I.O.U.S.A. (34 page)

Our whole society is in a trap where it is spending more than it can afford and is transferring its assets. Foreigners end up with our money and they use the money to buy U.S. assets, and so Americans become less and less likely to own their own property.

And we ’ ve seen this, of course, in a very fundamental and simple way in the housing market. People used to own 70 percent of their homes; 30 percent was mortgage, 70 percent was owner equity.

And now that fi gure is down to 52 percent, meaning that the average American barely owns half of his house. Who owns the other half? Is it the neighborhood bank? No. The neighborhood bank has sold the mortgage to a fi nancial company, which probably sold it to a hedge fund. Now it ’ s fl oating somewhere in the great wide world. It may be in the hands of the Chinese fi nanciers or London speculators. Who knows? But it ’ s just not the world that it once was, and it doesn ’ t seem fair to me that these poor children coming into the world should come in with so much debt on their shoulders.

Q: But if we understand that that ’ s such a despicable concept,
to give your children a pile of debt, how is it that we as a
country have bought into this? Is it happening on an individual
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level or is it happening in Washington or is it happening in
both places?

Bill Bonner
: Things that people will not do to themselves and their own children, they will do collectively. We see episodes of collective madness all the time. As a recipient of government money, such as Medicaid or an agricultural subsidy, you think that somebody else ’ s children are going to pay for it. The debt is in the hands of the public and it becomes so lost in generalities that you ’ re not really worried about your own children having to pay off that debt. You know that you ’ ve got money in the present.

You ’ re not going to worry that most likely someone else ’ s children are going to be paying. Institutions have a tendency to work this way. If a politician wants to get reelected, he ’ ll get reelected by giving people something. And if you have to take it from them fi rst, it ’ s not a very good deal. So the voter will say, “ Wait a minute, you took $ 10 in taxes from me, and now you ’ re giving me back $ 10? That ’ s not a very good deal. ” The politician gets the vote when he gives the person $ 11. And where does the politician get that other dollar? He has to borrow it from somewhere. That ’ s a good deal for the taxpayer. But that one dollar is now hanging over the heads of the whole society. Over time, this system of buying power and buying votes becomes institutionalized and entrenched.

And you gradually get a more and more corrupt system where you have to spend more and more money in order to keep voters voting for you. Finally, the system collapses, but that ’ s sometime in the future and we haven ’ t seen that in America yet.

Q: Warren Buffett says that people should understand economics,
because if they don ’ t, they ’ re going to be subject to a lot
of demagoguery. If they don ’ t understand what ’ s going on
fi nancially around them, they can buy into a lot of really bad
reasoning and bad logic from their leaders that may want to
take them off to war. And that to me seemed to echo your “ As
We Go Marching ” section in your book. Can you explain to me
why that becomes the option?

Bill Bonner
: Hemingway said the fi rst panacea of a mismanaged government is the infl ation of the currency, and the second is war.

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Both bring a temporary prosperity, but both bring permanent ruin. When you start spending more money than you have in a government, fi rst you get the support of the masses and that ’ s how you get reelected. But eventually it becomes harder and harder to do that; you run out of money, and you begin to get a backlash from people when they see that the programs don ’ t work. They see their money squandered, they see infl ation, they see debt, and you get resistance, primarily from the most conservative citizens or people who are afraid of those kinds of things. And the way to overcome that is to go to war, because nobody, apparently, can resist the call to arms. You know, if you have a real war, everybody tends to get behind it. We ’ ve seen that recently in America. Almost any war, for almost any circumstance or any pretext, is a way of unifying the population behind its leaders. That ’ s why George W. Bush wanted to be a war president, because all of the great presidents in American history were either war heroes or served as presidents during war: Lincoln, Wilson, and Washington — after the war, but he was a military hero; Eisenhower was a military hero. People get behind you when you ’ re going to war. So when the rascals and scoundrels in public offi ce can no longer spend their way to popularity, then they typically choose to go to war.

We ’ ve seen that a lot. Of course that was the story of the whole Roman Empire — they handed out the bread and circuses and they kept fi ghting. They fought all around the Empire. They always had a war going on. That ’ s what empires do, and that ’ s why our book is called
Empire of Debt,
because it is an empire. It ’ s an empire founded on debt but it ’ s an empire that acts like an empire, and an empire is a military thing. It ’ s a thing that provides order or establishes order, and it ’ s always at war one way or another — that ’ s the kind of business that it ’ s in.

Q: Can you talk a little bit about bread and circuses?

Bill Bonner
: Bread and circuses was a system whereby Roman politicians were able to keep control of the population of Rome.

The population of Rome was very important because it was a big city, and if Roman politicians lost control of the population of c08.indd 116

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Rome, they lost control of the Roman Empire. So they were very careful to keep the people of Rome happy, and they did it by giving them something for nothing. They gave them bread and circuses, just what the mob wants. Rome seized Egypt and took a lot of grain from Egypt every year, and the grain was distributed as bread to the people of Rome. Likewise, they held games in the Colosseum. And so bread and circuses allowed the Roman Empire to maintain popularity with the people at home and effectively got the Roman people to support their political leaders, and allowed the Roman Empire to continue going for a long, long time. But it began to cost more and more to keep the Empire in business. So the politicians spent more and more and went further and further into debt in order to get the money. In the case of the Roman Empire, they didn ’ t have paper money, they didn ’ t have the dollar. They had to send more slaves to Spain where they had silver and gold mines, and they worked around the clock.

