toNovember 1929. By December1931 the Dow Jones had fallento 73.79 points; reflecting whathas been called ‘The Tragic

Year.’ By late June, 1932 thebear market reached a bot-tom when the Dow JonesIndustrials traded at 41.22points. This price level wasalmost 90% below where theDow Jones Industrial Averagehad been on that sunny day,the day after the Labor Day

holiday 1929. The bear mar-ket low was about 30% lowerthan the price from which thegreat bull market had started

in 1921.

It was not until November1954 or 25 years after theSeptember 1929 peak thatthe Dow Jones surpassed 381points again. The old adage;‘buy stocks for the long term’in this case should have read‘buy stocks for the very long

term.’

Contrary to popular opinionprevalent at this time, stocksare not an appropriate invest-ment for a lifetime, as manypeople will shortly find to their

cost.

Page 22

“The source of liquidationcontinued to mystify WallStreet and this selling as inthe previous day, was inshares of the first grade. Insti-tutional liquidation of collat-eral behind loans and the

forced selling of many moreaccounts were believed to bethe sources of a large meas-

ure of the selling.”

On November 14th, the stockmarket made its initial bearmarket low. The Dow JonesIndustrial Average closeddown less than a point tosettle at 198.69. In just twoand a half months the DowJones Industrial Average lost48% of its value. This wiped

out billions of dollars of equityvalue and for the most partdestroyed the savings of ahuge swath of individual in-

vestors.

Much like to day, the FederalReserve at that time at-tempted to save the day. Ad-ministered interest rates werecut dramatically down to 4.5%by November 14th from 6%where they had been at thepeak of the market in earlySeptember. And the bankswere inundated with money.“If the Federal Reserve hadan inflationist attitude during the boom, it was just as readyto try and cure the depressionby inflating further. It steppedin immediately to expandcredit and bolster shaky finan-cial positions. In an act un-precedented in its history, theFederal Reserve moved induring the week of the crash-the final week of October- andin a brief period added almost$300 million to the reservesof the nation’s banks. During that week the Federal Re-serve doubled its holdings of government securities, adding over $150 million to reserves,and it discounted about $200million more for memberbanks. Instead of going through a healthy and rapidliquidation of unsound posi-tions, the economy was fetedto continually bolstered by

“If the Federal

Reserve had an

inflationist

attitude during the

boom, it was just

as ready to try and

cure the

depression by

inflating further.”

The Stock Market Crash: September - November 1929



ways in the nature of a

loan.” (H. D. McLeod).

The Kondratieff cycle is aninflationary/deflationary cycle.During spring, inflation is be-nign. In summer consumerprice inflation increases inline with the monetary expan-sion which finances the sum-mer war. Price inflationreaches its peak at the end of summer. During autumn therate of increase in inflationfalls. This is disinflation. Con-versely, in autumn, asset

prices (stocks, bonds and realestate) are inflated to gargan-tuan levels on the back of amassive expansion of credit.This speculative excessreaches its peak at the end of autumn. In winter prices forstocks, bonds, real estate anddebt plummet. The fall inasset prices and the massivecontraction in credit lead to afrightening deflationary de-

pression.

Never in the history of theworld has there ever been acredit bubble of the recentmagnitude. All made possibleby a worldwide fiat monetarysystem, which has beengrossly mismanaged by theexorbitant use of the printing press. But nowhere more sothan in the United States,which had a moral responsi-bility to temper her fondnessfor debt, because of the ex-traordinary privilege accordedto the dollar as the world’s

reserve currency.

Now the chickens are coming home to roost. The creditbubble is rapidly losing air. Itcan not be re-inflated, muchas the Federal Reserve willtry. The sheer size of the bub-ble and the attendant specu-lative excesses makes thetask impossible. These specu-lative excesses include a

derivatives market valued atapproximately $525 trillion, a

US stock market valued in ex-cess of $17 trillion, a housing market currently valued atabout $21 trillion, but nowrapidly depleting in value, ahost of packaged debt instru-ments with little or no value.The banking system is alreadybeginning to show signs of strain from the initial credit

problems.

When credit can no longer beexpanded, it contracts. Credit

contraction is deflationary be-cause the economy collapseswithout the continued suste-nance of debt. Deflation isfurther exacerbated by a

collapse in asset prices.

