The fall of the euro reinventing the eurozone and the future of global investing 1st edition jens no
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The Role of EU Agencies in the Eurozone and Migration Crisis: Impact and Future Challenges Johannes Pollak
“Despite diminished concerns about the immediate instability of the eurozone, the ultimate fate of the euro common currency regime lingers as one of the great unresolved—and potentially cataclysmic— issues on the minds of market participants. The Fall of the Euro offers readers an exceptional opportunity to understand and evaluate the technical elements and the practical market realities of what the future holds. Jens Nordvig is one of the most insightful and brightest minds in the industry on these matters, and throughout the evolution of the events in Europe, I have come to depend on his interpretation of the evolving story. Nordvig brings to this book both his tremendous market experience and fundamental economics training, as well as his passion to see those in Europe—and across the global economy— successfully navigate the unsettled waters that lie ahead for the euro.”
“Jens Nordvig’s book artfully combines a master economist’s framework, a seasoned market participant’s advice, an historian’s farreaching perspective, and a European citizen’s passionate case for an open discussion of the way forward for the world’s largest economic bloc. As a European living in the United States and working for a Japanese financial institution, Nordvig is able to provide a singularly unique perspective that should be read by investors, policymakers, and the average man on the street.”
—Scott
Bessent, Chief Investment Offi cer, Soros Fund Management LLC
“The Fall of the Euro offers a bold, concise, and thoughtful perspective on the conditions and compromises that triggered the euro crisis, the political and economic dynamics that have hindered policy response, and the range of plausible scenarios that may trace the uncertain road ahead. Jens Nordvig brings a keen insight into markets and economics that he ably combines with a brisk, no-nonsense narrative. This is essential reading for market players, investors, and prognosticators of the future of the eurozone.”
—Richard Clarida, C. Lowell Harriss Professor of Economics and International Affairs, Columbia University; Global Strategic Advisor, Pimco; Former Assistant Secretary of Treasury for Economic Policy
“Jens Nordvig has delivered a primal scream about his Europe. Describing the great democratic deficit and failure of the Eurozone experiment, The Fall of the Euro is riveting in its discussion of the euro’s history and its present, and most importantly in the prescriptions that Nordvig provides. There is anger in the streets. Voters must and will be heard. The Fall of the Euro needs to be read by all those demanding brave policy from Europe’s timid elite.”
—Tom Keene, Editor at Large, Bloomberg Television & Radio; Host of Bloomberg Surveillance
“In this bold, highly readable book, Jens Nordvig beautifully highlights the tensions between the politics and the economics that are at the heart of the euro crisis. A must read for anyone who cares about the future of Europe.”
—Anil Kashyap, Professor of Economics and Finance, University of Chicago Booth School of Business
“This excellent book combines a clear understanding of the euro’s past with an insightful economic analysis of its inherent flaws. Nordvig calmly explains how a breakup might work, dispelling many popular myths along the way. I learned much from The Fall of the Euro and I thoroughly recommend it.”
—Simon Wolfson, CEO of Next plc and sponsor of the Wolfson Economics Prize
“Jens Nordvig has always stood out from the crowd as a market economist. He has the imagination to ask the hardest questions on the subject of political economy and was one of the first to analyze the economic, legal, and political consequences of the euro splitting asunder. Whether or not you share his pessimism about the future of the euro project, Nordvig’s guide to the crisis is a compelling and essential read.”
—Gavyn Davies, Chairman of Fulcrum Asset Management LLP, former Goldman Sachs Chief Economist, and Financial Times columnist
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THE FALL OF THE EURO
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THE FALL OF THE EURO
Reinventing the Eurozone and the Future of Global Investing
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To my parents: Inge and Per
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Preface
Iwrote this book because I care about Europe. I feel both sad and angry about the situation in the eurozone and how it has been handled.
I feel sad because so many innocent European citizens are now victims of a devastating economic crisis. Young, bright graduates in Madrid, Rome, and Lisbon are having a very hard time getting a decent job—not through any fault of their own, but because of ineffective economic policy. It is unfair. And it is not only about youth unemployment. Many other groups around the eurozone are unfairly feeling the pain from years of economic mismanagement.
I feel angry because of all the misinformation about the euro: what it is doing to the eurozone countries and what can be done about it. For a long time, the “religion” of the common currency has precluded any debate about alternative policies. European policy makers have been schooled to think about the euro in a certain way, and overconfidence and tunnel vision have made it almost impossible for them to think creatively about new solutions. Misinformation leads to bad decisions, and bad decisions lead to bad outcomes. Millions of people are suffering as a result.
I grew up in Denmark. As a child, I traveled with my parents though France, Spain, Italy, Portugal, and Greece on long vacations; as a teenager, I went to summer school in Germany; while I was studying economics in university, I spent time in Spain; and my first real job was as a markets economist based in London, focusing on Central and Eastern Europe. Through these experiences, I saw the European integration firsthand.
I moved to London in 2000. I immediately felt the city’s diversity and energy. The fact that London is such a cultural melting pot is not
solely a function of the European integration process, but free movement of labor within the European single market has given the city’s diversity a further boost. When I moved to the United Kingdom, all I had to do to start a career there was to catch the fi rst plane and go to the local council’s office in East London to get a national insurance number.
Because of the European Union’s single market, I had the right to work anywhere I wanted within the EU. My older siblings had not had the same freedom when they graduated some years before me. It was a new European freedom to cherish and celebrate.
