The Lights Go Out

“The lamps are going out all over Europe. We shall not see them lit again in our time”. These famous and seemingly prophetic words were uttered by Sir Edward Grey, the British Foreign Secretary, as dusk fell over London on August 3, 1914. Grey had just sent the British ultimatum to Germany, following the latter’s invasion of Belgium, but he knew it would have no impact and the next day his country, along with all the European powers, would be at war. Seeing the lamplighters turning up the gaslamps on Whitehall and King Charles St on that late summer evening, he linked the humdrum daily routine to the epoch-making events then getting underway.

Technically, of course, Grey was wrong. The lights went on again across Europe, albeit over four terrible years later, and life resumed some kind of normality. But substantively, his assessment was entirely accurate. August 1914 marked a true turning point in European and world history, the end of an era which stretched back at least to 1870 and, in many ways, to the post-Napoleonic settlement almost a century before. Most of the European ‘great powers’ that entered the war did not survive it – the Austro-Hungarian, Ottoman, Russian and German empires were all shattered and destroyed between 1914 and 1918. Even those that seemingly emerged intact and even victorious, namely Britain, France and Italy, were irreparably scarred and weakened.

The crisis gripping and steadily strangling Europe today is equally devastating, although fortunately almost bloodless — it has not yet descended into war, let alone the massacre of an entire generation, as occurred in 1914-18. By ‘today’, I mean since 2008, when Europe first awoke to the fact that the supposedly ‘limited’, ‘regional’,. subprime crisis in the US involved the Old Continent too – up to its neck. The meltdown of Iceland and the abrupt collapse of the Irish property binge were the harbingers of a much more widespread disaster, as were the bank runs in Britain and the bailouts in Germany. But, like London in 1914, most people were determined to pretend that it was irrelevant to them and continued to live in la-la-land, even as the men of the British Expeditionary Force met their Maker at Mons.

It is a historical fact – amazing, but steadily less so in light of current developments – that for several weeks following the declaration – and conduct – of war, the 1914 English cricket season continued under the banner of ‘business as usual’. Only after W.G. Grace, the Grand Old Man of English cricket, wrote a letter to the The Times in late August, harrumphing that “I think the time has arrived when the county cricket season should be closed, for it is not fitting at a time like this that able-bodied men should be playing cricket by day and pleasure-seekers look on. I should like to see all first-class cricketers of suitable age set a good example and come to the help of their country without delay in its hour of need” — did the MCC come to its senses.

In other words, people are able to block out virtually anything they don’t want to hear or see. The plethora of communication media available today actually facilitates that result, rather than preventing it. Hence the obtuse determination of most British and French citizens to refuse to join the dots linking Ireland, Greece and the rest of the PIIGS group with their own problem-ridden economies. As for the Americans, it is now a given among bearish market commentators that the general American public will not grasp the implications of the PIIGS story as a precursor of their own sovereign debt crisis, until the rot spreads to the UK – and maybe not even then.

In  the face of this blinkered behavior, it’s worth trying, yet again, to explain what this all means to the average Joe. It’s actually very simple: If you move all your financial assets into cash or near-cash, you will minimise your exposure to losses. If having lumps of gold makes you (or your wife) feel better, then do a bit of that as well — but the last couple of weeks has shown that gold is not a sure safe haven, let alone the, well, crock of gold, that gold bugs have claimed. As deflation worsens – and it’s getting worse across Europe and the US – gold’s luster may continue to dim. But for most people, cash, Treasury bills and Treasury bonds are still the readiest and surest way to weather a financial crash and the economic, social and political upheavals that follow from it.

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