The Banking Panic of 1837 — How Sound Money Failed — Absolute Risk Reduction — What Does 95 % Covid Vaccine Efficacy Really Mean? — Common Sense on Covid 19


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If you are a true believer in the wisdom of governments and in the concept of “hard” (or “sound”) money, you should take a good hard look at The Panic of 1837 in the United States. All of human history reveals that most Governments don’t understand money. And the idea that the concept of “soundness” can be used to somehow tame money creation is magical thinking in action. All forms of money are contracts of credit, based upon trust and enforced by social agreement. Human beings will always find ways to innovate in regard to contracts of credit. That is what the history of money tells us. Let’s look back to 1837.
It all started when the US President, Andrew Jackson, in his wisdom, effectively killed off the central bank which was then called the BUS — the Second Bank of the United States. That processs started in 1833 but was not completed until 1836. The end of the central bank triggered a huge real estate boom as State based commercial banks issued credit money loans in large volumes to eager borrowers to purchase land.  Is this sounding familiar?

The Government became concerned. So they issued the so-called “Specie Circular“, an executive order issued by President Andrew Jackson on July 11th 1836. He ordered that payments for the purchase of public lands be made exclusively in gold or silver. Jackson was a “hard” money man who was always suspicious of banks creating credit money loans without the “sound” backing of gold and silver. The idea of the “Specie Circular” was to squash “excessive” land speculation and the “excessive” growth of the credit money supply (bank loans).  

Jackson directed the Treasury Department and banks to only accept specie (Gold or Silver) as payment for government-owned land after Aug. 15, 1836.  However, settlers and residents of the state in which they purchased land were permitted to use “paper” money (bank credit) until December 15th on lots up to 320 acres.  After that date, the Specie Circular effectively strangled the use of paper money. This caused a huge collapse of real estate prices. Buyers simply could not find sufficient gold or silver to settle purchases so they stopped buying. The banks had no option but to reduce credit creation dramatically and many banks then subsequently failed (as you would expect) due to loan defaults.

The Panic of 1837 caused by President Andrew Jackson started in April  — one month after Martin Von Buren became President. It was an absolute economic disaster. On May 21, 1838, a joint resolution of Congress repealed the Specie Circular. The experiment with “sound” money was decisively over.

Interestingly, a central bank was not established after that debacle. During the period from 1836 – 1862, there were only State banks with no Federal Bank. This period is called the Free Banking Era in the US. Bank notes had to be issued with gold or silver backing but loan books of credit money were allowed. More chaos ensued.

During the free banking era, State Banks had an average life span of just 5 years. About half of the banks failed for the usual reason of loan defaults. But some failed because they had inadequate gold and silver with which to honor note redemptions. As a result some banks innovated and began to offer central banking services to other banks. Nonetheless, bank failures continued in huge numbers.

In 1863, the National Banking Act was passed, creating a system of Federal banks. And the office of Comptroller of the Currency was created to supervise those banks. A uniform national currency was also created.  A huge bout of CPI inflation followed immediately with inflation hitting 24.6 % in 1864. By 1870, there were 1,638 national banks and only 325 state banks.

Inevitably, with no Central Bank to provide overnight support, liquidity mis-matches occurred and banks lost faith in each other.  Mistrust ruled. Outright deflation hit and stayed for dinner (and beyond) from 1866 right through to 1897.  Per capita GDP in the US rose very, very slowly from $ 4,700 to $ 7,200 over thirty long years.  Much economic hardship was manifest. As sure as night follows day, bank runs occurred when depositors panicked about the security of their deposits.  There were Banking Panics in 1873, 1884, 1893, 1896, 1901, 1907.  Many, many banks failed, people lost their savings and deflationary real estate crashes occurred. This is what life is like without a central bank and with cash currency backed by Gold. In other words, in such a situation, credit money — created via bank loans — rules the roost with no effective controls.

But what about the early years of the 19th century? Surely it was a golden era of “sound” money? Gold rushes in the early part of the 19th century triggered mass migrations as people desperately tried to dig money out of the ground. During the early years of the 19th century, there were banking crises in 1819, 1825, 1837, 1847 and 1857. 

Almost the entire 19th century in the US were desperate times indeed. It slowly became obvious that a central bank was needed to provide stability to a banking sector in which inter-bank trust was badly damaged.

The concept of “sound” money (backed by Gold) failed to protect the people in the 19th century. The fact is that humans need supervision in regard to money. Banks need to be supervised strictly and have access to overnight capital reserves. A central bank must maintain inter-bank trust and must stop excessive credit creation. Easy to say — not so easy to do. The problem is that human beings run central banks.


That is a question that needs serious attention. Two excellent recent articles published in The Lancet are necessary to illustrate the issues.  To quote from an article published on 17th February in the medical journal, The Lancet — Infectious Diseases —

“It is imperative to dispel any ambiguity about how vaccine efficacy shown in trials translates into protecting individuals and populations. The mRNA based Pfizer and Moderna vaccines were shown to have 94–95% efficacy in preventing symptomatic COVID-19 …….”

However, the author goes on to explain what this does NOT mean.

It is important to understand that this does not mean that 95% of people are protected from disease with the vaccine—a general misconception of vaccine protection … “

At the end of the article, the author states —

“Accurate description of effects is not hair-splitting; it is much-needed exactness to avoid adding confusion to an extraordinarily complicated and tense scientific and societal debate around COVID-19 vaccines.”