In those years, a lot of things in Europe seemed to be going in the right direction. The single market was working (allowing goods, capital, and people to move freely). The EU had played a key role in securing peace in the former Yugoslavia. The euro had been launched successfully. Finally, 10 Central and Eastern European countries joined the European Union in 2004. Europe was successfully integrating along multiple dimensions. By 2010, it was all falling apart. How could it come to this? Over the last four years, I have spent hours upon hours thinking about it all. I wrote dozens of papers and strategy notes in my capacity as head of currency strategy for Nomura Securities. In addition, I was the lead author on a large technical paper called “Rethinking the European monetary union,” which was a fi nalist in the Wolfson Economics Prize competition in 2012. Th is book builds on this background material and on innumerable direct interactions with investors and policy makers.
The more I studied the history, the politics, and the economics, the more I wanted to scream: “Why did they do it?!” Creating the euro was such a reckless gamble. Many of the weaknesses in the euro’s foundations were foreseeable, and had indeed been foreseen by many before the currency was launched. But those European leaders who were spearheading the creation of the common currency pushed away all arguments against it. They wanted the euro, regardless of its faults and risks.
The other components of European integration—including the common market within the European Union—had a 60-year track record of success, based as they were on a philosophy of gradualism. But the fast jump to a common currency created serious trouble only 10 years after the euro was born.
This book is about how Europe got into this mess—and what the ways out are.
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Acknowledgments
Over the past four years, a great deal of my time has been dedicated to analyzing the euro crisis. My main motivation has always been to understand the underlying issues as well as possible, and perhaps help others understand these matters too. I am grateful to those who have offered insights and advice and, throughout the process, helped educate me.
In connection with this book, I want to thank Melissa Flashman at Trident Media Group. She immediately embraced the idea of a book about the euro crisis and guided the process of building a structure for the book.
Lauren Silva Laughlin deserves praise for her commitment and professionalism. Her input was invaluable, given a tight deadline. While she was editing the initial manuscript, she always kept track of the big picture (while tolerating my stubbornness).
Tom Miller at McGraw-Hill was excited about the idea from the beginning, and provided valuable input during the writing process. Thanks also to Alice Manning for a very diligent copy edit.
Th ere are several people who have provided input to various parts of the book. Special thanks to Nikolaj Malchow-Møller and Th omas Barnebeck Andersen from the Department of Business and Economics at University of Southern Denmark, who provided insightful feedback throughout the process, often with remarkable speed.
Various other people provided input for parts of the book. I would like to thank Lewis Alexander, Alessio De Longis, Valerie Galinskaya, Mark Hsu, Irina Novoselsky, Athanasios Orphanides, Leif Pagrotsky, Karthik Sankaran, Bo Soerensen, Vadim Vaks, and Mads Videbaek.
Thanks also to Ankit Sahni and Charles St-Arnaud from Nomura’s currency strategy team for help with data gathering and number crunching, and to other staff members at Nomura Securities who helped with many of the underlying research projects that have helped shape my thinking over the last few years.
Most important, I would like to thank my wife, Anna Starikovsky Nordvig, who continues to patiently support every crazy project I undertake.
Introduction
The euro crisis is morphing from a financial crisis to an economic and political crisis. Financial markets have calmed, but many eurozone economies continue to suffer from historically deep recessions. How unprecedented economic weakness will influence politics from north to south in the eurozone is the key to the future of the euro.
To understand the euro and the current crisis in the eurozone, you need to understand history and politics, and a bit of economics too. Politics was the main driving force behind the euro when the idea of a common European currency was conceived more than 20 years ago. Politics remains the key parameter today. Th e interplay of national politics in the 17 eurozone member countries will determine the specific form the euro will take in the future, including the possibility of it disintegrating.
Policy makers can attempt to circumvent the basic laws of economics, but over time, the core economic truths take their revenge. Uncompetitive countries will eventually experience an economic crisis. Overly indebted countries will eventually have to restructure their debts or default. Th e longer these imbalances are ignored and allowed to accumulate, the greater the ultimate cost of unwinding them.
The euro crisis has been about letting imbalances accumulate and not recognizing the euro’s weaknesses before it was too late. European policy makers have finally woken up to the reality, but they are still playing defense. They are fighting to build new institutions, foster greater cooperation, stabilize markets, reignite economic growth, and maintain political stability.
It is an uphill battle. History suggests that a currency union without a political union is a vulnerable thing, and that some form of breakup is a high risk as long as independent countries are focused on their own interests. The optimal solution would be to create a political union in the eurozone and thereby centralize the decision making (as in the United States). But European policy makers have lost credibility, and euroskeptic sentiment is growing across the continent.
Currently, there is simply no public support for the idea of a United States of Europe—not in Greece, not in Spain, and not in Germany. Meanwhile, the economic reality of an inflexible currency union remains one of severe economic pain. This remains the case in large parts of the eurozone even after a period in which markets have been more stable.
How the eurozone evolves institutionally and how the euro behaves in coming years will aff ect the livelihood of millions of European citizens. The specific form the euro assumes in the future will have an impact on growth and employment across the eurozone and will also drive global fi nancial markets. In line with how we have already seen the euro crisis drive global markets during the last few years, new shocks from the eurozone have the potential to dominate global asset markets, from equities and bonds to currencies and commodities.
This book is organized in four parts.
Part I, “Th e Euro: Th e Early Years,” gives you the historical background for understanding the current crisis in the eurozone. It begins with the early stages of European integration in the 1950s, continues through the birth of the euro in 1999, and ends with the various eurozone-driven financial market crisis waves that rocked global markets during 2010–2012. The four main crisis waves eventually led to the fall of the euro in its original form. Th e euro as it was created in 1999 was not strong enough to endure a severe crisis. Th e euro crisis has forced policy makers to rethink the monetary union, giving the European Central Bank more power and pursuing greater economic cooperation. Only a strengthened version of the euro has the potential to survive in the longer term.
