It Almost Destroyed the U.S. Once… This Time, There May Be No Escape
Why be deterred by history when you can make the same mistake twice?
Back in the earliest days of America—right at the very birth of our nation—Congress made a mistake so disastrous that the U.S. of A. nearly failed before it had a chance to get started.
Today, 250 years later, America’s modern Congress is repeating history.
And this time… well, I worry none of us will escape the consequences.
That mistake?
Put simply: America is about to run out of money.
That may seem surprising considering that the government has been printing trillions upon trillions of dollars for COVID “relief checks” and green energy programs and tax cuts for businesses and billionaires, and the like.
But the reality is that Congress has opened a black hole so large that it threatens the wealth and retirement of everyone, especially those of us over the age of 55. Companies of all sizes are in danger, too. (Even Amazon founder Jeff Bezos recently warned small business owners to keep cash on hand as much as possible.)
To understand what’s going on, it’s best to look back, to the first time this happened…
Most people have forgotten this, but America had a currency before the dollar. The government named it the Continental.
During the Revolutionary War, the Congress of the day needed a way to pay for supplies and weapons. So, they created the Continental.
Too Much Debt Isn’t Just a Modern Problem
At that time, gold-backed currencies were commonplace. Silver, too. Many, in fact, were actually made of gold or silver. But the Continental wasn’t backed by anything. It was basically an IOU.
Worse, that Congress of yesteryear printed millions upon millions of Continentals. Little wonder that the value of the Continental quickly collapsed.
No one wanted to accept them—farmers, merchants… no one. After all, why trade valuable goods and services for a piece of paper backed by bupkis—backed by too much debt—when you could trade them for silver-backed Spanish dollars?
Of course, Congress tried to coerce farmers and businesses to take the worthless paper… so those businesses promptly closed.
You remember that story from school about the miserable winter George Washington and his men spent at Valley Forge? Well, you wanna know why it was so miserable? Hint: It has nothing to do with a lack of food and clothing in America.
The country had plenty of both… just not for a Continental.
By 1780, the Continental was so worthless that a new idiom had entered the American lexicon: “Not worth a Continental.”
Eventually, the Continental collapsed and Congress replaced America’s debt-based money with a new monetary system based on gold and silver—a system that remained in place for nearly 200 years.
The thing about gold- and silver-backed currencies is that they impose financial discipline on government.
When a currency is backed by a certain quantity of precious metal—a so-called hard currency—the government can’t just willy-nilly print more money. It needs to increase its stockpile of gold and silver first. And the only way to do that is through increasing the economic activity of its citizenry—creating goods and services for which other nations are willing to spend some of their gold and silver.
Under this system, America and its new currency, the dollar, thrived.
The Modern Dollar is On the Same Downward Path
Unlike the Continental, the dollar not only held its value, it increased in value over time… which is a primary reason America grew into the richest, most powerful, most innovative, and most productive country in the world. (Imagine living in a world where the money you earned was worth more a year after you earned it… that might inspire people to work harder.)
All was going swimmingly, until something changed…
In the 1960s, President Johnson began a vast expansion in the size of our government… “the Great Society” he called it. That expansion cost a lot of money that America didn’t have. So, he relied on the accumulation of debt. Lots and lots of debt. Way too much debt for the economy of that era.
Our allies recognized what was going on—notably France. At the time, countries could convert the dollars in their reserves directly into gold at the rate of $35 per ounce. As America’s debt grew, countries rightly began trading all their dollars for gold.
By the time Nixon arrived, he faced an impossible choice: Allow America’s dwindling gold reserves to be fully depleted or… pull a Continental. That is, take America’s gold-backed currency off the gold standard and allow it to become a debt-backed currency just like the old Continental.
In August 1971, Nixon severed the link between the dollar and gold.
And just like those old Continentals, the currency began to collapse. Since 1971, the dollar has lost 85% of its value. America has repeated a mistake that almost destroyed the nation. (This is why I have unloaded almost all the dollars in my largest retirement account.)
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While the old Continental slipped into the grave within a few years, the dollar has continued to trundle on. Though it’s crystal clear to everyone America has too much debt, the dollar remains the world’s reserve currency, for now. So, the dollar has continued to survive, despite its obvious Continental-like weakness.
What Too Much Debt Looks Like
Back in the 18th century, America was barely a nation. But modern America is a global superpower and the richest country on Earth, so it has been able to borrow to keep its modern Continental going.
But even a nation as rich as America can only borrow for so long…
Today, the American government, businesses, and consumers owe a combined $93 trillion. That’s more debt than can ever repaid… and, now, the system is starting to fall apart.
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Today, a fifth of America’s 3,000 largest companies are known as “zombie companies”—companies that don’t make enough money to cover their debts. Like America, they too have too much debt.
The only reason they’re still in business is that rock-bottom interest rates have allowed them to refinance again and again… kicking the can down the road. But now rates are up. The road has come to a dead-end, and there’s nowhere to turn.
So, the bankruptcies have begun.
Bed, Bath & Beyond failed in April, while retailer Tuesday Morning failed in February. Four major banks have collapsed in just the past two months. And Reuters reports that U.S. corporate bankruptcies are now at their highest levels since the global financial crisis.
As Bloomberg warned: “The end result could be a prolonged stretch of bankruptcies unlike any in recent memory.”
This is not going to end well.
Alas, this is America today. We look like we have money. We look like and act like a wealthy country. The reality, however, is that we are running out of real money.
We’ve become an excessively indebted nation with a printing press in the basement, blatantly cranking out pieces of green paper that are increasingly worthless.
Just like the French did in the late ’60s and early ’70s, a lot of the world has figured out what’s happening. And they’re increasingly dumping dollars to buy gold.
Last year, global central banks bought the most gold since 1950, when records began, according to the World Gold Council.
They are preparing for a crisis.
Which means we need to prepare too. And as I always write, the best ways to prepare are to own gold, bitcoin, and safe-haven currencies like the Swiss franc.
America made the same mistake twice… assuming debt could legitimately back a currency.
The Continental was the first to die because of that. Now the dollar is in jeopardy…