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16- WHAT IS THE CONSEQUENCE OF PRINTING MONEY THAT NOBODY WANTS?

June 20, 2012
Vilnius, Lithuania

One of the things that’s really unique about this part of the world is having access to so many people with first-hand experience of living under Soviet rule.

It’s a bizarre thing to say, but the stories they have to tell are extraordinary.

Last night I had dinner with some friends, including one woman who was just a child at the end of World War II.

She explained to me that her family had been wealthy landowners near the capital city… until the Soviet-controlled government came in, confiscated all of their property, and shipped the adults off to Siberia.

“There were so many opportunities to leave beforehand,” she explained, ”but they just never thought things would ever get that bad here. Everyone saw what happened in other countries, but my family never expected that it would happen to them.”

While most people probably aren’t going to end up in Siberia anytime soon, the lesson is still valuable.

It’s easy to look around the world and think “It can’t happen here. It won’t happen here.” But this is really foolish thinking.

Governments steal, then spend, other people’s money with reckless abandon. They conjure paper currency out of thin air, rob the future earnings of generations which have not even been born, and create mind-numbing barriers to real growth.

These are not people who can be trusted to do the right thing.

Here in Europe, the Greek government is helping itself to its citizens’ bank accounts; the Italian government is working with banks to freeze customers out of their accounts without warning.

Spanish police are embroiled in a bloody struggle against bazooka-weilding workers who are protesting austerity measures. EU leaders in Brussels have announced their intention to impose capital controls as part of a ‘rescue plan’.

This is today’s reality. It can happen here, it probably will happen here. And frankly, it’s all unfolding almost exactly as it has so many times before throughout history:

1. A nation rises to greatness and becomes wealthy based on sound principles and the hard work of initial generations.

2. Eventually, being wealthy becomes the natural expectation… an entitlement, rather than a goal to work hard for and achieve.

3. A nation begins living beyond its means to maintain the high life without the hard work, leveraging its credibility to trade tomorrow’s production for today’s consumption.

4. Living beyond its means eventually becomes unsustainable. Government begins to slowly, then staggeringly, devalue its currency.

5. The market (i.e. people) finally wake up to the fraud being perpetrated.

6. Financial repression usually follows– high taxes which steal from the productive, negative real interest rates which steal from the savers, etc.

7. Capital flight comes next. People take their money and run.

8. Governments implement capital controls, border controls, price and wage controls, and anything else they can do to maintain the status quo. People find out who the police are really there to protect and serve.

9. Capitulation (default) is the endgame; the system resets itself and begins anew.

This is nothing new. From the 3rd Dynasty of Ur (2000 BC) to Medieval Venice to the familiar stories of Rome and the Ottoman Empire, the world is full of monuments to the past greatness of failed civilizations.

We’re seeing the same pattern unfolding now. And sure, anything’s possible. Maybe the skies open up and the unicorns come out to play and the whole world manages to fix itself without skipping a beat.

But let’s live in reality: there are consequences when nations go bankrupt. And nearly every western nation on the planet is insolvent. That is a fact.

Certainly, the lies from our political leaders are entertaining. But how many more revolutions, riots, defaults, bank runs, stimulus packages, nationalizations, tax increases, pension grabs, etc. will it take to acknowledge what’s happening?

Can anyone afford to keep ignoring reality? Can you?

About the author: Simon Black is an international investor, entrepreneur, permanent traveler, free man, and founder of Sovereign Man. His free daily e-letter and crash course is about using the experiences from his life and travels to help you achieve more freedom.

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Comments on this entry are closed.

  • http://realfilling.com/ the99th

    So wait, does this mean the 1st and 2nd dynasties of Ur were really genteel and responsible?

  • guest

    Well written. My only question is what about the (Central) Eastern Europe? Will be the impact of the events mentioned above the same as in the West, slightly milder or no? Is and will this region be safe for a living, doing business in the years coming? 

  • A Lithuanian

    “There were so many opportunities before” for wealthy landowners…I don’t think Simon understands the history of Europe. Many wealthy families even today can trace their wealth back to land and title given to them in the early middle ages. That is hardly something to admire.

    • Andrew

      You misread and misquoted. The quote (which is the girl’s, not Simons) was:

      “There were so many opportunities to leave beforehand,” she explained, ”but they just never thought things would ever get that bad here. Everyone saw what happened in other countries, but my family never expected that it would happen to them.”

      The opportunity she spoke of was to leave. 

  • James

    Care to speculate on the dangers to small nations with resources worth taking via invasion by larger armed neighbors when the “world’s  policemen” are too indebted to stop it?  Example: Mongolia has extractable resources and currently offers opportunity but it lies between China and Russia, both of whom might like to own those resources.  Should any international diversification also include looking at the ability of a nation to withstand invaders, or is that a variable with less importance?

  • Looking forward

    Simon, tell us what comes after #9. We’re already in the final stages listed as 7, 8, and 9, but what comes after the fall?  “the system resets itself and begins anew” — how does that play out in the day to day real world: financially speaking? How does a new currency get established, how does that change existing financial instruments (mortgages, etc.), what happens if/when, due to a currency collapse, it’s not possible pay property taxes or mortgage payments and then what happens when the system gets rebooted ( a new currency is established and/or the banks re-open)?

  • VoxFox

    Rather, the empire kept expanding as long as there was wealth to be stolen and contracted when the cost of stealing grew too large.  Examples: Rome, Spain, England, USA.

  • oldbanker

    There is no camparability, in History. Todays technology, media, new world order, are unique to human history.” World” organizations, IE. World bank, United nations, World court etc.can, most likley will, cause ”off the charts results”. Not, a continuation of the old cycles! 

  • Kenceresne

    When you are in Lithuania there are some stories the people won’t tell you.  You should be aware that the current generation or Lithuanians are the descendants of people who, during the second world war, rounded up their Jewish neighbors and friends and took them into the forests and murdered them.  Then they confiscated (stole) the belongings of those that they had murdered, who numbered in hundreds of thousands.  They did these terrible deeds even before the Germans had the chance to do it themselves, and without any instructions or urging from the Germans.  Many people grew wealthy, possibly the family you spoke to, by participating in those murders and thefts.  The Lithuanians were so brutal and cruel to the Jews that several of the German soldiers went along to watch and wrote letters home saying that even the gestapo was not that inhumane.  Be careful of dealing with those people as they have a different way of dealing with friends and neighbors than we do.

  • http://profile.yahoo.com/IRKBZUOFHP75VNATRZO6PCVIPE Bugeater

    Kenceresne …. what is your point ?   You are talking about events that happened 70+ years ago.  Some of us are looking for opportunities and trying to figure out how the world works today without crying about immorality that may have possibly happened half a century plus before.  

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