Another article published in The Lancet on April 20th 2021 explains the issue with greater clarity. It concerns a discussion on Absolute Risk Reduction (ARR) versus Relative Risk Reduction (RRR). These concepts are critical to understand.

It reveals that the Absolute Risk Reductions (ARR) achieved from use of the various Covid “vaccines” are actually much, much lower than the Relative Risk Reductions (RRR) that are published in all the newspapers and mainstream media as evidence of “effectiveness”. In fact, the Absolute Risk Reductions for the various Covid “vaccines” range from just 0.84 % to 1.3 %.

They are not “95 %”.   Our politicians and the mainstream media have obviously not read the articles.


COVID-19 vaccine efficacy and effectiveness   Open Access  20th April 2021 — An Excerpt

QUOTE   “ … the absolute risk reduction (ARR), which is the difference between attack rates with and without a vaccine, considers the whole population. ARRs tend to be ignored because they give a much less impressive effect size than RRRs: 1·3% for the AstraZeneca–Oxford, 1·2% for the Moderna–NIH, 1·2% for the J&J, 0·93% for the Gamaleya, and 0·84% for the Pfizer–BioNTech vaccines.”       UNQUOTE

More of the article is necessary to read for proper context. BOOM encourages you to read on.

QUOTE: “Approximately 96 COVID-19 vaccines are at various stages of clinical development. At present, we have the interim results of four studies published in scientific journals (on the Pfizer–BioNTech BNT162b2 mRNA vaccine, the Moderna–US National Institutes of Health [NIH] mRNA-1273 vaccine, the AstraZeneca–Oxford ChAdOx1 nCov-19 vaccine, and the Gamaleya GamCovidVac [Sputnik V] vaccine) and three studies through the US Food and Drug Administration (FDA) briefing documents (on the Pfizer–BioNTech, Moderna–NIH, and Johnson & Johnson [J&J] Ad26.COV2.S vaccines).

Vaccine efficacy is generally reported as a relative risk reduction (RRR). It uses the relative risk (RR)—ie, the ratio of attack rates with and without a vaccine—which is expressed as 1–RR. Ranking by reported efficacy gives relative risk reductions of 95% for the Pfizer–BioNTech, 94% for the Moderna–NIH, 90% for the Gamaleya, 67% for the J&J, and 67% for the AstraZeneca–Oxford vaccines. However, RRR should be seen against the background risk of being infected and becoming ill with COVID-19, which varies between populations and over time. Although the RRR considers only participants who could benefit from the vaccine, the absolute risk reduction (ARR), which is the difference between attack rates with and without a vaccine, considers the whole population. ARRs tend to be ignored because they give a much less impressive effect size than RRRs: 1·3% for the AstraZeneca–Oxford, 1·2% for the Moderna–NIH, 1·2% for the J&J, 0·93% for the Gamaleya, and 0·84% for the Pfizer–BioNTech vaccines.

There are many lessons to learn from the way studies are conducted and results are presented. With the use of only RRRs, and omitting ARRs, reporting bias is introduced, which affects the interpretation of vaccine efficacy.

……….  Importantly, we are left with the unanswered question as to whether a vaccine with a given efficacy in the study population will have the same efficacy in another population with different levels of background risk of COVID-19. This is not a trivial question because transmission intensity varies between countries, affected by factors such as public health interventions and virus variants.” :UNQUOTE


Please, please watch this dose of Common Sense on Covid 19 from an experienced Pathologist in the UK, Dr John Lee.


In economics, things work until they don’t. Until next week …………  Make your own conclusions, do your own research.  BOOM does not offer investment advice.


EMAIL: gerry {at}




Watch this short 15 minutes video and learn as Professor Richard Werner brilliantly explains how the banking system and financial sector really work.
How is Most New Money Created ?

LOANS CREATE DEPOSITS — that is how almost all new money is created in the economy (by commercial banks making loans).

From the Bank of England Quarterly Bulletin Q1 2014    —
“Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.

“Most money in the modern economy is in the form of bank deposits, which are created by commercial banks themselves”.

Youtube Video —


Paper:  Money in the Modern Economy  PDF —  CLICK HERE

Quarterly Bulletins Index

Most economists are unaware of this and even ignore the banking & finance sectors in their econometric models.

On 25th April 2017, the central bank of Germany, the Bundesbank, released a statement on this matter —

“In terms of volume, the majority of the money supply is made up of book money, which is created through transactions between banks and domestic customers. Sight deposits are an example of book money: sight deposits are created when a bank settles transactions with a customer, ie it grants a credit, say, or purchases an asset and credits the corresponding amount to the customer’s bank account in return. This means that banks can create book money just by making an accounting entry: according to the Bundesbank’s economists, “this refutes a popular misconception that banks act simply as intermediaries at the time of lending – i.e. that banks can only grant credit using funds placed with them previously as deposits by other customers”. By the same token, excess central bank reserves are not a necessary precondition for a bank to grant credit (and thus create money).”


The Reserve Bank of Australia (Australia’s central bank) has also contributed to the issue in a speech by Christopher Kent, the Assistant Governor on September 19th 2018.

“…… the vast bulk of broad money consists of bank deposits”
“Money can be created …….. when financial intermediaries make loans
“In the first instance, the process of money creation requires a willing borrower.” 
“It’s also worth emphasizing that the process of money creation is not the result of the actions of any single bank – rather, the banking system as a whole acts to create money.”

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MOLS Denmark

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