May 7, 2009

The Titanic tragedy is about the unexpected sinking of an unsinkable ship.  In that respect, it is much like the American economy that many believed would stay fat and happy forever.  

Built by the White Star Line in Belfast , United Kingdom , with funding provided by J. P. Morgan and his International Mercantile Marine Company, the RMS Titanic was the largest passenger steamship in the world when its hull launched on May 31, 1911 .  Its aborted commercial career began on Wednesday, April 10, 1912 , as it departed Southampton , England for New York City .  It sank in the early hours of April 15^th after striking an iceberg shortly before midnight the day before.  Employing the most advanced technology of its day, the ship was generally regarded as unsinkable, but ironically this reputation didn’t emerge until after it sank.  With widespread publicity of the ship’s features and its experienced crew, the tragedy left many people in a state of shocked disbelief.  

The ship had a capacity of 3,547 passengers and crew but only enough lifeboats (20) for 1,178 people.  Still, the number of lifeboats exceeded the requirements of the British Board of Trade Regulations, which were based on a ship’s tonnage rather than the number of people a vessel could accommodate. Of the 2,223 people aboard its maiden voyage, 1,517 died.  With passengers and crew strewn about the frigid water in the vicinity of the sinking ship, most people didn’t have time to drown.  They died from hypothermia instead.  

According to Wikipedia, “the Titanic had sufficient lifeboat space for all first-class passengers, but not for the lower classes. In fact, most third-class, or steerage, passengers had no idea where the lifeboats were, much less any way of getting up to the higher decks where the lifeboats were stowed.”  Sixty-one percent of the first-class passengers survived, compared to 25 percent of the third-class and 24 percent of the crew.  Third-class and crew accounted for 1,221 fatalities, or roughly 80 percent of the total.  

What is Titanic telling us today?  

First, we notice the name J. P. Morgan behind its funding.  As Fed history buffs can attest, Morgan’s henchmen were chiefly responsible for imposing the Federal Reserve on the American economy and for using Fed inflation to fund U.S. participation in WW I and the calamitous boom of the 1920s.  Morgan had his own suite and promenade deck on Titanic and was scheduled to be on board when it left Southampton but cancelled just before the ship departed.  It is hardly surprising to find the Jovian Morgan, an avid yachtsman, bankrolling construction of the world’s largest passenger liner.  

Second, we see that first-class passengers had a much greater chance of being saved than others.  Banks, by design, cannot meet their demand obligations any more than Titanic, by design, could meet its lifeboat expectations.  In an emergency, there’s no mystery about who gets saved and who doesn’t, whether you’re bidding for a bailout or a seat on a lifeboat.  

Third, by virtue of their sheer majesty, both Titanic and the Fed were meant to awe the public.  As Rothbard has written, its notes were “not just plain bank notes. They were liabilities of the Central Bank, an institution invested with all the majestic aura of the government itself.”  The ship too big to sink had its counterpart in a money producer too important to fail.  

The thinking that guided construction of Titanic continued after it left Southampton ’s harbor.  In James Cameron’s epic film, J. Bruce Ismay, managing director of White Star Lines, baits Captain Edward John Smith into abandoning sound judgment for the sake of a nebulous glory.  From the Titanic screenplay:

ISMAY

So you've not lit the last four boilers then?  

SMITH

No, but we're making excellent time.

 

ISMAY

(impatiently)

Captain, the press knows the size of Titanic, let them marvel at her speed too. We must give them something new to print. And the maiden voyage of Titanic must make headlines!

SMITH

I prefer not to push the engines until they've been properly run in.

ISMAY

Of course I leave it to your good offices to decide what's best, but what a glorious end to your last crossing if we get into New York Tuesday night and surprise them all. [Note: Smith was thinking about retiring after the maiden voyage.]

Later, under pressure from Ismay and with a 46,000-horsepower steamer under his command, Smith has lost all restraint:  

HAROLD BRIDE, the 21 year old Junior Wireless Operator, hustles in and skirts around Andrews' tour group to hand a Marconigram to Captain Smith.

BRIDE

Another ice warning, sir. This one from the "Baltic".

 

SMITH

Thank you, Sparks.

 

Smith glances at the message then nonchalantly puts it in his pocket. He nods reassuringly to Rose and the group.

SMITH

Not to worry, it's quite normal for this time of year. In fact, we're speeding up. I've just ordered the last boilers lit.

 

And so Titanic plunges all ahead full into one of the icebergs Smith chose to ignore.  Unlike the captain, Alan Greenspan famously warned about excess, that irrational exuberance might be unduly escalating asset values, though no one who understood the meaning of “bailout” took him seriously.  Neither man was hired to act with restraint, nor were the entities under their command designed for restraint.  

Abandon ship  

If the Fed were a big ship, most people would be looking for a way to get off.  Libertarians are screaming, “Buy gold!”  To buy gold, though, you need to know a reputable seller and be able to take delivery of the physical gold you buy.  You also need a place to hide it – a challenge in today’s surveillance society –  and it wouldn’t hurt to be able to tell real gold from the other kind.  Further, as Ron Paul explains, federal law imposes capital gains taxes on gold coins of up to 35 percent, and as the dollar is debased and the value of gold rises in terms of the dollar, government considers that an increase in wealth and taxes accordingly.  

And make no mistake, the dollar is being debased.  

Buying gold requires a sizable monetary outlay for many people.  Do you buy gold or pay for your child’s tuition?  Do you buy gold or get your roof replaced?  If you have a 401(k), do you convert a large chunk of what’s left of it to gold coins?  If so, plan on hiding them indefinitely.   Remember, we have a new FDR in office, and that means your wealth is an integral part of his plans.   

Fortunately, gold is not the only good that is marketable.  In a crisis, other possibilities include food with a long shelf life, common medicines, bottled water, diapers, matches, toothpaste, light bulbs, batteries, hand tools, guns, how-to books, survivalist books, libertarian books – even beer and cigarettes.  You don’t have to be a smoker to know some people will walk a mile for a Camel.  Watch the Tom Hanks movie Cast Away and pay attention to his resourcefulness in surviving on a desert island.  Hanks would’ve eagerly traded gold for any number of ordinary goods, especially a fire lighter or box of matches. Or an airplane ride home.

In today’s crisis, our “ship” is not being allowed to right itself; in fact, Team Obama is accelerating its sinking.  As Guido Hülsmann observes, “The crisis did not hit us despite the presence of our monetary and financial authorities. It hit us because of them.”  And the nightmare continues.  They’re still on the job.  

Whatever you do, make sure it doesn’t amount to re-arranging deck chairs.  Don’t be one of the steerage passengers who can’t find the lifeboat.