When The Money Runs Out... So Does The Empire

Tyler Durden's picture

Submitted by Bill Bonner via Acting-Man blog,

Funding an Empire with Debt

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 US never got the hang of it. It conquers. But it loses money on each conquest. How does it sustain itself? With debt.

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 US 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.



(Photo credit: Michael Brown)


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 US 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.”


Total credit liabilities, US

In the 1950s and 1960s, this posed little risk to foreigners, because the US dollar was backed by gold. But in 1971 – on August 15 – President Nixon repudiated the greenback’s gold backing – click to enlarge.


Global Inflation

Nevertheless, the dollar reigned supreme. Foreign nations needed to stock dollars in order to settle up on their overseas financial transactions. The US 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 US 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 US ran a trade deficit. Year after year, US 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 US.

This is how the US 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.


China's Reserves

China's forex reserves: this is one of the symptoms of US debt and money supply inflation - click to enlarge.


The Beginning of the End

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 US 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.



How hegemons decline, via JCMargeson – click to enlarge.



One of the left-overs of the Western Roman Empire. They didn't expect this to happen, but ultimately, Rome was brought down by the same overreach and the same reaction to its failure that brings down all empires. What ultimately ended the Roman empire was, you guessed it, inflation and price controls!

(Photo by DAVID ILIFF. License: CC-BY-SA 3.0)


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IridiumRebel's picture

I'll file this one under the "No Shit Sherlock" File.....

y3maxx's picture

Don't need Money...Let's invite ISIS, Sunnis, Shiites, Christians and Jews and have a "Love In".
..."Make Love, Not War"...

eclectic syncretist's picture

Don't worry!  The younger generation will save us......Oh.........wait.....


max2205's picture

LOL. ..click to enlarge?


I can see that without my glasses

SWRichmond's picture

When i still participated on Mish's site we used to argue about this.  There is no monetary / banking "Japan Scenario" for the United States.  Empire is the reason.

Anusocracy's picture

"The US never got the hang of it. It conquers. But it loses money on each conquest. How does it sustain itself? With debt."

The Elites got the hang of it: conquer a country, steal its assets, and give the debt to the productive people of the US.

Privatize the gains, socialize the losses. The Elite's motto.

Four chan's picture

fantastic observation tyler.

markmotive's picture

Over-extended. Over-committed. And insecure.

Documentary:The Decline of the American Empire


zerozulu's picture

Just be patient. On a long enough time line, survival rate of every superpower drops down to zero.

sessinpo's picture

Anusocracy   "The US never got the hang of it. It conquers. But it loses money on each conquest. How does it sustain itself? With debt."

The Elites got the hang of it: conquer a country, steal its assets, and give the debt to the productive people of the US.

Privatize the gains, socialize the losses. The Elite's motto.


I agree. And the debt doesn't just disappears. It takes all that printed money which disappears.

BobPaulson's picture

The weirdest thing about the US strategy, after conquering Europe, was that their bean counters told them it is better to create perpetual war and chaos, instead of invading and occupying. If you look around, they actually don't hold onto a lot of places, they just set up a base and make sure the killing and weapons sales are secure and the cocaine, opium or oil continues to flow. Sortof like the British policy with China in the 19th Century.

barre-de-rire's picture

pointless money, go full virtual, this way only a x86 command to add some unit to debts... a 9 years old genis hacker will ruin the system...

fuck that, i dont give a shit, we wont pass the winter anyway.

msmith9962's picture

They are a bunch of whiners.  Just an observation of the handful I work with.  95% of those 35 and under.  Of course the other 5% read ZH.

Harbanger's picture

The US never got the hang of it. It conquers. But it loses money on each conquest. How does it sustain itself? With debt."

That's funny really, they never got the hang of conquering.  Maybe because the idea wasn't to "Conquer" anybody.   But maybe like Rome, we can transition from Republic to Empire and start conquering the "proper" way.  That's how you make money.

SWRichmond's picture

August is the month when average temperatures begin falling in Ukraine.  Soon it will be cold...got gas?  Putin is fighting a delaying action, and so far successully.  Those two reasons are why there is a sense of urgency for NATO to plunge eastward.

Harbanger's picture

Yes, I think the plan is for Nato to move eastward.  Putin not selling Europe gas is only going to make them turn against Russia.  The whole thing is a mess and before long Europeans will be at each others throats once again.

SWRichmond's picture

US is trying to force NATO into military confrontation with Russia before the citizenry in Europe starts feeling the cold and wondering about their heat supply and the relative wisdom of goin to war with Russia.

Harbanger's picture

Why before feeling the cold?  No gas supplies and cold citizens is good motivation to go to war.

Vampyroteuthis infernalis's picture

In the long term, Putin wants to avoid war while controlling the Ukraine. Our idiot-in-Chief along with NATO is forcing him into an unnecessary standoff with the west as a whole. My guess is Putin's backup plan has the war starting in late Sept to early Oct. The Russian military can still fight conventionally for a few weeks before heavy snow hits. When the conflict drags on in the winter (giving Russia the advantage) and the gas is turned off, the west is going to be in a critical situation. The will be especially true for Europe.

