The essential culture is derived from the leadership at the top. If it is not them, they are still responsible for the culture. If they cry ignorance, they are basically incompetent or liars which begs bigger questions.
But I'm digressing from the point of this post. Youtube recommended a video to me, and I watched it all the way to the end, hoping for something substantial but it turned out to be spam… selling financial subscription to some network related to Robert Kiyosaki. The video title wasn't that obvious, and the talk started very promising. Indeed I watched the whole video to the end hoping this was leading to something more tangible.
I guess that was not a complete waste of my time, as I learned a history lesson.
It turns out that human beings are quite predictable. We tend to make the same mistakes over and over again, which
is why history tends to repeat itself. So if you understand the past, you can predict the future.
In fact, here's a little story that will prove my point. Once upon a time…
Life was tough for the largest empire that had ever spanned the globe. Unemployment levels were at all-time highs and getting worse. As a result, people were saving money and spending less. Retail shops continued to close their doors and
layoffs increased as demand for products slowed.
In response, the government hired thousands of workers at inflated wages. The administration spent record amounts of money on public works projects, food programs to feed the population… And continued to increase the size of the military in order to protect their interests around the world.
And as the massive cost for these programs continued to increase, the government had no choice but to print to more money in order to pay the bills.
All of this will ultimately result in the hyper-inflationary destruction of the currency, and the fall of the empire. And
I can say that with 100% confidence and certainty because it has already happened. Everything I just described was
pulled from the pages of history and are recounting the final days of Rome in 301 AD, under Emperor Gaius Diocletian.
But if it sounds like a familiar story line here today, then you've gotten the point. The trends I just described
happened to Rome as they continue to expand their empire. In order to fund their global expansion and wars, Roman
leaders continually devalued their currency at the time, which was gold and silver. They did this by clipping coins and mixing them with lesser metals like copper, year after year. Reducing the value of every other coin in the process.
This led to rampant inflation by the time Gaius took the throne in 284 AD, as it took more and more coins to buy the same amount of goods. So in 301, he issued his infamous "Edict of Prices", which imposed the death penalty on anyone selling goods for more than the government mandated prices. And he froze all wages.
But prices continued to rise. Merchants could no longer sell their wares at a profit. So they closed their shops. People either left their chosen careers or just accepted welfare from the state.
At that time Rome had a population of about 1,000,000 citizens and the government was handing out free wheat to 200,000 of them per day. That's 1 in 5.
In 2007, the population of the United States was right at 302 million and 26.3 million of them relied on food stamps to eat. That's about 1 in 11. Back in 2013, just six years later the U.S. population hit 317 million and 47.8 million of them relied on food stamps that's almost 1 out of every 6 adults, and an 81% increase just since 2007. Now the numbers
are even worse for children, with more than 1 in 4 now reliant on government handouts to eat.
Now because the economy was so poor, Diocletian adopted a guns and butter policy. Putting people to work by hiring thousands of new soldiers, and funding numerous public works projects. This effectively doubled the size of the government and the military.
Today the government and all of its related agencies account for about 40% of the US GDP. With the government now
acting as the consumer and employer of last resort, deficit spending sky-rocketed.
All of this resulted in the world's first documented hyperinflation. All currency based trade came to an end. The
economic system reverted to barter. And the greatest empire in history collapsed.
now we often hear the saying that you can predict the future by studying the past. And while that may be true, I'm not a major student of historic events, because I believe there's a more reliable predictor of the future. And that is human nature, which I am an avid student of. Because no matter how much our society has grown technologically, or how much knowledge we've acquired. At the end of the day, we are still human. And our decisions, our patterns and behaviors are still dictated by the one thing that we can never escape from… Which is our nature, and our drive to avoid pain, and pursue pleasure.
So while many people may think that we as a nation are different than Rome. That we've evolved, and that we have
the knowledge and the technology to prevent or fix any challenge that may arise. They are forgetting the one and
only thing that matters. That we are still the same animal behind the wheel, and that our nature has not changed.
In fact, as "Rich Dad" advisor Michael Moloney documents in his recent book on the history of currencies, there's a 7-stage progression that happens over and over again.
Stage 1: A country starts out with good money, which is either gold or backed by gold.
Stage 2: As it develops economically and socially, it begins to take on more economic burdens, adding layer upon layer of public works and social programs.
Stage 3: As it's economic affluence grows, so does it's political influence. And it increases expenditures to fund a massive military.
Stage 4: Eeventually it puts it's military to use, and expenditures explode.