Following the October, 1929stock market crash, the greatcredit bubble of the 1920sbegan to loose air. Nowherewas this more apparent thanthe gathering pace of banking collapses throughout theUnited States. In 1929, 600banks failed. In 1930, thatnumber increased to 1350, of which 188 were Federal Re-serve member banks. In1931, the number of failuresrose to 2293 banks, which

included 516 banks whichwere members of the FederalReserve. In 1932 there were

1453 bank failures.

Page 23

The causes of all panics,crashes and depressions can

be summed up in only fourwords: the misuse of credit.When credit is not covered bytangible assets it becomesfiat credit. The final years of the long wave plateau(autumn) are characterized,not only by a reckless expan-sion of credit, but by the wide-spread delusion that there isno limit to the availability of such credit.” (The Kondratieff Wave Analyst. July, 1986,

P.76).

All these massive speculativemarkets, whether it is the fourautumn Kondratieff markets,the South Sea Bubble, JohnLaw’s Mississippi scheme, oreven the Tulip Bulb mania,

are utterly dependent uponan abundant supply of money.Most of this money takes theform of credit. The oppositeside of which, of course, isdebt. “For whatever form thecredit may assume, it is al-

Never in the history

of the world has

there ever been a

credit bubble of the

recent magnitude.

All made possible

by a worldwide fiat

monetary system,

which has been

grossly

mismanaged by the

exorbitant use of

the printing press.

“ D E P R E S S I O N I S T H E A F T E R M A T H O F C R E D I T E X P A N S I O N ”L U D W I G V O N M I S E S



In total almost 10,000 banks,including approximately 4000Federal Reserve memberbanks closed their doors be-tween 1929 and 1933. De-positors’ losses were astro-nomic. This loss of money

was, of course, deflationary.The banks had learnt a veryhard lesson and those thatwere still in a position to lendrefused to lend except to theirmost credit worthy customers,but these of course did notneed to borrow. The creditmarkets all but ceased to

function.

By 1932 stocks were downalmost 90% from their bullmarket high, effectively de-

stroying the savings of mil-lions of Americans. Real es-tate prices were down aboutthe same, which threw many

families onto the streets.

“Corporate profits which hadreached $9.6 billion in 1929fell to $3.3 billion in 1930. In1931 American corporationslost $800 million, a furtherdecline to a $3 billion lossfollowed in 1932” (The Great

Bull Market. P.151).

Over the same period, salariesdropped by 40%, dividends by56.6%, and wages by 60%.Between 1929 and 1933 theeconomy contracted by 45%;the jobless number reached25%. Commodity prices col-

lapsed as worldwide demandshuddered to a pittance of

where it had been in 1929.

Under these circumstances,

deflation was inevitable.

In the face of all this, try as itmight and it did, the FederalReserve Board was powerlessto re-ignite the inflationary bub-ble in the face of this deflation-ary onslaught. It continued to

activate the printing presses.The Bank attacked the problemfrom another source, adminis-tered interest rates. Following the stock market crash the FedFunds rate was reduced from6% to 4.5%. By year end 1930the rate stood at 2% and bymid-1931 the rate was further

reduced to just 1.5%.

As the depression deepenedand banking failures increased,frightened citizens withdrewtheir money from those bankswhich were still solvent. Theyburied it in their backyards or

turned it into gold, which theyalso hid. From its peak inOctober 1929, money supplycontracted, in a deflationary

spiral, by 30% into April 1933.

Typically, this Kondratieff winter is beginning to repeatthe experience of the previousKondratieff winter of the1930s. The credit bubble islosing air and banks are introuble. Credit is contracting in the face of the deflating housing bubble. The economyis teetering on the brink of recession, which given theenormity of the autumn creditinflation is almost certainlygoing to become a depres-

sion.

Depressions, as we have justdemonstrated, are alwaysdeflationary. In a depressionthe economic contraction isvery acute and unemploymentis unmanageable. Demand,for all but the essentials of life, is almost non-existent.The values of assets, likestocks and real estate, whichhave been bid up to absurdlevels during the autumn of the cycle, crash. Money and

credit become very scarce.

Page 24

In March, 1933, shortly afterassuming office, PresidentRoosevelt closed all thebanks. In effect he was ac-knowledging a de facto situa-tion, because State governorshad already issued moratori-

ums and state closures. Sothat by that time the US bank-ing system had already al-most come to a complete

halt.

