The Crash Course - Chris Martenson [52]
History is quite clear on the subject: Whenever governments or countries have found themselves saturated with too much debt totaling more than could possibly be paid back out of their productive economy, they’ve nearly always resorted to money printing. As mentioned earlier, in times past this meant physically debasing the coinage of the realm by reducing the purity of the silver or gold in the coins, or by making the coins smaller, or both.
Moths
In the fourth century bc, Dionysius of Syracuse became the first recorded ruler to debase his currency in order to pay down his accumulated debt. In the more recent past, this has meant running actual, physical printing presses and churning out wheelbarrow loads of paper cash, as Germany did in the 1920s and Zimbabwe did in the 2000s.
Today “money printing” means using computers to generate electronic entries denoting money. The difference between then and now is that today’s debasements are virtually instantaneous and are not as easily observed by the common person. Where it took several decades for the Roman Empire to debase its coinage (contributing to its downfall), it only took Germany about five years to accomplish the same task in the 1920s using paper printing presses. Today it’s possible to create unlimited quantities of money almost instantly with just a few strokes on a keyboard.
Despite these “advances,” the core of the matter has not changed one bit over the centuries. In all instances, additional money is created without the benefit of anything else being produced. Once we understand that money is a claim on wealth, but not wealth itself, it becomes obvious why simply printing more of it neither creates wealth nor corrects the problem of having previously consumed more than one has produced. Money is not wealth; therefore printing it does not create wealth or solve the problems of the past that arose due to printing too much money.
The purpose of this chapter isn’t to present an exhaustive recounting of economic history, although there are many fascinating tales to be told, but to help us assess what the future might hold. In order to mitigate our economic risks, we have to know what they are. Which path or outcome is most likely? Will we head down a path of inflation or deflation? Should I hold cash, gold, land, stocks, bonds, or something else?
Flames
Recall from Chapter 10 (Debt) that there are only three ways for a government to get rid of its debt:
1. Pay it off.
2. Default on it.
3. Print money.
If we put ourselves in the shoes of the leaders who choose money printing, it’s easy to understand why that option is nearly always selected over the other two, both of which are dreary and difficult options.
Because debt is a claim on the productive output of a country, the first option, paying off the debt, is deeply painful because it bleeds off economic growth and directs the nation’s productive output into the hands of creditors. In practical terms, “paying off debt” means that the government has to tax its citizens so that it can hand that money over to the debt holders. It means higher unemployment, fewer goods and services, and therefore a restive and unhappy citizenry. Throughout all of history, raising taxes has always been a deeply unpopular move, but even more so if the collected taxes are siphoned away and don’t result in any additional benefit to the citizens in the form of an obvious expansion of government services or perhaps a redistribution of wealth within that government’s borders.
There are, however, precious few historical examples of governments choosing this option. After the Napoleonic wars, England found itself deeply in debt and chose to put itself through a crushing round of deflation, opting not to default or inflate away its debt. Despite hitting a record of 260 percent debt-to-GDP, England managed to