Stage 5: To fund war, the costliest of man's endeavors, it steals the wealth of it's people by replacing their money with currency that can be created in unlimited quantities.
Stage 6: Finally, the wealth transfer caused by the expansion of the currency supply is felt by the population as severe inflation, triggering a loss of faith in the currency.
Stage 7: An en masse movement out of the currency into precious metals, alternative currencies, and other tangible assets. The currency collapses…
So, is history repeating itself once again? It certainly appears that way. In fact, I believe the United
States is sitting between Stage 6 and Stage 7. With warning signs like this all around us, the smartest thing
you can do is to take a deeper dive and what's happening today, so you can better anticipate the future… major economic shifts.
On Aug 6th 2007, the "American Home Mortgage Company" filed for bankruptcy. It was the sign that the global system could not absorb any more debt. Record amounts of debt around the world, that had fueled the incredible growth seen in
the US and in Singapore, Malaysia, China, and many other countries who had experienced massive booms in real estate
and development. That day the debt bubble burst.
And because all of this debt had been collateralized and resold time and time again through derivatives, it was an event that was felt around the world.
Now the popping of any credit bubble is a deflationary event. And in the case of the Great Depression, it was extremely deflationary.
When a home goes into foreclosure, a loan gets defaulted on, or someone files for bankruptcy, that currency disappears into currency heaven. So as credit goes bad, the currency supply contracts and deflation sets in.
That's what happened in 1930-1933 as a wave of foreclosures and bankruptcies swept the nation, 1/3rd of the currency supply evaporated into thin air. Over the next 3 years, wages and prices fell by 1/3rd. Companies could not afford
to pay their employees, and people could not afford to pay their bills. And as we all know, whether it's from the
stories from our grandparents or pictures from the history books, it was an absolutely disastrous period in our
country's history.
This process began again in 2008, with the popping of the housing credit bubble. Within the next 24 months following the crash, deflation sucked an estimated $60 trillion worth of credit out of the global economy. That's $60 trillion
worth of fuel which was flaming the fires of growth around the world, and it virtually disappeared overnight. The
result was massive deflation.
You know all this because you lived through it as I did.
But here we are, years later, and this almost seems like a distant memory, or even a dream. The stock market is once again hitting record highs, which means the panic people once felt about their retirement portfolio has subsided. Certain markets… are once again in a giant development boom. It's absolutely unbelievable.
When you look around, there seems to be this sense that things are back to normal. But deep down in your gut, you can tell that something's just not right.
Think of the US economy as a balloon with a slow leak, which represents deflation. In order to keep that balloon full of air, they've got to continually pump in more, which represents inflation. That's what the Federal Reserve has been doing.
Addicted to ongoing stimulus, unable to standup on it's own two feet without it.
So where's all this money going, because as we've already seen, it isn't going to you or I. In short, it is going to the Banks and the Wall Street casinos, which is why they're enjoying record profits… surprise surprise.
These crazy economic policies are resulting in two things.
1. Unprecedented levels of debt.
2. The destruction of the Dollar's value.
In 2013, the US had a GPD of about $16 trillion. Debt level is more than $17 trillion and growing by trillions per year since 2008. For the very first time in history, we currently owe more than we produce.
But there's the big rotten cherry on top of this rotten sundae. None of these stats take into account our future obligations and liabilities.
So there is currently no realistic way for the government to pay for these obligations, even if the economy had not crashed. Without simply printing the money into existence to do so, which means…
There are only two options to deal with it.
1. Debase the currency through inflation, reducing the overall value to a manageable level.
2. Or they can simply default on the debt.
In the meantime, the big question is who's buying all this debt?
#1 buyer of US debt since 2008 has been the Federal Reserve itself… because nobody else with buy it.
This is called "debt-monetization", and it's the last desperate move a bankrupt institution can make in order to keep their Ponzi-scheme going.
But this is just the beginning.
It will cause the interest rates on our Nation's dent to sky-rocket. Which is no different than Amex raising the interest rate on your credit card debt.
Should we default on our debt…
The bottom line is that too much debt got us into this mess, and Washington's big solution to that problem has been… to create record levels of even more debt. It doesn't take a genius to understand this doesn't work out well in the end.
Remeber that whole part about history repeating itself we talked about earlier? Well when countries have taken this same course of action in the past… By printing more and more money to pay for the debt created by the last batch of money they printed.
[1] http://youtu.be/khgS2HrOhzw
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