In
1944, the US had been the primary supplier for arms for the allies during World
War II and, as such, exited the war with more wealth than any of the other
nations that had entered the war earlier, draining their treasuries of money.
Since payment was largely demanded in gold, the US held three-quarters of the
world’s gold and therefore was in a position to call the shots with regard to
the free world’s economic future.
At
Bretton Woods, the US took advantage of this situation, setting up the World
Bank, the IMF and declaring the dollar to be the default currency for all
countries concerned. From that point on, the US was in the catbird seat, able
to dictate economic terms to other countries and even to behave irresponsibly, eventually
creating previously unheard-of levels of debt, thereby inspiring other nations
to do their best to create their own debt in order to keep pace as best they
could.
Eventually,
of course, such irresponsible economics will cause any country, no matter how
powerful, to collapse economically, no matter how many Keynesian economists such
as Thomas Piketty, Paul Krugman and Larry Summers declare otherwise.
Beginning
in 1944, the US became the world’s foremost empire, for the strongest of
reasons – it held the world’s wealth. This advantage led to a period of great
power and, in the latter years, as the empire began to stumble economically
under its own great weight, led to the creation of organisations and
legislation designed to bring in new revenue, as the old forms of revenue
declined.
In
recent years, we’ve seen the rise of the extraordinary assumption that “money
laundering” (the practice of protecting one’s wealth from rapacious
governments), should be regarded as a crime. As such, “tax havens”, those
jurisdictions that provide freedom from governmental usurpation, have also been
vilified as being somehow criminal because they recognize the basic right of the
freedom to prosper.
Along
the way, we’ve witnessed the creation of the Organization for Economic
Cooperation and Development (OECD), a euphemistic appellation that might
rightfully be termed the “Organization for Forced Compliance with Arbitrary Taxation
Diktat by Powerful Nations”. This US-led organisation has served to
periodically threaten freer nations to comply with the less free nations, so
that citizens in the latter group cannot escape being stripped of the fruit of
their labours. In addition, the US has created the Foreign Account Tax
Compliance Act (FATCA), which is ostensibly intended to enforce taxation of US
citizens abroad, but which has been used almost entirely to bilk foreign banks
that have US citizens as clients. (Again, the rules are arbitrary and
ever-changing and banks that fail to satisfy the US are fined enormous sums in
a rather colossal Mafia-style shakedown.
Along
the way, the US has increasingly created legislation restricting the
international movement of money by its people in addition to such a patchwork
quilt of laws that every citizen is likely to break several laws each day,
simply by existing normally.
All
of this is taken for granted as a “given” by both Americans and those of us who
view the US from afar. However, we rarely, if ever, take the time to reflect on
the fact that, historically, this is nothing new. This is, in fact, quite the
norm for an empire in decline. From the latter days of the Roman Empire, such
practices (if in a less sophisticated form) have been implemented in order to
have a last squeeze of the lemon before economic collapse takes place.
So,
what then, in these many instances, has been the deciding factor that ends such
draconian usurping of private wealth? Well, in fact, what tends to occur is
that enforcement increases serially, right up until the moment when such
enforcement can no longer be funded. Sooner or later, the amount that’s being
bilked from those who are productive is insufficient to force them to continue
to be bilked.
In
Ancient Rome, once the system had deteriorated to the point that the military
was almost entirely mercenary, all that was needed was for the government to
fail to provide full, regular payment to the troops. Once “the cheques began to
bounce”, the military turned on their former benefactors. In addition to the
cessation of enforcement, the military itself was now a threat to the
leadership.
And of course, we see this in other
empires since that time. Even with all the gold that Spain was pulling out of
the New World in the 16
th century, it wasn’t sufficient to pay for
the excessive foreign military adventures of Philip II and eventually the
coffers ran dry, collapsing his ability to even maintain control at home. When
even the interest on the debt could not be serviced, the ability to maintain
controls not only ceased to advance, it went into reverse.
Whenever the ability to enforce
draconian legislation goes into decline, the people of a nation suddenly
realise that they’ve been living in fear of a paper tiger. It doesn’t take long
before some people choose to defy the system. When they’re seen to succeed,
others follow in droves.
So, what does this say of the US and
its power? Well, as Doug Casey has been known to say, “Countries fall from
grace with remarkable speed.” Quite so.
On an international level, this means
that international leaders will be watching the US economic decline closely.
Countries such as China and Russia have been loading up on precious metals in
preparation for a collapse in fiat currency. In addition, they’ve created their
own version of the IMF, the Asian Infrastructure Investment Bank, and have been
hard at work inking deals with other nations for international settlement in currencies
other than the dollar.
Most people in the world today cannot
remember a time before Bretton Woods, yet they may soon witness the Bretton
Woods agreement becoming a dead duck.
But, if we extend this premise, we also
should be questioning the other constructs of the postwar period that have
become dinosaurs. What of the United Nations? This organization was once meant
to be a body for arbitration and world planning, but has in latter decades
become a quagmire of bickering and gainsaying – with its decisions rarely being
adopted by the nations in question. And yet the US alone pays some $8 billion
annually to keep the UN afloat. Surely, when the world at large ceases its
willingness to carry further US debt, the US government will jettison the
expense for the UN before it would cut either its military spending or its entitlement
programmes.
Similarly NATO, which requires $2.8
billion annually (with only five of its 28 members currently meeting their
payments) would experience a similar fate.
With the above entities heading south,
the Wolfowitz Doctrine, which has since 1992 been the basis of US aggression
policy, would become unachievable.
In addition to the decline or cessation
of the above international adventurism, enforcement of revenue pursuit in the
guise of FATCA and OECD schemes would equally suffer from a loss of funding. It
would not be a question of whether the empire still
wished to squeeze the lemon – it would – more than ever before. But once the funds to do so dried
up, the US and EU would find themselves in the situation that we currently
observe in Venezuela – the money to pay for the enforcement is simply not there
anymore. The decline would begin with bounced cheques, followed by massive
layoffs in the enforcement departments, followed by a decline in receipts,
necessitating further layoffs, etc., in a downward spiral.
At present, countless people live in
fear of the present empires and their ever-increasing efforts at usurpation.
However, as history shows, once debt has reached its nadir and begins its rapid
fall, so too does the empire’s ability to enforce draconian confiscations.
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Jeff Thomas is British and resides in the Caribbean. The son of an economist and historian, he learned early to be distrustful of governments as a general principle. Although he spent his career creating and developing businesses, for eight years, he penned a weekly newspaper column on the theme of limiting government. He began his study of economics around 1990, learning initially from Sir John Templeton, then Harry Schulz and Doug Casey and later others of an Austrian persuasion. He is now a regular feature writer for Casey Research’s International Man (http://www.internationalman.com) and Strategic Wealth Preservation in the Cayman Islands.
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The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.