Part II, “European Integration: The Difficult Path,” deals with the big choice that Europe is facing. It is a choice between closer integration and cooperation, on the one hand, and a form of breakup, on the other. In 2012, European leaders stared into an uncertain future that included the potential breakup of the currency. To avoid this, policy makers agreed on a new vision for a more mature and closer union.
But there is a difference between vision and reality. The eurozone lacks a political union, and there is no public support for creating one. This is a major obstacle to rapid and radical integration, and it will leave the eurozone in an incomplete and inflexible state for years to come. This is the realpolitik of Europe today. The common currency is still missing a mechanism to deal with economic crises in individual countries. There is no eurozone budget to help countries that are in dire straits.
In a manner similar to the way the gold standard operated almost a hundred years ago, the main adjustment mechanism in the eurozone is now deflation. Over the very long run, lower prices will bring about increased competitiveness. But during the adjustment phase, which could take many years, this is a very painful path for countries with high debt. Th e pain can be readily observed in historically weak growth and unprecedentedly high unemployment rates in several eurozone countries. Th is, in turn, creates a fragile political situation. Th e economic pain is increasingly feeding into political instability along various dimensions. Th is is sowing the seeds of a future crisis, one that is driven by political tension rather than market breakdown.
Part III, “Th e Mechanics and Implications of Breakup,” confronts the topic of the breakup of the euro, an idea that remains taboo among most European policy makers. Th is is the scenario that European offi cials do not want to contemplate, even if the realities of the last few years have forced them to admit that various types of breakup cannot be ruled out entirely.
Th ere are many myths about the implications of breakup, and some of these myths are kept alive for political reasons. Th is is
an underresearched topic, and you should not believe everything you read. In this part, I try to debunk some of the myths about breakup and to provide a framework for thinking objectively about it—something that European officials have a hard time doing.
Two lessons are crucial. First, there are many different types of breakup, from the departure of a tiny country such as Cyprus to a full-blown breakup involving dissolution of the eurozone altogether. In addition, the implications of an economically weak country like Greece leaving are fundamentally diff erent from those relating to a strong country such as Germany leaving. Each type of breakup has its own special considerations, and it is nonsensical to make any blanket statements about the consequences of them all.
Second, when thinking about breakup, there are important legal aspects that need to be taken into account. Economists often ignore or forget these factors, but any practical analysis needs to take into account the legal constraints associated with switching to another currency, something that is inherent in a euro breakup. Otherwise, it is just useless theory.
Part IV, “The Future Euro: Investment Implications,” provides a framework for investment strategy in a new world of elevated uncertainty in the eurozone. Over the last few years, we have observed that news from the eurozone now carries unprecedented weight in global financial markets. The challenge for investors and individuals who are trying to protect their savings is that we still don’t know the exact form that the euro will take in the future. It will depend on the interplay between politics in the core and the periphery of the eurozone.
Will the euro be a strong currency? Will it be a weak currency? Or will it break into pieces? How the current deadlock is resolved will shape the future of the euro, have a major impact on the lives of millions of European citizens, and drive the performance of many different financial assets around the world.
I
The Euro: The Early Years
You cannot understand the euro without understanding its history. The euro was born out of a political desire for European integration. Economics played only a secondary role in the process. This is ironic, since giving up its currency is one of the most important macroeconomic decisions a country can make.
We start in Chapter 1, “The Premature Celebration,” with the euro’s 10-year birthday celebration in 2009. The fathers of the euro were celebrating their own achievements. They did not realize that the shaky foundations of the original euro would soon lead to a period of sustained and homegrown instability.
In Chapter 2, “The Birth of the Euro: A Grand Political Bargain,” I outline the main phases in the history of European integration. The process culminated with the creation of the euro, and it was made possible through a grand political bargain centered on German reunification.
Chapter 3, “The Euro’s Honeymoon Years,” describes the eurozone’s initial 10 years of perceived success. Growth was booming in most of the eurozone periphery, fueled by abundant credit from the core. But under the surface, severe imbalances were building.
In Chapter 4, “The Euro Crisis: Waves of Escalating Tension,” I analyze the extreme instability in European and global financial markets during the euro crisis from 2010 to 2012. Each wave of the crisis had its own epicenter. But all these waves reflected the euro’s fundamental flaws. The common currency would need to be fundamentally reinvented if it were to be viable in the long run.
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The Premature Celebration
Agreat deal of mystery surrounds the concepts of money and currency. What constitutes money? How can a piece of paper be worth anything? What is the value of one currency relative to another?
Money derives its value from the common belief that people can always convert it into goods and services at will. It is the universal acceptance of the idea that money can be exchanged for something else at some time in the future that gives it value. Government actions underpin this acceptance. Certain laws, such as those that allow people to use money to pay taxes, help define the role of money in our society. Meanwhile, government control of the supply of money helps to ensure trust in the value of the currency. As a society, we have entered into this social contract.
Each country has its version of money. In the United States, money is called dollars. In the eurozone, it is euros. In Japan, it is yen. In each case, the currency has value because it can be used to facilitate transactions (buying and selling of goods) and to store wealth for the future.
THE PURPOSE OF A CURRENCY
But currencies serve a purpose beyond providing the ability to buy a carton of milk, sell a house, and accumulate savings conveniently. Governments that have control of their own currency have a powerful tool at their disposal. Having an independent currency allows a country to tailor its monetary and exchange rate policy to meet
the specific needs of the economy. For this reason, currencies are often symbols of national power. During the nineteenth century, for example, at the peak of the British Empire, the pound sterling was the dominant international currency.