The national closure placed

all banks under Federal

control. Examiners were sent

into every bank. Within a few

weeks they discovered that athird of the banks were sol-vent and could be re-openedwithout Federal assistance.Another third were re-openedwith loans from the Recon-struction Finance Corporation.The remaining third were per-manently closed. Thisamounted to some 4000banks, of which 2734 wereFederal Reserve memberbanks. Some $9 billion indeposits were lost, whichwould be the equivalent of some $500 to $600 billiontoday. There was no depositinsurance at that time. Thissafeguard was introduced a

little later.



Federal Reserve Bank of New York, all of which granted thepressured bank many millionsof dollars, which were insuffi-cient. In a last ditch effort theAustrian Government guaran-teed the failing bank a $150

million. But Austria’s creditwas worthless and the guar-antee was withdrawn. Shortly,thereafter, Austria declaredbankruptcy by going off thegold standard, and the Kredit

Anstalt bank collapsed.

American banks held almost$2 billion worth of Germanacceptances. It has beensuggested that the supportgiven by the Federal Reserveto the Kredit-Anstalt bank was

an effort to bail out New Yorkbanks holding these frozenforeign assets. This is eerilyfamiliar to today’s CentralBank actions in support of their banks. They are pump-ing money into the banks,because these banks areholding assets, such as sub-prime, for which there is no

definable value.

Following the Austrian col-lapse, investors and, unkindly,the French Government

turned on the British Pound.

After the defeat of Napoleonin 1815, The Britishgovernment moved formally

to peg the pound at the rate of 123.25 grains of gold. In cele-bration, the pound itself ac-quired a new face in the formof the gold sovereign. This newmonetary unit became thestandard bearer of British eco-

nomic ambitions through outthe 19th Century. This adoptionof the gold standard assured alevel of price stability and aninternational confidence insterling, which, in effect, madethe pound the de facto interna-

tional reserve currency.

Following the outbreak of the1st World War in 1914, Britainabandoned gold. With goldbacking for the pound out of the way, the British Govern-

ment was able to resort to themonetary printing presses tofinance the Country’s war

efforts.

In 1925, Winston Churchill, theChancellor of the Exchequerreturned Britain to the modifiedgold standard system. In a mo-ment of pride, rather than com-mon sense he established thepound at the same levelagainst the dollar as it hadbeen before the war. Clearly bythis time, given Britain’s mas-sive war debts, the valuation

was too high.

This overvaluation was to bethe Pound’s undoing. Following

Austria’s default from gold, itquickly became apparent thatthe overvalued pound mightitself be taken off gold. So,investors and the French gov-ernment apparently in retalia-tion for Britain’s support of

the Austrian Kredit Anstaltbank started to swap poundsfor British gold. This drain of British gold forced the Countryto abandon the gold standard

in September, 1931.

In effect, the entire worldmonetary system collapsedwhen the senior currency, the

British Pound, opted off gold.

Today the senior currency isthe US dollar and like itscounterpart in the previousKondratieff winter, it willcome under increasing attackas the massive debt bubbleunwinds. Comparable to thePound of the 1930’s, thedollar will almost certainlylose its reserve currencystatus; that distinction alwaysgoes to the currency of thelargest creditor nation. Theturmoil in the dollar will likelythrow the world monetarysystem into chaos. As in the1930’s, all perceived weakcurrencies may be pressured.This is a world of fiat money;these attacks may be againstall the major national

currencies.

Page 25

In order to fight the approach-ing deflationary depression,the United States is in a quan-dary on account of the mas-sive debt already owing, muchof which is to foreigners. Thechoice is ‘to hell with dollar,

let’s open up the printing presses and bring down theinterest rates.’ Or, ‘to hell witheconomy, let’s save the dol-lar. Option one promises amassive sell off in US debt,which will mean much higherinterest rates in general andthus a depression anyway.Option 2 promises a depres-sion very soon, but eventuallya sell- off of the dollar anywayas foreigners abandon theUnited States. It is a toughchoice. The United States

appears to have selected thefirst option, which is to sacri-fice the dollar. The FederalReserve Board has pouredcopious amounts of moneyinto the banks and cut admin-istered interest rates two

times already.

