I am reading Empire of Debt by Bill Bonner and Addison Wiggin. First off, the book was written in 2006 and how it escaped my reading list for so long is to my eternal shame. This particular edition was written prior to the economic crisis of 2008. There has since been an updated version released. The book is not diminished by its original publication date, on the contrary, it is greatly strengthened. The premise of the book thus far has been to shed light on the large amounts of debt the United States has amassed over the last few decades. They, like a handful of other thoughtful intellectuals could see the housing bubble coming from a mile away. Even in 2006, when the Federal Reserve chairman hadn’t even gotten around to denying there was such a bubble, these two authors had already predicted it with ease.
It was so easy because the United States, even then, was living on borrowed time (pun intended). From page 12 of the book after discussing the final severing of the US dollar to gold in 1971:
Thus we arrive at the real problem for the American Empire. It has by far the strongest military in the world. It has no serious challengers beyond its borders. Hence, it had to become its own worst enemy. All empires must pass away. All must find a way to destroy themselves. America found debt.
I’ve always been a sucker for a finely-worded sentence and this book is filled with them. Even better is when the words offer clarity to America’s present situation. Regarding the massive inflation (that is, the increase in the money supply) that was occurring in the mid-2000s the authors mercilessly recall past historical inflations. From the Romans to the Weimar, the Federal Reserve isn’t the first to increase the money supply in an effort to solve any and all problems.
Every central banker in the world has taken the devil’s bait, creating money, out of thin air, as if no one were looking. As if it had not been tried before. As if they could get away with it and people really could get something for nothing (emphasis added).
Despite being broke, the United States maintains a globe straddling empire. “The Nation that can’t save a dime sets out to save the world” as our authors say. Beautiful turn of phrase right there. The book moves seamlessly between empires of the past and the current American empire. The result is a farcical look at US policies of today. In many ways it is hysterical, but it becomes less funny as you realise how devastatingly naive and bankrupting the policies are.
The American penchant for spending our way to prosperity is a great con. The average rate of household savings is close to zero and the level of debt many Americans find themselves in is staggering. As a comparison, our authors relate the mentality in China to the mentality in the United States.
[The average person in China] works in a sweatshop, lives in a hovel, and saves 25 percent of his earnings…
Meanwhile, in the United States, the average man lives in a house he can’t pay for, drives a car he can’t afford…He saves nothing and believes the Chinese will lend him money forever, on the same terms.
That this cannot go on forever hardly seems worth pointing out. Whether it will go on much longer, we cannot say. But that it will end badly seems a cinch.
The authors mention the benefits of imperialism to empires of the past. The vassal states paid tribute to the central authority. They reckon the United States has it backwards. Whereas the Mongols profited from selling conquered civilians into slavery and even the British maintained control over natural resources and the civilian populations of conquered peoples, the United States gets no such benefit. This rather tongue-in-cheek explanation (I don’t believe the authors are advocating the US empire sell its conquered people into slavery) is apt. What is the point of maintaining an empire when the costs of it are shouldered by the central state and its citizens rather than by tribute paying peripheral states? Why continue the expansion of an empire when we’re broke? Good questions indeed.
A few more excerpts before I finish this post:
The gist of the modern empire builder’s creed is that he has a duty to make the world a better place, and he can only do it by telling other people what to do. It is inconceivable to him that others might have their own ideas of what a better world would look like.
Discussing the age-old notion of being chosen by god as to why one people must conquer another:
Historians will search in vain for an imperial race whose gods opposed them.
On the costs of empire:
Everything gets sacrificed to the war gods, even the liberties for which they are meant to be fighting.
On government reaction to perceived crises:
The prejudice for action in public affairs is constant, and a constant disappointment.
I am up to the part in the book discussing WWI, perhaps the most brutal and unnecessary war in a long line of brutal and unnecessary wars. The authors discuss Woodrow Wilson’s desire to remake the world. Prior to thrusting America into the European conflict, he dabbled in a little bit of intervention south of the border, in Mexico (among other places). To paraphrase the authors: Wilson had never step foot in Mexico, never met the Mexican politician he was condemning nor the one he was backing. As far as we know, he never had eaten a taco and knew very little about Mexican politics, culture and history. Yet, Wilson and his acolytes were convinced they knew what was best for the Mexicans. The same situation is true of Bush in regards to Afghanistan, Iraq and Pakistan. The same is true of Obama in regards to Afghanistan, Iraq, Pakistan and Libya. These men know nothing other than what the CIA, Pentagon and Ivy League academicians tell them, but they are convinced they know what is best for everyone in those countries.
The emperor must be an arrogant war-mongerer by nature, but he must also be blind to his lack of clothes.
One final note, as of this blogging gold and silver are up over $1,500/ounce and $45/ounce against the dollar, respectively. So it seems many market participants know the pax dollarium is coming to an end. Quick, get the emperor some clothes, he looks cold and shrivelled!