Empire of Debt

Empire of Debt is a book by Bill Bonner and Addison Wiggin. It was written in 2005 and published in 2006 and it talks about the history of empires and the current American empire. It talks about how empires rise and come down and most of all, it describes perfectly the conditions that led to the economic crisis and it predicts precisely the events that we are going through today. This is the book that gave me a lot of answers, sent me searching for more and eventually led me to discover Austrian economics. I want to share one of my favorite excerpts from this book:

     "Things that are unusual usually return to normal. If they did not, there would be no "norma" to return to. That is why you can expect stocks to become more expensive when they are cheap and cheaper when they are expensive. Stocks today are expensive - they trade for an average of about 20 times earnings. Usually, they trade for only 12 to 15 times earnings, so you can expect them to get cheaper.
     Houses are expensive too. They usually go up at a rate roughly equal to the rate of inflation, income, or GDP growth - no more. For the past 10 years, however, they've gone up three to five times as fast. House prices cannot grow faster than income for very long; people have to be able to pay the prices in order to live in them.  So, you can expect houses to revert to their mean too. Prices will fall... or else stop rising. 
     These simple reversions to mean are hardly controversial. We don't know when they will happen or how, but that they will come about is practically guaranteed.
     More interesting to us are the reversions to other, bigger means. An empire itself is a rare thing. It is normal, but unusual. Nature abhors a monopoly. An empire is a monopoly on force. Nature will tolerate it for a while, but sooner or later, the imperial people must revert to being normal people, and the preposterous beliefs that the imperial people cherish, also must pass away. They must go up to a kind of humbug heaven, where absurd ideas and idle flatteries strut around while the gods point, snicker, and collapse into mirth, rolling around clutching their stomachs as if the humor of it was going to kill them.
     The dollar is an extraordinary thing too. Do you know what the long term mean value of paper currency is? Well, it is zero. That is what the average paper currency is worth most of the time... and it is the black hole into which all paper currencies in the past have gone. There could be something magic about the dollar that makes it unlike any paper currency in the past - this is, something that makes it non-mean reverting. But if anyone knows what it is he is not working on this book. For the last hundred years, the dollar has lost value faster than the decline of the roman-era Dinarius after the reign of Nero. This is not surprising. Roman coins had silver or gold in them. In order to make the coins less valuable, they had to reduce the precious metal content. People didn't like it. The dollar, by contrast, contains no precious metal. Not even any base metal. It is just paper. It has no inherent value. There is nothing to take out, because there was never anything there in the first place. Over time, the dollar is almost certain to revert to its real value - which is as empty as deep space. 


It's an excellent book, pick it up if you have a chance. And if you don't, the authors also have a blog called The Daily Reckoning. It's a good read.