During the last Kondratieff winter the world monetarycrisis had its beginnings inAustria. The Boden-KreditAnstalt bank, which was Aus-tria’s largest bank, suffered arun in May 1931. This wasthe second time that the bankhad been in crisis. Like manyother banks it had over ex-panded in the 1920s.and itfaced a run in 1929. At thattime it received support from

a banking syndicate headedby the Rothschild bank of Vienna, with assistance fromJ. P. Morgan of New York and

Schroeder bank of England.

The run in mid-May 1931prompted immediate supportfrom the Bank of England, theAustrian Government, Roths-child, the Bank of Interna-tional Settlements-and the

T H E W O R L D M O N E T A R Y C R I S I S ;L A S T W I N T E R T H E P O U N D T H I S

W I N T E R T H E D O L L A R

US Dollar Index. High $121-7/7/2001. Current-$74.94 Source-Bridge/Reuters



mattresses, hid them in base-ments or attics or took themon one way trips to Bermudaor the Bahamas.” (TheKondratieff Wave Analyst.

January 1986, P.8).

This monumental desire forgold, threatened to destroyAmerican US gold backing for

the dollar.

One of Roosevelt’s first actson assuming the Presidencywas to place an embargo ongold. He issued the following proclamation on Sunday,March 5, 1933. (Just one day

after assuming office.)

“Whereas there have been aheavy and unwarranted with-drawal of gold and currencyfrom our banking institutionsfor the purpose of hoarding;

and

Whereas continuous and in-creasingly extensive specula-tive activity abroad in foreignexchange has resulted insevere drains on the nation’s

stocks of gold; and

Whereas these conditionshave created a national emer-

gency; andWhereas it is the best inter-ests of all bank depositorsthat a period of respite beprovided with a view to pre-vent further hoarding of coin,bullion or currency or specula-tion in foreign exchange andpermitting the application of appropriate measures to pro-tect the interests of our peo-

ple; and

Whereas, it is provided inSection 5 (b) of the Act of October 6, 1917 (40

stat.L.411) as amended, “thatthe President may investigate,regulate or prohibit, undersuch rules and regulations ashe may prescribe, by meansof licenses or otherwise anytransactions in foreign ex-change and the export, hoard-ing, melting or earmarkings of gold or silver coin or bullion or

currency * * *;

Whereas, it is provided in Sec-tion 16 of the said act “thatwhoever shall willfully violateany of the provisions of this actor of any license, rule or regula-tion issued thereunder, andwhoever shall willfully violate,

neglect or refuse to complywith any order of the Presidentissued in compliance with theprovisions of this act, shall,upon conviction, be fined notmore than $10,000 or, if anatural person, imprisoned fornot more than ten years or

both* * *;

NOW, THEREFORE, I, FRANKLIND. ROOSEVELT PRESIDENT OFTHE UNITED STATES OF AMER-ICA, IN VIEW OF SUCH NA-TIONAL EMERGENCY AND BY

VIRTUE of the authority vestedin me by said act and in orderto prevent the export, hoarding or earmarking of gold or silvercoin or bullion or currency, dohereby proclaim, order, directand declare that from Monday,the sixth day of March, toThursday the ninth day of March. Nineteen hundred andthirty-three, both dates inclu-sive, and there shall be main-tained and observed by allbanking institutions and allbranches thereof located in the

United States of America, in-cluding the Territories and Insu-lar possessions, a bank holi-day, and that during said pe-riod all banking transactions

shall be suspended.

During such holiday, excepting as hereinafter provided, nosuch banking institution shallpay out, export, earmark orpermit, the withdrawal or trans-fer in any manner or of anydevise whatsoever of any goldor silver coin or bullion or cur-rency or take any other action

which might facilitate thehoarding thereof; nor shall anysuch banking institution orbranch pay out deposits, makeloans or discounts, deal in for-eign exchange, transfer creditsfrom the United States to anyplace abroad, or transact any

banking business whatsoever.

During such holiday, the Secre-tary of the Treasury, with theapproval of the President and

under such regulations asmay be prescribed, is author-ized and empowered (a) topermit any or all of suchbanking institutions to per-form any or all of the usualbanking functions, (b) to di-

rect, require or permit theissuance of clearing housecertificates, or other evidenceof claims of assets of banking institutions, and (c) to author-ize and direct the creation insuch banking institutions of special trust accounts for thereceipt of new deposits whichshall be subject to withdrawalon demand without any re-striction or limitation andshall be kept separately incash or on deposit in FederalReserve Banks or invested in

the obligations of the UnitedStates.