The relative values of currencies are determined in foreign exchange markets. For most major currencies today, market forces are allowed to determine exchange rates. The supply of and demand for a currency will dictate its price in accordance with economic and political developments at home and abroad. But the success of a currency cannot be judged from its nominal strength or weakness alone.
A currency’s success should ultimately be evaluated based on its ability to deliver on the core objectives of the country’s citizens. In many countries, this isn’t limited to economic prosperity, but also includes basic values such as democracy, equal opportunity, and political stability.
The euro was created with such fundamental values in mind. Therefore, it should follow naturally that judgment on the euro’s success should not be based solely on its value against the dollar, or against any other currency. Rather, the euro’s success should be based on the currency’s ability to deliver prosperity for all European citizens and its ability to reinforce the most treasured European values.
PREMATURE EURO CELEBRATIONS
The euro turned 10 years old on January 1, 2009. European officials used the occasion to celebrate their achievements. Past and present leaders—the people who had created the idea of the euro and watched it come into being—gathered at a high-profile conference in Brussels, Belgium. The European Union even launched a public website to celebrate the euro. The 10-year birthday website showcased the euro’s success through a series of easy-to-understand (albeit fictional) stories from the various countries using the currency. A family from Greece was happy because of low interest rates
on its mortgage. A line manager from Finland was happy because of strong growth and new business opportunities.
On the front page of the website, the top economic official of the European Union, Joaquin Almunia, captured the positive spirit of the moment in relation to the euro:
Ten years on, it is a historic achievement of which all Europeans can be proud. Not only is such a currency union unprecedented in history; we can declare it a resounding success. Within the space of a decade it has clearly become the second most important currency in the world; it has brought economic stability; it has promoted economic and financial integration, and generated trade and growth among its members; and its framework for sound and sustainable public finances helps ensure that future generations can continue to benefit from the social systems that Europe is justly famous for.
At the time, the European currency was still viewed as a pillar of strength, a strong common anchor during a time of global financial turmoil. In previous crises, individual European currencies had fluctuated wildly, buffeted by global shocks or homegrown tensions. This time, the euro had been strong and relatively stable. The initial catalysts for the global financial crisis were concentrated in the United States, and the euro had actually gained versus the U.S. dollar in the early part of the crisis.
BACK TO REALITY
Just four years later, the reality is very different. Some eurozone countries are chugging along just fine; Germany is the best example. But others, like Greece, Spain, and Italy, have plummeted into unprecedentedly long and deep recessions.
In Greece, teachers are seeing their students doubled over with hunger pains during class. Like scenes straight out of Dickens, some
children are even pawing through trash cans to try to find food or begging their classmates for scraps. In a story in the New York Times highlighting this issue, one of the teachers said, “Not in my wildest dreams would I ever expect to see the situation we are in. We have reached a point where children in Greece are coming to school hungry. Today, families have difficulties not only of employment, but of survival.”
In Spain, more than 26 percent of the labor force is unemployed, up from less than 10 percent before the crisis. Meanwhile, youth unemployment has skyrocketed to more than 50 percent. People cannot pay their mortgages, are losing their homes, and have nowhere to turn. In February 2013, four people in one week committed suicide after being evicted from their properties throughout Spain.
In Italy, small businesses—in aggregate the biggest employer in the country—are struggling to pay their bills and are closing. According to the Italian business association Confindustria, the number of bankruptcies has doubled since 2007, and with credit conditions still worsening, there is no relief in sight. In May 2013, even the pope chimed in on Twitter: “My thoughts turn to all who are unemployed, often as a result of a self-centered mindset bent on profit at any cost.” You know that the economic hardship is significant when the pope enters the debate.
Meanwhile, Europeans elsewhere, especially the more prosperous ones in the north, are getting tired of the woes of the poorer countries. They are growing weary of funding bailouts for struggling banks and sovereigns in the south. They have turned the screws on places like Spain and Greece by demanding severe government spending cuts and structural reform with the aim of bringing budgets into balance. But this is affecting funding for basic social services, including public hospitals in Greece. This exacerbates the situation for people in poorer countries at the worst possible time. Recently, demonstrators took over a square in Madrid, shouting, “To fight is the only way!,” according to a report on CNN. During demonstrations this year in Greece, Cyprus, and Spain, depictions of Angela Merkel dressed in a Nazi uniform have been shown. Both
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sleet. We had sumptuous meals of trout, and tenderloin and heart of a Rocky Mountain ram, which the scout had killed near the summit. He passed the time telling me about his home and Indian tribe. He told about their ancient customs and strange religious beliefs, Indian legends and tribal tales about the very region where we were camped.
Now an Indian is generally slow to speak his innermost thoughts and to talk about his religious beliefs. But during that big storm, the scout was in the mood to talk. He said:
“The Sun is the Great Power. He is in the birds and wild animals, lakes and streams, prairies and mountains. He brings the leaves in the spring-time. He makes the grass and berries grow; and upon them the birds and animals depend for life.
“The Thunder is a great bird. It flies with the clouds, and brings the rain. From its eyes the lightnings flash.
“The blizzard is a person, who runs before the storm and shoots his arrows.
“Long ago an Indian, who camped in this valley, saw the Wind Maker rise from the waters of a lake. He was like a monster bull elk. When he flapped his ears, the wind blew hard; and when he sank again beneath the water, the wind went down.
“My people are afraid of spirits. We believe they are everywhere—underground, in the air, in the forest, in rocks and streams. We are afraid of ghosts which take the form of [17]owls and come in the dark to harm people; ghosts of disembodied relatives and friends often come around. The Blackfoot are happy on the open plains. In the mountains they are afraid; the forests are dark and gloomy and they hear strange sounds.