That was what we call monetary infl ation. They produced more money by mining it out of the ground in order to buy the things they needed to control the population and pay the soldiers. But none of these things will work forever. All institutions have a way of growing older and becoming corrupt and then falling apart.

And that ’ s what happened in Rome. They spent too much money and kept going into debt, and fi nally the whole Empire became corrupt and it fell apart.

Q: Can you talk a little bit about what happened in the early part
of the twentieth century, with Mussolini and Hitler?

Bill Bonner
: After the reorganization in the mid - nineteenth century, Italy had a government that tended toward debt, and it always had some terrible crisis. And each time, Roman politicians tended to want to go to war. I don ’ t know where they get this; maybe it ’ s in their genes or maybe they ’ ve just read a lot of history.

And Mussolini was no exception. In his election campaign, he railed against debt. He said that the Italian state was spending too much money, and he was going to bring the debt under control. But once he got into offi ce he realized that bringing the debt under control was no way to run a country or to get popular c08.indd 117

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support. And he couldn ’ t spend more money because they were already deeply in debt, so he conjured up a war. We saw that in Argentina, too. Those generals were in a bind so they decided to divert the public ’ s attention by starting a war with England, and so they seized the Falklands. England didn ’ t put up with it, and sent a fl eet and took it back. This is not a new theme. We ’ ve seen it many times in history and probably will see it more.

Q: How did it work out for Mussolini?

Bill Bonner
: It didn ’ t work out well. They hung him, and his mistress, upside down.

Q: I want to talk about the idea of what America was when it
started, a long time ago. What was the dream of what America
could be and what was it that the settlers were trying to
break away from? And do you feel that perhaps this idea of
independence has been lost? Clearly we ’ re not an independent
nation if we rely so heavily on other nations lending us money.

Bill Bonner
: John Milton said, in the beginning all the Earth was America. What he meant was it was just open, and it was free, and it was available. When people came to America originally, they came for a lot of personal reasons, but they came with nothing, generally, and they came expecting to fi nd a place where they could build the life that they wanted for themselves. They didn ’ t ask for a government handout, or a subsidy, or a license. They didn ’ t ask for anything; they just wanted to be left alone to do their own thing. Some were religious people who wanted to set up a City of God, which they did in New England. Others wanted to farm in the south. What they shared was a common idea about what America was. It wasn ’ t exactly a place because it had no boundaries. They were pushing back the boundaries of America all the time. As far as they knew, America was almost infi nite; they didn ’ t know how far it went. So it wasn ’ t a place and it wasn ’ t a government. They were colonies of Britain, each one governed its own way. Later they set up their own government and declared that they had the right to decide for themselves how they would be governed. But it was a place where people could come and c08.indd 118

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live freely. And it meant that they were free from the burdens of centralized government.

But now, America is not really very much different from any other country. Generally America ’ s not particularly more free than Britain or France or practically any other country we can fi nd. They all have their different cultures, a different style of food and dress. But the fundamental difference that used to separate America from the rest of the world no longer exists, and that difference was that America was a free country. The rest all had their governments, they had their aristocracies, they had their special classes, they had rigidity, structure, establishments, institutions, and these required people to be a certain way. If you were in a certain segment of society you had to play that role, but in America you could be anything you wanted. So it was a very, very different place. And now America ’ s not such a different place. Now America ’ s acting like an empire. It ’ s spending more money than it has and it ’ s throwing its weight around, as empires traditionally do.

Q: Can you go a little bit further with that?

Bill Bonner
: One of the great delusions that Americans live with now is the delusion that they are a freer people than others in the world. This is something that animates the Bush administration; they believe that they ’ ve got something that everybody else would like to have and so they ’ re going to force them to have it. But America really isn ’ t that much freer or any different than anyplace else now. You need a permit for anything you try to do. There ’ s a regulation for it or there ’ s a tax.

Q: We choose not to listen to advice that was given a long time
ago. Is that part of our culture, is that something that ’ s
just human nature, or is that particularly present in American
human nature?

Bill Bonner
: I think Americans particularly are susceptible to what I call the tyranny of the here and now. Americans have no history. That ’ s not always a bad thing, because it makes Americans a very inventive culture. Jefferson and the Founding Fathers were c08.indd 119

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scholars. They read the history of Rome and read it very carefully.

They tried to build into the U.S. Constitution certain checks and balances. These were designed intentionally to avoid the kinds of problems that they had seen occurring in history over many, many generations. And that sort of ignoring dead people is a risky proposition. But dead people don ’ t vote; it ’ s only the living who vote. And what do they vote for? They vote to give themselves more money. Where do they get the money? They get it partially from the dead by stealing the treasures that have been built up over many, many years, and they get it partially from children who haven ’ t been born yet. They say, okay, well we ’ re going to borrow money and we ’ re going to pay it back 50 years from now — or never, actually, because the debt keeps rolling over and over and over. And so, effectively, they ’ re stealing from the past and stealing from the future, and they get away with it.

Q: Do you think they will get away with it forever?

Bill Bonner
: Eventually what happens is that people don ’ t take their IOUs anymore. When people spend too much money, for a while they ’ d get away with it, but eventually people would begin to wonder what their IOUs were worth. They ’ d begin to ask themselves whether you were actually going to pay off that debt, and pretty soon they ’ d begin to be wary of lending you any more money and begin to say, “ Those aren ’ t worth what we thought they were worth. ” Then the whole system falls apart, and you then have to earn a living and pay people off and save money. That ’ s one of these lessons that dead people have learned, and we haven ’ t.