As used in this order the term‘banking institutions’ shallinclude all Federal ReserveBanks, national banking asso-ciation banks, trust compa-nies, savings banks, building and loan associations, creditunions, or any other corpora-tions or persons, engaged inthe business of receiving de-posits, making loans, dis-counting business paper, or

transacting any other form of banking business.

IN WITNESS THEREOF I havehereunto set my hand andcaused the seal of the United

States to be affixed.

Done in the City of Washing-ton this 6th day of March,1 AM., in the year of Our LordOne Thousand Nine Hundredand Thirty-three, and of theIndependence of the UnitedStates the one hundred and

fifty-seventh.

(SEAL)

FRANKLIN D. ROOSEVELT

By the President:

CORDELL HULL

Secretary of State.

Source: The New York Times.

Monday, March 6th, 1933.

Page 26

These anticipated attacks onfiat currencies are very bullishfor the gold price, which is theultimate international

currency.

Following Britain’s opt off gold, even the mighty dollarcame under suspicion. Peo-ple, not only in the UnitedStates, but in Europe too,began to doubt Americansupport for the gold standard.They swapped their dollars forAmerican gold to the extentthat towards the end of hisPresidency, President Hooverwas warned by his TreasurySecretary, Andrew Mellon thatthe drain on gold had been solarge that there was insuffi-

cient to cover the Country’sadherence to the goldstandard.

This propensity on the part of Americans and others to owngold was brought about by theeconomic crisis, the evolving monetary crisis and the

collapse of American banks.

The Wall Street crash in 1929was followed by the implosionof the debt bubble and thesubsequent banking crisis.The first stage of the crisissaw a panic out of collapsing securities, both stocks andbonds and into short-termfinancial assets like bankdeposits, T-Bills and evenpaper currency. Note that this

is happening now.

As the crisis deepened

(between April 1931-March1933) and the bank failuresmultiplied there was a hugerush to own gold. “Foreignerscashed in not only their Ameri-can stocks and bonds, andalso their dollars and hauledAmerican gold away by theboatload. Americans con-verted their paper dollars andbank deposits into gold coinsand stashed them in

G O L D I S M O N E Y



“…in the early months of theDepression, astute investorsbegan to move some of theirfunds into gold mining stocks,even though the devaluationof the U. S. dollar was noteven considered imminent oreven a possibility. The floating of the British pound in Sep-

tember 1931, however, andthe worsening of the Banking crisis, which caused a sharpincrease in gold hoarding inthe US and shipments of USgold abroad, marked the be-ginning of a major bull marketin gold mining stocks.” (TheKondratieff Wave Analyst.

October 1987, P.115).

At the same time there was anew gold rush, certainly inNorth America, but perhaps

worldwide. Many new golddiscoveries were made at thistime. In Canada, these discov-eries occurred in British Co-lumbia and in Ontario, specifi-cally in the Rainy River dis-trict, Red Lake and along thefamous Abitibi Greenstonegold belt stretching fromNorthern Ontario into Quebec.These discoveries werefunded by investors, who

were keen to be passive partici-

pants in this new gold rush.

Thousands of American andCanadian unemployed driftedinto the northern mountains,the western deserts and thecentral Canada greenstone

belt, hoping to strike it rich orat least eke out a living pan-

ning or prospecting for gold.

“By 1940, there were, accord-ing to the Bureau of Mines,some 9,000 operating goldmines in the US alone. Many of them were small, marginaloperations, but some of thenew mines were substan-tial.” (The Kondratieff Wave

Analyst. October 1987, P.116).

Speculators achieved substan-tial profits in the face of a col-lapsing stock market. Two of the largest gold producers wereDome Mines and HomestakeMining. The following tablesummarizes their stock per-formance and the substantial

dividends they paid.

The price of Dome Mines in-creased by ten times from its1929 crash low to its 1936high, whilst Homestake Min-ing’s performance was slightlyless than that. During thegreat stock bull market maniaof 1921 to 1929, the DowJones advanced about half as

much as gold stocks did inthe Great Deflationary De-

pression.

