Must-read: This could be the beginning of the end for America
From Bill Bonner, Chairman, Bonner & Partners:
In 2006, we wrote a book with Addison Wiggin called Empire of Debt: The Rise of an Epic Financial Crisis. The idea of the book was as follows:
Empires are not the result of conscious thought; they happen when a group is large enough and powerful enough to impose itself on others.
But empires are expensive. They are typically financed by theft and forced tribute. The imperial power conquers… steals… and then requires that its subjects pay “taxes” so that it can protect them.
The U.S. never got the hang of it. It conquers. But it loses money on each conquest.
How does it sustain itself?
It doesn’t take tribute from the rest of the world; it borrows from it. As far as we know, no other empire has ever tried to finance itself by borrowing.
But it is a special kind of debt. The U.S. borrows in its own currency – which it can print as it chooses. If the burden of repayment is too high, in theory, the Fed can just print more dollars to satisfy its obligations.
Here is further insight from two foreign policy professors Flynt Leverett and Hillary Mann Leverett:
Since World War II, America’s geopolitical supremacy has rested not only on military might, but also on the dollar’s standing as the world’s leading transactional and reserve currency. Economically, dollar primacy extracts “seignorage” – the difference between the cost of printing money and its value – from other countries, and minimizes U.S. firms’ exchange rate risk.
Its real importance, though, is strategic: Dollar primacy lets America cover its chronic current account and fiscal deficits by issuing more of its own currency – precisely how Washington has funded its hard power projection for over half a century.
In the 1950s and 1960s, this posed little risk to foreigners, because the U.S. dollar was backed by gold. But in 1971 – on August 15 – President Nixon repudiated the greenback’s gold backing.
Nevertheless, the dollar reigned supreme. Foreign nations needed to stock dollars in order to settle up on their overseas financial transactions. The U.S. printed dollars… Americans spent them on foreign goods… foreign central banks bought them from their local merchants and manufacturers, and reinvested much of them in U.S. government debt.
The dollars went out… in exchange for valuable goods and services… and then they came back in exchange for – more pieces of paper!
Year after year, the U.S. ran a trade deficit. Year after year, U.S. paper dollars and Treasury debt stacked up in foreign banks. We haven’t done a recent calculation. But the last time we looked, net cumulative deficits were approaching the $10 trillion mark.
When foreign central banks took in dollars, they had to print local currencies to give to local exporters in exchange for dollars.
The owner of an export firm presented the dollars to the local bank; he needed yuan, yen or zlotys to pay his bills. The local central bank invested those dollars back in the U.S.
This is how the U.S. credit boom led to an explosion of cash and credit all over the world. Foreign central banks had to increase their money supplies – by printing up local currencies – to use to exchange for the rush of dollars.
This is what led Ben Bernanke to refer to a “global savings glut.” Actually, these were not savings at all – but money created ex nihilo by central banks.
Our point is that all empires end when they are defeated by a more vigorous empire… or when their financing runs out.
And now we are seeing the beginning of the end. From the Leveretts:
America is increasingly viewed as a hegemon in relative decline, China is seen as the preeminent rising power. Even for Gulf Arab states long reliant on Washington as their ultimate security guarantor, this makes closer ties to Beijing an imperative strategic hedge. For Russia, deteriorating relations with the United States impel deeper cooperation with China, against what both Moscow and Beijing consider a declining, yet still dangerously flailing and over-reactive, America.
Economist Liam Halligan, writing in British newspaper The Telegraph elaborates:
Beijing has struck numerous agreements with Brazil and India that bypass the dollar. China and Russia have also set up ruble-yuan swaps pushing America’s currency out of the picture. But if Beijing and Moscow – the world’s largest energy importer and producer respectively – drop dollar energy pricing, America’s reserve currency status could unravel.
That would undermine the U.S. Treasury market and seriously complicate Washington’s ability to finance its vast and still fast-growing $17,500 billion of dollar-denominated debt.
When the money runs out… so does the empire. Perhaps with a whimper. Or maybe a bang.
Crux note: Below is a special message from S&A Founder Porter Stansberry:
Today I want to tell you about my friend and business partner Bill Bonner − one of the most remarkable men in America.
He’ll be the first to admit he’s not a great businessman. Or a very good investor. And he’s probably an even worse manager.
Yet despite these “flaws,” Bill is one of the richest men in America − worth nearly a billion dollars.
He owns nine houses… hundreds of thousands of acres of land… and has business operations in 18 countries. He’s a NY Times best-selling author… and was named a European “Honorary Ambassador” for his work.
Not many people know that, without Bill Bonner, Stansberry Research wouldn’t exist. And I almost certainly wouldn’t be nearly as successful.
You see, not only did Bill help me launch my company… He also taught me an incredible secret.
It’s a way of seeing things… A kind of wisdom that’s far beyond what others teach… what others even understand. And it’s made him, his partners, many of his employees − and basically anyone who listens to him − rich.
For years I’ve been telling Bill to share this big idea with everyone… And he’s finally done it. It’s in his latest, just published book.
Please understand… Bill’s unique philosophy isn’t merely about money. But it will allow you to understand the markets ñ and every other type of human endeavor in a whole new, and vastly more accurate way.
This idea completely changed the course of my life.
So, if you want to be a better investor, you must read this book. If you want to be a better parent… a better spouse… a smarter consumer… a better businessman, a better manager… read this book.
Like I said, Bill’s secret is about much more than making money…
* It’s a secret that helped me find an incredible wife, years ago − and also helped me find other important people in my life, including my business partners, and people who manage my various assets.
* This secret also helped me build one of the biggest financial publishing businesses in the world − using an approach that no one else in the industry had ever tried.
* Because of this secret, I’ve been invited backstage at rock concerts… gotten to meet my lifelong heroes like T. Boone Pickens… (and soon, Laird Hamilton)… Have had great investment deals and ideas essentially handed to me… Have been a guest at some of the most exclusive clubs in the world, including Augusta National, the Dallas Petroleum Club, and Nassau’s One and Only Club… and more.
Of course, I’m not the only one who has benefited from this secret.
Bill’s unique take on the world has helped dozens of people I know personally become millionaires. And now Bill is sharing his secret in a brand new book.
Please note: This book is not yet available on Amazon or anywhere else.
It won’t be for sale on Amazon till sometime next month. And when it does first go on sale at Amazon, you’ll only be able to get a paperback version.
But I figured out a way for you to get a hardback copy, plus a huge special bonus (which might even be worth more than the book), through a limited-time special offer.
No, I’m not giving this book away. It’s not part of any free offer or anything like that. You’ve got to buy it with your own money.
But I promise you, it’s worth much, much more than the small price you have to pay.
To see my full summary of Bill Bonner’s brand-new book, and to get your own hardback copy, plus something from Bill that might be even more valuable than this new book, go here.
Founder, S&A Investment Research