“Last summer an Under-Water-Spirit took a child of Bear Paw. He is my friend and lives near me on Cutbank River. One day Bear Paw went into the mountains to cut lodge-poles. He camped at the edge of the forest, near a bend in the river, where a big rock stood and the water was deep. His wife went there for water and saw the rock move; and that night she had a strange dream. The Rock stood over her and said: ‘Give me your child.’ The woman was so frightened she went to the river and sacrificed some of her ornaments; she threw them into the
water close to the Rock. Soon after that one of her children died. Now they believe it was taken from them by the Spirit of the Rock.”
The scout related a story which Heavy Breast, another friend who lived in his valley on Cutbank River, told him.
H B G B
“When one of my children died last autumn, I felt so badly I did not want to see any one. So I went alone to the forest on the mountain. It was dark and gloomy and I felt lonely But the only animal to be feared was the grizzly bear and I knew he would do me no harm, because I am the guardian of the Bear Medicine. Through its wonderful power I have cured many people
“One night I came to a cave near the forks of a stream It was raining and I decided to stay there, because in the cave I would have shelter from the storm I built a warm fire and lay down to sleep When I awoke the sun had not risen, but, through the mouth of the cave, I saw that day was beginning to dawn I heard a noise outside, like some [18]animal sniffing the air I thought one of the dogs had followed from camp and was nosing around, trying to get my scent Then I heard heavy footsteps and knew it was a large animal So I was careful I made no sound; I scarcely even breathed
“My back was towards the mouth of the cave, so I turned my head very slowly, very carefully, and saw close to the entrance a huge grizzly bear. Then I said to myself: ‘If this bear is angry, he has me caught in a trap.’ I have often laughed at animals in traps, but I did not feel like laughing this time. Again I said to myself: ‘This grizzly can do me no harm; my Bear Medicine will protect me; it has often helped me to cure the sick; besides I have always had a friendly feeling for bears, as if they were my relatives; I must be bold and make a strong talk; I must make this bear understand that I am his friend ’
“Then I thought: ‘Perhaps he intends to play with me before he kills me ’ And this made me feel very queer
“Now, all this time the bear did not move He stood with his head down and gazed into the mouth of the cave Oh! How big he looked! He stood high in front and had a broad head; and his great feet had long sharp claws He did not make a sound, but I knew he was angry; his hair stood straight up on his back
“Then I remembered an old medicine man saying, that a bear never harms a person who does not move and talks to him in a friendly voice. So I lay with arms stretched out and head on my hands, like a bear does. Thus I lay and looked straight into his eyes. And then I began talking in a friendly way, using the softest and kindest voice I knew. I flattered him the best I could. I said:
“‘Brother Bear, you are very good-looking; you have nice eyes and white teeth; you are big and strong I have never killed bears; I do not care to hunt them Yes! I have always liked bears I look upon them as my relatives ’ [19]
“While I talked, his hair began to flatten, so I talked again harder than ever I kept on flattering him; I told him some of the secrets of my Bear Medicine I saw that he liked my talk; he was in a good humor; and then I began to pray, saying:
“‘Brother Bear, pity me! I am poor and in trouble Brother Bear, I am the keeper of the Bear Medicine. Brother Bear, it is I who guard the Bear Secrets. Brother Bear, I ask you to go away and to leave me in peace.’
“Now, the bear was no longer angry The hair on his back all went down smooth Soon he turned and walked slowly from the cave; and after that I saw him no more.”
Thus my guide, an Indian belonging to a tribe of the stone age of thought, told me about their religious faith. They believed in the power of the Sun, and that birds and wild animals were endowed with his wisdom and supernatural power. They communed with the wild animals, looking upon them as brothers; they believed they had tribes like men, with head-chiefs, councils and dances; that they were friendly, and had power to help people in trouble. Nor did they exclude the animals from the spirit world, the place where they expected to go after death.
We were storm-bound in our summit camp for several days. But, on the morning of the fourth day, we awoke to find the heavens a vast expanse of blue. A foot of snow had fallen. The surrounding mountains were covered with a white blanket. After the great storm, the air was strangely clear and sparkled with myriads of shining particles. The clouds had rolled away towards the east, revealing the entire chain of Rocky Mountain peaks, their white summits glowing under the bright rays of the rising sun.
Then we made ready to break camp and leave the snow and ice of the high altitude for the milder climate of the [20]valley; but the devil was in our horses that day. It took many weary hours to catch the herd. We made a series of corrals with lariats and pack ropes. By the time we had the horses packed and ready to start, the sun had long passed the meridian. The scout led the way down the mountain, while I followed on foot with camera and tripod, driving the horses and leading my saddle horse Kutenai, loaded with baggage, because one of our pack horses had escaped us down the mountain. Then the contrary bell-mare ran into the underbrush and bucked her pack loose, and the horse of the scout
ran away and threw him off. I found him lying senseless on the ground, with blood flowing from nose and mouth. When he came to himself, he made light of his accident; he said that he had been weakened by his former life of exposure in the Indian wars.
We camped that night on the floor of the valley, in a park surrounded by a dark forest of lodge-pole pine and spruce; the air was mild; bunch-grass grew luxuriantly and many varieties of wild flowers—blue camas, orchids with pale green flowers, and yellow columbine with lovely pendant blossoms.
Our last day in the mountains, we followed a trail down the eastern slope, a wellknown Indian route across the Rocky Mountains, famous in legend and war story. We passed through the long forest-covered valley of Cutbank River, between two massive snow-covered mountain ranges, and rode through the foothills with their lovely lakes and meadows, groves of aspen and thickets of willows, crossing high grass-covered ridges, closely following one another like great waves of the ocean.