Page 27

The enormous urge to hoardgold during the deflationarydepression was simply recog-nition that gold is the ultimatemoney and during the rav-ages of deflation the value of everything else is suspect..

John Exter’s inverse pyramidportrays asset liquidity during a deflationary depression.Clearly gold stands as themost liquid of assets during

such times

During the inflationary sum-mer there are a multitude of different assets that an inves-tor can choose from, including gold to protect against adecline in the purchasing power of the currency. In the

deflationary winter, gold be-comes the sine qua non as-

set.

This is because gold is theonly financial asset that is notsomeone else’s liability. It isthe currency of last resort andas such thrives during finan-cial and economic crisis.Unlike a fiat currency, it cannever be devalued or

repudiated.

Even before the great stockbull market collapsed in 1929shrewd contrarians were mov-

ing to invest in gold in antici-pation of such an event. In1928, Bernard Baruch“started buying gold fromAlaska Juneau Mines, andtold friends to watch eco-nomic statistics with care, fora crash might be in the mak-ing. (The Great Bull Market. P.

113-114).

In the deflationary

winter, gold

becomes the sine

qua non asset “To have gold is to

be in fear, and

want it to be in

sorrow.” Dr.

Samuel Johnson



Page 28

Homestake Mining Dividend Dome Mines Dividend

Low 1929 $65 $7 $6 $1

High 1930 $83 $8 $10.375 $1

High 1931 $138 $8.45 $13.50 $1

High 1932 $163 $10.60 $12.875 $1.30

High 1933 $373 $15 $39.50 $1.80

1934 President Roosevelt raises Gold Price from $20.67 to $35.00 per ounce

High 1934 $430 $30 $46.25 $3.50

High 1935 $495 $56 $44.875 $4

High 1936 $544 $36 $61.25 $4

High 1937 $430 $18 $57.25 $4.50



this Kondratieff winter ? Wecan confidently predict thatboth prices will be at ex-tremes. Under these circum-stances the Dow might onlybe able to afford a fraction of

a gold ounce.

While the sub-headline read,“Fed Boss fears slowing U.S.economy may not bottom outuntil spring: gives no hint of further rate cutes.” In all re-spects the Chairman’s fearsare appropriate. But we pre-sume that his fears for dis-content were applicable tothe winter of December 2007to March 2008 and recoveryin the spring of 2008. But thediscontent, and we expectthere to be plenty of that, willlast the Kondratieff winter orperhaps another ten years orso. Yes, if things have notbeen completely blown asun-der by the ravages of winter,

we expect an economic recov-ery in the Kondratieff spring,

like there always has been.

The primary purpose of theKondratieff winter is to cleansethe economy of debt. That proc-ess is always painful to bothcreditor and debtor. It results in

major bankruptcies on bothsides of the ledger.

We have already traced theimpact of the collapse of thedebt bubble during the earlyyears of the previousKondratieff winter, and its im-pact on US banks. About tenthousand banks failed at thattime, because they had madeso many bad loans during the

roaring twenties.

The same holds true today,banks all over the world havemade many, many bad loanson the assumption that that theexpansion of credit can con-tinue ad infinitum. Now theyare finding to their cost thatthat is not the case. This is thevery early stages of the creditimplosion, which always hap-pens during a Kondratieff win-ter. Far worse is yet to come. To

quote one of my favouritepeople, Eric Sprott, “Make nomistake. The credit marketsare clearly and unambigu-ously saying that the game isover.” (Sprott Asset Manage-

ment, Nov 2007).

Of course, the official view

that we will receive, is that thecredit cancer has been curedand that the powers that behave just found a miraculouscure for the disease. Thatcure will only be more of thesame, which is to throw worth-less paper at the problem.The trouble is that the mar-kets have already figured thatthe paper is worthless. That is

why it has gone ‘no bid.’

Page 29

Gold and paper assets are anantithesis to each other.When one is thriving the otheris out of favour. The one infavour like stocks in theKondratieff spring and au-tumn and gold in summer andwinter always reach an ex-treme in value relative to the

other. This extreme is the tip-off that the tide is about to

turn.