Harbanger's picture

Yes, but cutting gas off to Europe is not going to help him avoid war.  What's he going to do, invade Europe this winter to get the upper hand?  Of course not.  But Europeans are going to be pissed off that they suffered through the winter.  Which will motivate them to go to war, but not during this winter.  Putin is smarter than Obama but Obamas puppet masters may be smarter than putin.  After all, they do a great job of controlling their citizens and most of the world by simply managing perception.

Vampyroteuthis infernalis's picture

Chess master Putin will do all he can to win a conflict if forced into one instead of our MIC who wants war indefinitely. The greatest weapon Russia has is winter. When in combat use natural advantages. See WWII and Napoleon's invasion to see previous results.

Russia is preparing to win while NATO has their head stuck up their ass. Simple as that. War within a couple of months.

DanDaley's picture

General Snow and General Mud...the 2 great Russian allies.


SWRichmond's picture

Winter brought with it the rains, oceans of mud filled the roads
Gluing the tracks of their tanks to the ground, while the skies filled with snow

And all that I ever
Was able to see
The fire in the air, glowing red
Silhouetting the snow on the breeze

CrazyCooter's picture

I think the OP is reasonably stated, albeit avoiding the petro-dollar language, but doesn't point out anything new.

US influence abroad is typically to secure "support" or "loyalty" from the regime in control, usually through loans, so as to use that nations resources for our purposes and commerce. To be clear, rather than administering directly, as did previous British and French colonies, the US used local governments as intermediaries. What despot would turn down "billions in aid and training and loans"? Duh.

But that only works so long as the US can hold it all together. It has been coming apart for some time and survival instincts are strong with these "colonies". They pretend to hold on, but will bail as soon as they are sure they can get away with it.

Unfortunately for them, the only other suitor in town is Russia and/or China, which they may find is a bit rougher on their domestic vajayjay than the US was ...



El Vaquero's picture

The idea was not to conquer, but rather to subjugate. 

Harbanger's picture

Conquering sounds so much better.  But this is the way the world works.  It's like the "would you rather" game.

Kirk2NCC1701's picture

Actually, given our fiat currency plus FRB system, the problem won't be running out of "money".  The real problem is "When our monetary system runs out of people to indebt/enslave".

'Merica, IF YOU LIKE YOUR DEBT MONEY, YOU CAN KEEP YOUR DEBT MONEY!  And you can keep your war machine.  Your days of financial slavery are numbered, and the world is fed up.

Buck Johnson's picture

I agree, and the sick thing is that we will never be the same ever again.  We will be a complete shadow of what we where and that is if we stay together as a country.  More likely parts of the country will break off and become their own country.  

good man's picture

My last pay check was $9500 working 12 hours a week online. My sisters friend has been averaging 15k for months now and she works about 20 hours a week. I can't believe how easy it was once I tried it out. This is what I do... http://goo.gl/bhiamE

yogibear's picture

The Federal Reserve policy is finished when the US dollar crashes.

They know all Fiats go to 0.

Bossman1967's picture

but when? it's looks like we will just make the new players use the dollar? I assume that's what all the friction and warmongering is all about . just wish it was over as a upper middle tired American this system sucks. as an Italian American I will survive and thrive in a brave new world

max2205's picture

Fixed it


Fed establishes new gold stadard at $1 to 0.00001 ounce of gold


Don't laugh

Idaho potato head's picture

The que to "cash" in on that plan will be overwhelming, I'm gettin my camping gear and establishing a place in line tomorrow morning.

ekm1's picture

The moronity of a "permanent decline" of USA Empire continues unabated.


Obama and Bank Lobby want to destroy the Empire but they can't do it, unless Military back them up.


Military cannot just ally with bank lobby to destroy itself.


Let me tell you something. History has shown that when few oligarchs war against the system, as bank lobby is doing now, the system will eliminate them first by soft force and if not successful then by physical elimination.

umdesch4's picture

Interesting thought, (I certainly didn't downvote you) but it only really serves to caution us that the collapse may take longer than we think. The problem with modern military force is that it has huge energy requirements. At some point, there's a reality brick wall that will be hit, where a military will spend more energy and resources acquiring and defending supplies than it gains. EROEI goes below 1, then what happens?

ekm1's picture

That is the whole point of technology, to reduce EROEI.

EROEI nowadays is just propaganda.


Energy prices are too high because bank lobby is controlling them via derivatives.

Remove leverage trading of energy and oil drops to $60-70 overnight

CrazyCooter's picture


Just to put the current US oil boom into further perspective, over the past five years global oil production has increased by 3.85 million bpd. During that same time span, US production increased by 3.22 million bpd — 83.6 percent of the total global increase. Had the US shale oil boom never happened and US production continued to decline as it had for nearly 40 years prior to 2008, the global price of oil might easily be at $150 to $200 a barrel by now. Without those additional barrels on the market from (primarily) North Dakota and Texas, the price of crude would have risen until supply and demand were in balance.

Source: World Sets New Oil Production and Consumption Records

While I do not disagree with the assertion their are financiers gaming commodity markets, it is naive to assume this is the only root cause.

