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By Art Cashin
On this day (-3) in 1895, America was in a funny financial spot. Well, it was a bit over a hundred and seventeen years ago today - so - I guess you deserve an explanation. Let me see....if I remember what Sister Herman Joseph taught me - that different America of a century ago looked something like this:
The economy appeared to be struggling. There was a Democrat in the White House. Congress was divided and squabbling, hostilely and uncivilly. Some thought the debates were so coarse and rude they spoke of forming a new political party.
Technology was the new mantra even after a bumpy start and telecommunications were exploding (in use if not profitability). Much of the country was in the grip of unusual and extreme weather. And...oh yeah....I almost forgot....suddenly folks had begun talking about gold....can you imagine "gold!"
Anyway, despite what pundits of the day thought, gold had begun to rise. Now, in 1895, the old U.S. was on the old "gold exchange standard." That meant, whether citizen or foreigner, if you thought public policy was not to your liking, you could hand in your green pictures of dead presidents and get gold - real, glistening, bite into it to check it, gold.
As hard as it is for us to believe today, a goodly number of those citizens distrusted what they saw in Washington. Gold rose and soon began to bubble and the dollar began to slide. The rush to exchange dollars might deplete the gold of the U.S. Treasury and cause a default. Imagine - a time when the government wrestled with the question of default.
So - to avoid chaos - the President sought the help of the one man who could control the banks, who could calm Wall Street, who - in short - could find a way to halt the run on the dollar and government reserves. (No Virginia, it was not Ben Bernanke - there was no Federal Reserve.)
Thus, on this day in 1895, the President of the U.S. sat down with a certain J.P. Morgan seeking the latter's help in saving the country. Morgan allowed as how he might just happen to know one fellow who could put the government into default that very afternoon. (The President never asked if it was Morgan, himself.) Morgan conveniently recalled some obscure Civil War legislation that allowed the President to issue bonds to buy gold. The same law said the bonds could be sold secretly (without bidding). But who would buy them? Well, Morgan allowed as how it was probably his civic duty (along with that of his syndicate) to not only buy the new secret bonds but to buy up some gold and recycle it to the Treasury for the dollars he paid for the bonds. And all this for just a small commission.
To mark this anniversary recall the words of Warren Buffett - "There's always a silver lining" - or was that Jimmy Buffett?
Many thanks to Mr. Cashin and UBS Financial Services who graciously allow his historical musings to be republished on this site. To enjoy more of Art's posts simply click on "Cashin's Comments" in the label section on the sidebar.