Finally, from the crest of a ridge about twenty miles from the foot of the mountains, we looked down upon a scene I shall never forget. On a broad stretch of prairie and on the shore of a lake lay the tribal camp of the Blackfoot; many [21]hundreds of smoke-colored tepees, pitched in the form of a great circle more than a mile in circumference. In an open space near the center of camp was a throng of Indians, taking part in the ceremony of the Sun Dance. The
TRIBAL CAMP OF BLACKFOOT ON THE PRAIRIE
Rocky Mountains in the distance
surrounding meadows were bright with blue lupines, shooting stars, camas, and yellow sunflowers. Smoke from the evening fires rose from the tepees. Many horses were feeding contentedly on the hills. As we stood looking down at the great camp, a light breeze carried distinctly the shouts of men and women, crying of children, barking of many dogs, neighing of horses, and the rhythmic beating of Indian drums in dances and ceremonial gatherings.
On that first night, we slept on the open prairie with only the sky for a roof. Late in the night, I was wakened by Indian horsemen riding through the camp, singing strange melodies, giving at intervals shrill war whoops, jingling bells keeping time with the slow and measured trot of their horses. Their songs had a lilt and wildness, and were sung with a vigor and enthusiasm that made me long to record them.
Excitement was in the air. Flaring inside fires lighted up the lodges, casting weird shadows of the inmates on the outside coverings. I heard the booming of drums, shrill cries and shouts of dancers, laughter and cheers of the crowds. From the center of camp came a solemn chanting of many voices, accompanied by heavy beating of rattles on the ground. At intervals the low monotone of men singing in unison, united with the shrill voices of women. Then the mysterious chanting died away and I fell asleep. [22]
[Contents]
CHAPTER IV
HOME OF THE SCOUT
Next day the scout took me to the lodge of the head-chief White Calf and his wife Catches-Two-Horses. These were the givers of the Sun Dance ceremony. We talked with the venerable chief Running Crane, and saw his wife who was fasting, because of a vow to the Sun. We went to the tepees of the war chiefs, Little Plume and Little Dog, and smoked a friendly pipe, also with the judges, Shoots-in-the-Air, Curly Bear and Wolf Plume, and the medicine men, White Grass and Bull Child. In this way I met some of the head men of the tribe, and among them chief Mad Wolf, an orator of renown and the owner of the ancient Beaver Bundle, an important religious ceremony. This was the beginning of a friendship, unusual between an Indian and a white man. It lasted as long as Mad Wolf lived, and had a strange influence upon my life in the years to come.
When the Sun Dance came to an end and the big camp broke up, I went with the scout to his ranch on the prairie, in the valley of Cutbank River, near the homes of the chiefs, White Calf and Mad Wolf, and of the medicine men, White Grass and Ear-Rings.
The scout had a cabin built of pine logs from the mountains, with sod-covered roof and clay-chinked walls, also corrals and low-lying sheds, a garden, and herds of cattle and horses. His wife was an Indian woman named White Antelope, and they had a family of four children.
She was young and good looking, but had a high temper. She liked to take things easy, to dress in Indian finery and go visiting, leaving ranch and children to the care of the scout. [23]But he was patient with her; he was kind-hearted and always tried to keep things
smooth. She cooked and waited on the table, when she felt in the mood; she and the children ate after the men. If she was moody, the scout prepared the meals.
Their family all slept in one room and I in another. My bunk of rough boards was built against the walls. But, in good weather, I slept outside the cabin and under the stars, on the grassy bank of the river, with a shady grove of cottonwoods near by, and a lovely landscape of meadows and distant snow-capped mountains.
Siksikaí-koan was a good friend, honest and trustworthy. He stood high in the councils of his tribe and was liked by all the people. He was always ready to help any who came to his ranch, to advise his people in their struggle towards civilization. Through him, I met Indians both old and young. I made friends with them, and tried to understand them and to see things their way.
Every morning before sunrise, the scout wakened me to go into the hayfields. He mowed while I drove the horserake; and then came days of pitching and stacking. Then every part of me seemed sound and sane; I was light-hearted and happy, untrammeled and free. On those broad prairies were no worries nor pessimists, no laws nor creeds, nothing but a wonderful peace and contentment; something I had longed for all my life.
The west wind blew fresh from pine forests on the mountains, from meadows with odors of wild flowers, sweet grass, and ripe strawberries. Bees hummed in the air, western meadow larks sang on the prairie, willow thrushes and white-crowned sparrows in the river valley.
But the scout could not stand heavy work in the hayfields. He suffered from the hardships of his former life on the plains, from an injury by a wild horse, and wounds received in the Indian wars. [24]
Then Yellow Bird came to help in the haying. He was a relative of the scout, a young half-breed of my own age, strong, full of life, and a good worker when he felt like it. But he was wild and could not be depended upon. Like young men of the Blackfoot, he wanted to be gay and craved excitement. He liked to wander, to hunt, to rope cattle and ride wild horses, to see friends and visit new places, to be always on the move; he liked jolly companions and people who gave him a good time; but he loved to go with girls best of all.
He took me to Indian camps to dance and see the girls. On our way home at night, he liked to gallop past ranches where they kept packs of ferocious dogs. They rushed after us and he had the fun of riding at a mad gallop, yelling and shooting at them on the run. He was thrilled at the idea of being chased by their angry owners, and of hearing bullets whizzing harmlessly in the dark.
We attended a meeting held by a white missionary in our valley. I led the singing and sat in the front row with Bear Chief and Eagle Child, who were prominent Indians. They listened gravely and attentively but understood not a single word. They were broad-minded chiefs and came as an example to other Indians; to show they approved of the missionary and of his religious ceremony.
