Empire of Debt

Military misadventures, monetary shenanigans, political blunderings and more...

(The Arch of Septimus Severus, located in the Forum Romanum. Source: Getty Images)

Bill Bonner, reckoning today from Youghal, Ireland...

Live in harmony; enrich the troops; ignore everyone else.

~ Emperor Septimus Severus, last words to his sons, Geta and Caracalla

As you know, the Fed is caught in an “inflate or die” trap. It either lets inflation rip – with more money printing and ultra-low interest rates – or it crashes the economy with higher rates and QT (quantitative tightening).

Most people – about 90% of the population – gain nothing from inflation. But a few people – the 10% at the top – need more money printing to fund the US budget, Wall Street, the military and their own bubble-era gains. These people, the few, are those who control Congress… and the Fed.  

The Fed knows it ought to tighten up… but it is desperate for an excuse not to. Here, at Markets Insider, is economist Mohamed El-Erian giving them one:

Top economist Mohamed El-Erian said the Federal Reserve won't be able to tighten monetary policy as aggressively now that Russia has invaded Ukraine.

Many on Wall Street expected several Fed rate hikes in 2022, starting with an increase of 50 basis points next month. Earlier this week, JPMorgan even predicted nine interest rate hikes this year of 25 basis points each time. 

"This takes 50 basis points completely off the table," El-Erian told CNBC Thursday morning. "It takes the 8, 9 hikes a lot of people were talking about for this year off the table, and thankfully so... I didn't think the US economy could accommodate and live with such slamming of the brakes of monetary policy."

Two and a Half Centuries of Invasion

Oh… what a wicked world! Now America’s misbegotten foreign policy is being teed up as a reason not to abandon its misbegotten monetary policy.

Americans ‘march to the sound of cannons;’ they are always ready to join the fight for freedom… for justice… and for the American way. Sometimes we invade foreign nations in order to protect the existing government. Sometimes we invade to change it… often claiming to ‘build democracies.’ Dr. Gideon Polya counted 70 different times the US invaded other nations since 1776 – or about once every 3 or 4 years. So, why get upset with Russia when it invades the Ukraine?

Public policy is always mush. Foreign policy is particularly mushy. How do we know what is going on in Afghanistan or the Ukraine? But in today’s world, America’s foreign policy depends to a large extent on its mush-headed monetary policy.

The advantage of foreign policy over domestic policy is that the damage is mostly inflicted on foreigners. But Americans suffer, too, probably more than they realize.  Taken all together, the cost of meddling in other countries’ affairs is headed towards $1 trillion a year – or more than $10,000 per household (by our rough, back-of-the-envelope calculation). If voters were asked to pay for it honestly, they would surely refuse.  

In our book (written with Addison Wiggin) ‘The Empire of Debt,” we looked at how the US has never quite gotten the hang of running an empire. It’s supposed to be a paying proposition. You invade, you steal, you enslave… and you end up richer. That was the formula used by the Romans, successfully, for hundreds of years.  

But the US invades… and then turns its bombed-out target into a money pit – dumping in billions of dollars to support the local warlords… propping up the economy… and donating billions more to its own military/surveillance industries.   Overseas, local hustlers and criminals get rich. And Swiss bank accounts get fatter.  And at home, Raytheon, General Dynamics and Boeing executives get rich.  Lobbyists get rich. Retired generals who join their boards of directors get rich.  And even their shareholders get rich. But who pays for it?

When the Debt Comes Due

Over time, the financing has shifted from taxes, to borrowing to inflation. The Empire of Debt loses money on every intervention… and, while its list of failed wars grows longer and longer, its mountain of debt grows too. Suppressing interest rates becomes a matter of necessity. But this discourages savers from lending their money to the federal government. So, rather than allow interest rates to go up, which would crimp their access to funds, the feds are forced to print money to cover their costs.  

This is about what happened to the Romans too. It is a problem of limits… and the cyclical pattern of life itself. Once the surrounding tribes had been subdued, the Roman Empire reached its furthest extent, under Trajan, in about 100 AD.  Thereafter, emperors struggled to hold it together. Trajan’s grand-niece married Hadrian, another emperor, who built a wall across Britain, the first landmark of a  less aggressive foreign policy.

Without the booty – especially slaves – coming in from new conquests, Rome, too, had to turn to monetary policy.  It shaved down the value of the Roman currency – the silver denarius. It was 95% silver when Augustus introduced it. A century later, in the time of Trajan, it was only about 85% silver, and the silver kept disappearing. By the time of Caracalla, who took over a century later, the coin was reduced to only 50% silver. Then, by 268, there was hardly any silver in it at all.

When the money goes, everything goes. The Empire was then beset by corruption and civil war. It limped along for nearly 200 years more… one calamity after another – until it was finally conquered by ‘barbarians.’

Yes, dear reader, El-Erian may be right; US monetary policy may now be hostage to its foreign policy. But its foreign policy also depends on its monetary policy.  Without the inflationary new money, the overseas misadventures may have to be curtailed. And without a ‘crisis’ – something going on somewhere that is none of our business and nobody really cares about – the Fed might have no excuse; it might have to cut back on inflation.

More to come…  Next week: Are Russian stocks now a ‘buy?’

Enjoy your weekend,

Bill Bonner

Ed. Note: To say the geopolitical landscape is presenting investors with some challenges would be rather an understatement at this point. That’s why, here at BPR, we’re in what investment director, Tom Dyson, calls “Maximum Safety Mode.”

We like gold. And silver. And uncovering opportunities in solid, “Old Economy” companies that have been overlooked during the past decade or so as speculators raced to find the next shiny thing… things that are presently crashing through the floor, as it happens.

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