In 1929 the Dow could buy18 ounces of gold In 1932the Dow Jones was only worthtwo ounces of gold In 1966 atthe end of the Kondratieff spring the Dow was worth 28ounces of gold. At the end of the inflationary summer theDow was worth an ounce of gold. At the height of the great

autumn stock bull market theDow Jones Industrial Aver-ages could buy 42 ounces of gold. Today the Dow’s goldvalue has dropped to 16

ounces.

What is the likely Dow/Goldratio when stocks havereached their bear marketbottom and gold has attainedits bull market peak during

Banks all over the world have made

many, many bad

loans on the

assumption that the

expansion of credit

can continue ad

infinitum

“ B E R N A N K E F O R S E E S W I N T E R O F D I S C O N T E N T ”

G L O B E A N D M A I L ,

N O V E M B E R 9 T H



The onset of winter of all

previous Kondratieff cycleshas been signaled by thepeak in the great autumn

stock bull market. So it wasthis time in early 2000. ButAlan Greenspan refused toallow a relatively orderly un-winding of the bubble to occurat that time. He panicked byreducing interest rates to 1%and pouring money intobanks. This not only re-ignited the stock market, butbuilt a new bubble in realestate. It is the real estatebubble that has burst firstand the debt associated withthat bubble is collapsing. The

crash in stock prices can notbe far behind.

Initially as the debt bubbleunwinds it leads to an eco-nomic recession, but as theunwinding gathers momen-tum, the recession becomes a

depression.

An economic depression isalways deflationary. Thebursting of the debt bubblecauses major bankruptcies toboth creditor and debtor; thebanking system faces col-lapse and money becomesvery scarce; unemploymentrises exponentially, causing demand for all but the essen-tials of living to crash andprices to collapse; trade pro-tectionism rises and worldtrade comes virtually to astandstill; asset prices fall toa fraction of where they were

at their peak. Under thecircumstances, it is impossible

to inflate.

The Kondratieff autumn is al-ways the season when there ishuge speculation in stocks,bonds and real estate, madepossible by an abundant supplyof money. In the Kondratieff winter, which is signaled by thepeak in the autumn stock bullmarket, the prices of stocks,bonds and real estate arecrushed. It is hard to think thatanyone would think otherwise.Prices can only be pushed upso far. They can not go up forever. When the positive funda-mentals, which are the driver of the price rise, change for the

worse, price must follow.

The fundamental driver leading to the exorbitant prices of stocks, bonds and real estateduring this Kondratieff autumn,and all the preceding autumns,too, has been a massive in-

crease in money.

Money is now getting scarce.

The credit bubble has burst.The prices of stocks, bonds andreal estate will reflect this newtruth. Ultimately, too, theirprices will reflect the reality of acollapsing economy. Prices arelikely to return to their starting point at the beginning of theKondratieff autumn. That will

be devastating.

In the midst of all this dark-ness, gold shines. It takes on

its traditional role as money,

because the values of allother real estate (mortgages)and even money becomes

suspect.

The trust in paper, which hasbeen so evident during theKondratieff autumn, is lost, aswinter unfolds. The scrambleto own gold and the compa-nies that produce it and ex-plore for it will be as strong aswas the scramble to own pa-per during the Kondratieff

autumn.

‘Be careful out there’

WRITTEN BY:

Ian A. Gordon

Bolder Investment Partners

Suite 800

1450 Creekside Drive

Vancouver, B.C.

V6J 5B3

The Long Wave Analyst is aninvestment strategy based

upon historical analysis and

interpretation of the“Kondratieff Cycle.”

Ian Gordon is a licensedInvestment Advisor and aVice President of Bolder

Investment Partners, Ltd., aVancouver based brokerage

firm. He was educated at theRoyal Military Academy,

Sandhurst, U.K., and has aB.A. (History) from The

University of Manitoba.

Page 30

The United States economyand for that matter the econo-mies of many other countries,particularly the Anglo Saxoncountries like the United King-dom, Australia and Canadahave grown over the past

twenty years or so on a moun-tain of debt. As von Misessays, there comes a timewhen it becomes impossibleto keep the expansion going through the issuance of moredebt, because debt starts togo bad. When debt goes bad,banks refuse to lend andcredit contracts. Debtors arecut off from extending theirloans, which forces them intobankruptcy and creditors gethurt because the loans are

not repaid.

