Â “You don’t have to pass an IQ test to be in the Senate”Â Â Â Â Â Â Â Sen. Mark Pryor (D – AR)
Â The dog days of August are here, the markets are largely quiet, news of strife in far off places is light and even Somalian pirates seem to have dropped off of the radar (literally). In fact, aside for some unusual tornado activity north of here, we are not even in receipt of the customary tidingsÂ of hurricane and other weather related devastation that one normally one hears of at this time of year.
Â Therefore it was with some degree of expectation that we opened a box that arrived in our office last week. In it were a couple of new books from Bill Bonner and Addison WigginÂ . The new arrival that we chose to read first was “The New Empire of Debt” (John Wiley and Sons, 2009, 356 pages) available at Amazon and other booksellers . These are the folks that also brought you I.O.U.S.A.
Â The book begins with a rollercoaster ride through history, examining the rise and fall of civilizations and empires of yore. The Mongols, the Greeks, the Persians, the Romans all had a kick at the imperial can. Sometimes the book is serious, and sometimes it is falling off the chair funny – completely at odds with most treatments of economic history.
Â Much in the tradition of “Collapse” by Jared Diamond, Bonner and Wiggin examine in detail the process of empire building and the taxonomy of decay. Corruption, Hubris, Military Over-extension, Financial Mismanagement and the Emergence of Rival Powers are all typical hallmarks of the slide. The narrative leads us up to the present day and details the ascendance of the United States through the latter part of the 19th century and the first half of the 20th century to unrivalled political and military power.
Â Their thesis is that the economic underpinnings of the current US hegemonic set-up are unstable. Instead of having the periphery support the center through the payment of tribute, the US has inadvertently subsidized the emergence of competitors and bankrupted itself. This entropy began to occur in earnest when Nixon abandoned the Gold Standard, it accelerated under Reagan and is reaching a blow-off stageÂ now with Obama in charge. When the blow-off actually happens is not ventured, but on present course the authors say that it is inevitable. By way of comment here, we have discussed the structure of the Pax Americana in previous blogs and the treatment of it in this book is largely in agreement with our views.
Â The authors state further that an “Entente Cordiale” of deluded bankers, economists and politicians is preventing the needed policies from being implemented andÂ is hastening the onset of Financial Armageddon:Â
- The policies being applied to support a resurgence of growth in the US and elsewhere won’t work. The book details previous attempts at applying similar policies in similar circumstances. (We agree with this in spades as our previous blogs will attest)Â
- The monetary authorities have created an “Inflation Bomb” that they will not be able to defuse. This is a key observation to us. In our humble opinion if the United States Dollar had not been the main Reserve Currency, the steps taken so far would have already blown up the US Economy. Quantitative Easing does not lead to an immediate blow-up only if you can convince other central banks to go along with you, and keep up with you in running the printing presses. Even then,Â this policyÂ can have onlyÂ fleeting benefits as it does not solve the underlying problems;Â
- The recent policy moves have led to the inflation of a Great Bond Bubble that will burst as the weight of upcoming Bond Supply proves overwhelmingÂ relative toÂ the supply of Global Savings. ‘Nuff said, see our blogs from last January on this point;Â Â
- Due to these factors the decline of the US dollar is inevitable. “When” is the question, not “If”;Â
- Buy Gold to protect yourself. Natch.
Â Whilst we do not agree with everything that the book has to say, we agree the majority of the arguments and we find the context and perspective that it brings to these issues refreshing, well researched and well-written. Unlike many of the writers in this space, the prose is not verbose, bombastic or shrill. This is a thoughtful and cogent treatment of the most important issue the World is facing today.
Â You are in good company reading this book. Among those endorsing it are Pete Petersen, Warren Buffett, David Walker, Paul O’Neill, Jim Rogers and others. We recommend that all elected officials and concerned citizens everywhere consider this book required reading.
Â * Kakistocracy: Government populated by the most corrupt and inept members of a society.