Thus with Yellow Bird I entered into the life of the people. I wanted to see them natural and without restraint. With them I talked not of my life in civilization, but of things of their everyday life, of horses and cattle, hunting and wild animals, dancing and ceremonies. In this way I became one of them, and they saw I was not critical of them nor of their ways.
After we stacked eighty tons of hay at the scout’s ranch, Yellow Bird and I rode the range after stray horses and cattle. We skirted the base of the mountains, along the [25]foothills and edge of the forest, until we came to a well-worn trail, which led to an open park far back
in the mountains. Many cattle were there, seeking refuge from the swarms of flies and mosquitoes on the grass-covered prairies. Then we found a herd of mares and geldings. Their leader, a fiery young stallion, tried to drive us off. But we rounded them up with the cattle and drove them back to the ranch, feeding them salt, that they might not again stray away
When we wanted to break a new team for the wagon, we drove that wild herd of range horses into the corral and lassoed a roan and a three-year-old sorrel. We tied them with ropes while we put on the harness, then hitched them to the wagon and took blankets and provisions; we knew not how far they might run.
At the start the broncos bucked and plunged; then ran and tried to tear themselves loose from the rattling wagon, bounding over rocks, swinging as though it would turn over. After running many miles, our broncos broke into a stampede so wild that Yellow Bird turned them up a butte and put the brakes on hard. They galloped up one side of that steep butte and down the other, our wagon plunging over ruts, stones, and badger holes, and into a swamp in the valley of a stream, where they sank deep into soft muck and the wagon went down over the hubs. But they soon freed themselves, and, with their sides covered with foamy sweat, they pulled us through to firm ground. Then they ran again and did not stop, until we were far out on the open plains. That night we tied up our wild team and slept peacefully under the wagon, twenty-five miles from the ranch.
Sometimes in the evening, after our work at the ranch, we saddled our horses and rode down the river to see two sisters who were home from school, Katoyísa and Nínake. Their father, Lone Wolf, was dead, and they lived alone with their mother, a quiet, pleasantfaced woman. Their log cabin of [26]three rooms had low ceilings, and walls of hewn logs chinked and plastered, all whitewashed and
clean. The floor was spotless and covered with skins of wolf, bear, and mountain goat; in the windows were grasses and ferns and wild flowers, and a dish of fragrant red apples on a table.
Nínake, the younger sister, was the favorite of Yellow Bird. She was lively, a great talker, and gave him a good time. But I liked Katoyísa better, a quiet bashful girl of nineteen, with shapely head and good features. Her black hair hung in two heavy braids almost to her knees. She wore homemade cotton gowns of thin material which showed her slender graceful form. From the look in her eyes and expression of her face, I knew she had courage and character. In her was the stuff of our bravest pioneers.
After we had finished with the hay of the scout, Yellow Bird and I went to their ranch to help with their crops. The girls cooked and gave us good food, fresh vegetables from their garden, beef, bread and butter and milk.
Many years have passed, but they have not dimmed the memory of those happy days without a care in the world, the primitive simplicity of that family, and the way they made me one of them. We both enjoyed our work, we were near the girls from morning till night, and that kept us in a good humor.
Then the scout wanted timber from the mountains, so we took two teams and made ready the wagons. We threw off their beds and placed the wheels far apart by means of a long reach, to hold the heavy logs. Yellow Bird drove one wagon and I the other. For me it was a new thing to drive a team of broncos. I sat on the reach, on a gunnysack stuffed with hay. I had to wield a whip with a long lash, and had a heavy chain for binding the logs together.
We left the ranch soon after sunrise and went to a burned stretch of timber on a slope of the Rockies. We felled only [27]trees that were
sound and well-seasoned, cutting them into logs and snaking them down the forest trails to be loaded on our wagons.
At first it was hard to chop hour after hour with an axe. I blistered my hands and was drenched with sweat; my arms and back ached; I felt weak in the knees and had a consuming thirst. Then I became accustomed to the work and had a feeling of exhilaration. I liked the fresh odor of the wood, the ring of my axe and the feeling of a good stroke, to know my sharp blade was cutting deep.
There was always danger of being cut with an axe, from felling trees that had lodged, and from Yellow Bird; sometimes his trees fell perilously near. Once I was nearly struck by a pine that let go at the roots; I heard a sharp crackling, saw it coming towards me and jumped just in time.
But for me the hardest work was the loading of the wagons. The heavy logs were twenty-five feet long and from one to two feet in diameter. The roads were steep and rough and our brakes would not hold. But we always joked about hard work and danger, and had to look out for ourselves.
Soon Yellow Bird tired of ranch work and wanted a change. He proposed that we ride across the Montana line into Canada, to visit relatives in a camp of Blood Indians, a northern division of the tribe. So we rounded up the wild herd of range horses and drove them into the corral. We each chose a saddle horse, Yellow Bird a brown with silvery mane and tail, I a powerful sorrel. My gentle horse, Kutenai, I left to graze at the ranch.
In handling horses that ran wild on the range, we were always ready for trouble. To control them was a question of mastery; they took kind treatment as a sign of weakness. When I tried to saddle my sorrel, he rose on his hind legs and [28]with forefeet high in the air tried to
bring them down on my head. In mounting, I held his bit in one hand, the pommel with the other, and made a flying leap upon his back. Before I was in the saddle, he sprang forward like a race horse at a desperate gallop. He had an easy motion and I kept my seat; but to stop him baffled all of my endeavors.
We went north across the open plains, without fences or roads to bar the way. Our horses ran like the wind; we gave them free rein and held on. I rode Indian fashion, letting myself go freely with the motion of my horse and kept a firm grip with my knees.