The reality is the "marginal utility" of a gallon of diesel in a rural farm in India is vastly greater than that of a soccer mom taking her crotch fruit to soccer practice. And there are a lot of rural farmers in India (and China) that would love to automate around the farm. Demand from these developing countries will grow, grow, and grow some more. The US can no longer expropriate all these resources for its own needs.

All of this drama  centers around energy, oil in particular. To claim technology "solves" or "obsoletes" this problem is chicanery.

The military will secure, from domestic sources, its energy supply FIRST and if there is left over the civi's can have it.



ekm1's picture

Keynes has brainwashed almost everybody.


Economy is not about demand, economy is about supply.

Demand is infinite

Supply is scarce.


That indian farmers "demand" energy means absolutely nothing. What matters is who is going to provide that energy to them.


El Vaquero's picture

There is a problem:  It will come down to a choice between food and military at some point.  Don't expect the fabric of society to remain intact when it does so. 

El Vaquero's picture

It's possible to sit down for dinner in a restaurant with very little worry that the guy in the booth next to you is going to rob you, kill you or otherwise beat you to get your hamburger, isn't it?  It is the trust that the average person isn't going to do you harm in some way.  It is why a mass shooting in a theater shocks people and is not the norm. 

Harbanger's picture

Two things allow for that safety you describe in a society, a Moral Fabric or a Police State.  Which would you rather?

El Vaquero's picture

Get rid of the police state and most people would still not just up and rob somebody.  Right now, even though a lot of it is because of things like social security, EBT, etc... people still have their basic needs being met.  Get rid of that across the board, and neither a police state nor moral fiber will stop the chaos.  If you have access to food, you will eye every single stranger as a potential threat and thief, and if you don't have food, you will lie, rob, and murder to get it.  

fattail's picture

If the FSA is only being held back by the expropiation of my tax money by the coercive powers of the govt, I would assert the moral fabric is long gone.  Which explains the general disgust I feel every time the MSM puts out another "feel good" story about one of the police state actors.  

umdesch4's picture

I'll admit, I've heard this assertion before. I haven't read anything backed by solid numbers that convinces me of it yet though. Can you point me at one? I'm honestly asking, because if I can find some glimmer of hope in this situation, I might not feel so depressed about the world my kids will be inheriting. I think about all the epic (all the ones over, say 2500 miles) road trips I took in my youth, and realize my son will probably never be able to afford to do the same.

El Vaquero's picture


Missing 200 Million Barrels of Crude.

Uh, given that the US alone uses 18-19 million barrels PER DAY, and that 200 million barrels of crude is less than THREE days of global use, that is just a blip.  If you want to talk about things that are more than just a small extender of our current ways, you need to be talking about hundreds of billions of barrels.


And again, leverage gives you the ability to apply a greater FORCE over a shorter DISTANCE.  Learn what energy is, and why leverage will not save us.

CrazyCooter's picture

There are two ways to look at solving this problem:

  1. Sustainable energy over the long haul ... by limiting population
  2. Sustainable energy over a really long time ... by replacing oil with something else

Because no one in leadership (politics, oligarchs, etc) care about 2, I think 1 will be what we get.

The answer to 1 is live near hydro power. If you genuinely do your homework, youo can find all sorts of interesting places to live. One freebie I will give you is New Zealand which gets X% of their electricity from hydro power (look it up). If it rains, hydro power is there (up to capacity) so this is a bet on nature providing rain. In places where hydro power is prevalent, there are usually very long historical records that show it rains a lot.

But this doesn't do much for the idiots that live elsewhere and thus has a population component that is macrebe at best.

The answer to 2 is Thorium Molten Salt reactors for the simple reason that the technology has been proven, but never commercialized. This isn't a paper or a theory, it was done and ran safely for many months back in the 60s IIRC. Thorium can't be weaponized, so it was abandoned. There is vastly more thorium fuel in the earths crust than uranium. At current population, Thorium MSRs could provide all the electricity for hundreds (up to a couple thousand) years.

The problem here is that regulatory agencies are there to protect the investments of the elite class, not to provide safe power to the pleeb class. If you owned a bunch of old nuke plants, why would you want a new competitor on the scecne? Why would you want to spend a shit load of money and take risk when you can milk your old investment? Thorium will never have legs in the US. It might in India or China where they are grappling with solving their energy problems.

Russia is the wild card on this one because they have the brains and expertise to commercialize this and if the first to do so would fare well selling services/parts abroad. They do traditional nuke stuff too, so I don't know what their vested intersts think about the technology.

There are google talks and other stuff on Thorium MSRs if you can to go looking.

Fossil fuels are already in decline although people will haggle about the noise. If you are 30 or 40, you will live to see a contracting global oil supply and it won't be a pretty sight.



El Vaquero's picture

Dude, come back to me with a working definition of energy. You don't understand what you are talking about.


Technology uses energy, and there are some real limits to extracting it.  You have to use energy to drill through dirt and rock, you have to use energy to produce well casing, and there is zero potential technology on the horizon that even has a chance of mitigating that.  TANSTAAFL.