Debt and the economy worktogether, each feeding off theother. During the expansion-ary phase of the Kondratieff cycle (spring and summer)debt provides the leveragethat bolsters economic expan-sion. In the Plateau period,the autumn, debt providesvery little to the economy,because corporations canraise capital through equity,as the great autumn stock

bull market flourishes. During the autumn, therefore, debt isused to finance speculation instocks and real estate. Theseassets are pledged as collat-eral. At the end of theKondratieff autumn the pricesof stocks and real estate growexponentially, which results ina similar increase in the

amount of debt.

As long as the values of theseassets continue higher, debtis sustainable. When theprices of stocks and real es-tate start to fall at the end of autumn, the collateral can nolonger support the debt. Thedebt bubble begins to unwind;slowly at first , but gathering speed in line with plunging prices for stocks and real

estate.

B R O W N - T H E N A T I O N A L P O S T



Page 31

Bibliography.

Allen, Frederick, Lewis. The Lords of Creation. Harper and Brothers, New York, 1935.

Allen, Frederick Lewis. Only Yesterday. Harper and Brothers, New York, 1931.

Dewey, Edward R. Cycles: The Mysterious Forces that Trigger Events. Hawthorn Books, New York, 1971.

Galbraith, John, Kenneth. A Short History of Financial Euphoria. Penguin, USA, 1993.

Gann, W. D. The Tunnel through the Air, Lambert-Gann Publishing, Pomery, Washington, 1990.

Gann, W. D.1929 Annual Sock Forecast. Published November 1928.

Gann, W. D. Method for Forecasting the Stock Market, January 1931.

Graves, Lloyd, M. The Great Depression and Beyond. The Brockmire Economic Service, Inc., 1932.

Greenspan, Alan. Gold and Economic Freedom. The New American Library Inc, New York, 1962.

Hoppe, Donald. The Kondratieff Wave Analyst. Crystal Lake, Illinois.

Le Bon, Gustave. The Crowd. Larlin Corporation, Georgia, 1982.

Mullins, Eustache. The Secrets of the Federal Reserve. Bankers Research Institute, Virginia, 1983.

Rothbard, Murray. America’s Great Depression. Richardson and Snyder, New York, 1983.

Russell, Richard. Dow Theory Letters Inc. www.dowtheoryletters.com

Sobel, Robert. The Great Bull Market, Wall Street in the 1920s. W. W. Norton & Co, 1968.

The Financial Times. F. T. Publications. New York.The Globe and Mail, CTVglobemedia.

The Money Masters Video, Rolling Bay, Washington.

Other Sources.

Beckman, Robert. Crashes-Why they Happen. Sidgwick & Jackson, London. 1988.

Galbraith, John, Kenneth. The Great Crash, 1929. Houghton Mifflin Co, Boston 1961.

Garrett, Garet. From a Bubble that Broke the World. Cato Institute, San Francisco. 1980.

Griffin, G. Edward.The Creature from Jekyll Island. American Media, California. 2000.

Kindleberger, Charles. Manias, Panics, and Crashes. Basic Books Inc. New York.1978.

Tilden, Freeman. A World in Debt. Friedberg Commodity Management Inc. Toronto, 1983.

The Economist, London.

National Post, CanWest Media Works, Inc.

Disclaimer : This report is solely the work of the author. Although the author is a registered investment advisor at BolderInvestment Partners this is not an official publication of Bolder Investment Partners. The views (including any recommenda-tions) expressed in this information are those of the author alone, and are not necessarily those of Bolder Investment Part-ners. The information contained in this report is drawn from sources believed to be reliable, but the accuracy and complete-ness of the information is not guaranteed, nor in providing it does Bolder Investment Partners or it's subsidiaries, or affiliatedcompanies, "The Firm" assume any liability. This information is given as of the date appearing in this report, and "The Firm"assumes no obligation to update the information or advise on further developments. This report is intended for distribution inthose jurisdictions where "The Firm" is registered as advisors or dealers in securities. Any distribution or dissemination of thisreport in any other jurisdiction is strictly prohibited. “The Firm” and holdings of it's respective directors, officers and employ-ees and their associations, from time to time may buy or sell any securities mentioned herein. This message is intended onlyfor the use of the individual or entity to which it is addressed and may contain information which is privileged, confidential orsubject to copyright. Internet communications cannot be guaranteed to be secure or error-free as information could be inter-

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