The first night we stopped at the cabin of a squaw man, near a rocky peak which rose abruptly out of the prairie, standing apart from the main range of the Rocky Mountains. Our host was a white man with an Indian wife and four half-breed children, the oldest a girl of seventeen. She and Yellow Bird were sweethearts; and while they made love by the river, I went into the meadow to help the old man with his hay. He was one of those pioneer settlers of early days, short and sinewy in stature, and with a heavy beard. His life had been filled with hardships, toil, and little pleasures. He was suspicious by nature, and liked to talk about free silver; but at heart he was a good fellow, resolute, brave, a hard worker and hospitable. His Indian wife was a laughing, broad-faced woman, good-natured and lazy. Their cabin was dirty and swarmed with flies. The second daughter was strangely pretty, with flashing black eyes, jet black hair, and marvelously clear olive skin. She had a pet colt which followed her like a dog. He came into the cabin for supper. When they put him out, he ran to the open window and poked me in the back with his nose; he whinnied and grunted and made such a fuss that his young mistress went to the window and gave him sugar.
Soon after sunrise on the following morning Yellow Bird [29]and I saddled our broncos and moved on. To the west rose the mighty
frontier range of the Rockies. The rugged valleys and peaks still had a thin veil of morning mist. In the cool air our horses had wonderful speed. They chafed at the bit and were tireless, as though their sinews were of steel. But, after that first day, they were not so hard to hold.
We crossed buttes on the run, up hill and down, it was all the same; in steep places our horses put their feet together and slid. They jumped streams, rocks, and badger holes; galloped over ledges and sharp volcanic rocks, across hills and ravines; it was beautiful to see them go; they never stumbled, but lifted their feet cleanly up and over, and always planted them securely and firmly. We passed lakes and marshy ponds, starting noisy flocks of ducks and other water birds, crossed Boundary Creek, and were over the Montana line into the Province of Alberta.
We came to the ranch of a Frenchman named Big Steve, far out on the prairie. He and his wife were pitching hay in a meadow. She was buxom and smiling, with rosy cheeks and did the work of a man. Both were friendly and wanted to talk, but we could not tarry; our horses were wild and hard to hold.
At midday we dashed into a Mormon settlement, and a number of men came to meet us. They all looked alike, over six feet in height, with smooth faces and prominent features. They were good-natured and hospitable and gave us all the food we could eat. But it was a dreary place on a barren plain, a group of board shanties, without trees or vegetation. I thought to myself: “How dull an existence compared to our life in the Indian country, with dances and games, feasts and ceremonies!”
Near the border line we entered a region of bandits and lawbreakers. We saw a white man who tried to hold us up, but we spurred our broncos and they ran so fast he gave up [30]the chase;
then a band of Blood Indians closely muffled in their blankets; they were on their way south and kept their faces hidden. We passed another rider, who was followed by the North-West Mounted Police; they said he was leader of a gang of cattle thieves.
We came that afternoon to the end of our journey in a camp of the Blood Indians. Yellow Bird took me to the home of his relative, an elderly man named Strong. In his lodge we met some of the head men of the tribe—Thunder Chief, Spotted Calf, Running Coyote, and Grasshopper. They were all friendly and glad to see us. They greeted us with “How!” shook us by the hand and welcomed us to their feast.
For refreshments, they had a meat stew and hot tea. Their manner of eating was different from that of people in civilization. They ate with their fingers, gulped down the food, sucked their teeth, and drank with a hissing intake of the breath. But with them these were not breaches of good manners; they were not sensitive to any of these things. While eating they did not talk; and after the manner of Indians showed no enthusiasm. None of them said the food was good, or that they liked anything; nor, on the other hand, did any one grumble or say the food was bad.
After the feast they smoked a large pipe of polished redstone, which was handed stem first to each person. Then they talked, speaking rapidly, in guttural voices that were not harsh, and making graceful gestures with their hands. The Indian named Grasshopper had a reputation as a wit. He kept them laughing—all but Thunder Chief, who was head man and had his dignity to maintain.
Grasshopper wore a coyote-skin cap with the tail hanging down behind and an eagle feather on top; slung over his shoulder was a polished buffalo horn. He had beaded moccasins and leggings, and
a blanket coat with bright stripes. After we had eaten, he turned to me and said with a laugh: [31]
“You look like an eagle. You sit straight and with your head up. Now is the time to shake your tail feathers, like an eagle after it eats.” This was Indian humor and made the others laugh.
Grasshopper was the life of the party. He said his parents died when he was small. He was raised by a chief named Red Crow, who had started many boys in life; he had become a successful man, because he followed the advice of his adopted father.
Grasshopper was pleased when he saw me recording his conversation in my notebook. He said: “Now I am going to tell you some stories.” I sat waiting, but he did not begin; so I said: “Go ahead; I am ready.”
To make the others laugh, he held out his hand saying: “How much do you pay?” I took his outstretched hand, shook it and said: “That is what I pay.”
Then every one laughed, even the dignified head chief joined in. They liked the repartee and wanted more.
Grasshopper said: “Well, instead of paying he only shakes.” He turned to the head-chief and said: “This white man is a great traveler. I like him and want him for my partner. We had better keep him here with us.”
And then he said to me: “Why don’t you join our tribe and stay with us? You could take an Indian wife; you could hunt and trap and make a good living.”
That evening we sat outside the lodge and watched the sun go down fiery red, with its glow reflected in a near-by stream. Then the moon,
nearly full, rose over the distant hills of the prairie, like a ghostly phantom in the twilight.
Then by the lodge-fire the Indians told stories of their hunting trips and war expeditions of former days. They talked far into the night, and next morning we saddled our horses early and rode back to Montana. [32]
