After reading The New Empire of Debt, it felt like my eyes were opened to a whole new perspective about government, money and wars. This book describes the current situation in America as just one of many empires that have risen to great heights, and then subsequently collapsed.
It’s the same story over and over. The Romans built the greatest empire of their time. The Spanish developed the new world and became the richest country in the world through the acquisition of gold. Most recently, Hitler attempted and nearly succeeded to achieve the same goal. Now it is our turn.
Each government has a great reason why they have the right to take over and consume the other countries. Sometimes it is because the other people are undeveloped barbarians. For Hitler’s government, it was because their race was better. Now, for America, it is because all people deserve to live like Americans.
What is the real reason for expansion?
Although all of these arguments make sense to the conquering empire, they are mostly just excuses to expand the empire’s territory and power. Ultimately, like so many things, it all comes down to money and power. More territory means more natural resources like gold and oil. That means more money that can be used to create a larger and more powerful military. And, that makes it easier to continue the expansion.
The great thing that the book explains is that these empires always come to an end. In fact, the faster that the empire expands, the sooner it comes to an end. Resources are limited, and it takes an impossibly powerful military to control vast portions of the world.
The interesting and particularly relevant part of the book for investors is that these governments do one specific thing that accelerates their collapse: they create fiat money. The government needs ever increasing amounts of money to fund its expansion, and has no choice but to create a fiat currency and print massive amounts of money. Sound familiar?
The problem is that the fiat currency loses most of its value, and inflation takes off. This causes widespread anger and frustration among the empire’s peoples. The government responds with price and wage controls, which only make things worse. This is a pattern that has been repeated over and over throughout history.
As I have pointed out before, technology has changed and continues to accelerate. However, human nature does not change (at least not yet). The driving forces that motivates individuals in our government are the same forces that motivated the senators of Rome. I am not saying that all politicians are evil or anything like that. I am just saying that the path that the government is on is a path that is well traveled by other governments.
What will happen? No one can say for certain, but at I write this gold has hit an all time nominal high ($1,260 per ounce). We cannot know the future, but we can get great clues from the past. Reading this book is a great source of these clues.