Customer Reviews

Empire of Debt: The Rise of an Epic Financial Crisis (Agora Series)

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When my grandparents bought their home in the 1930s, they made paying off the mortgage a high priority and celebrated when the house was finally theirs. They worked hard, pinched every penny and took good care of what they had. They kept their house tidy and in good repair; they never used the fireplace because they did not want to get it dirty, and the furniture stayed good as new under its plastic covers. When they died, they were debt free and had money in the bank. It was these virtues--thrift and industry--that built the United States into the most powerful empire the world has ever known, according to Bill Bonner and Addison Wiggin in their new book, Empire of Debt: The Rise of an Epic Financial Crisis.

Bonner and Wiggin view ancient Rome as the classical model of empire. Running an empire was an expensive business; the folks in the homeland needed to be mollified with government handouts (bread and circuses), while a large military had to be maintained in the frontier. Rome used its military power to exact tribute from neighboring states; it was a protection racket, no different from the Mafia. Nevertheless, this scheme generally kept the central state solvent and the territories at peace. The United States is also an empire, Bonner and Wiggin maintain, but it does not follow the classical model. It placates its citizens with massive distributions of government largess while using its powerful military to exert influence and keep peace abroad. However, "[i]nstead of getting paid for providing protection, the United States is on the receiving end of loans from its tributary states and trading partners " (p. 77). This is how the United States became the Empire of Debt.

In Bonner and Wiggin's version of history, the beginning of the American Empire was Wilson's entry of the United States into World War I. Wilson was behaving imperially, according to the authors, because he was using military force in an attempt to influence political events beyond his country's borders. By the Vietnam War, the United States had clearly shifted to imperial mode; although it made no difference to the American homeland who ruled Vietnam, it is nevertheless the role of the empire to "routinely and habitually contest control of periphery areas" (p. 169). Indeed, during the twentieth century the United States got involved in conflict after conflict that was irrelevant to maintaining its security.

What made America a peculiar empire was that it had an agenda for changing the world. It would not play empire by the old rules; instead, it would use its imperial power to remake the world in its own image. Wherever the American empire could exert its influence, it demanded not tribute but rather that its vassal states practice democratic capitalism. At first, this arrangement was profitable to the United States, especially in the case of Western Europe and Japan after World War II. But providing protection is costly, and the homeland, rather than the vassal states, was paying for it. Here the authors also see a parallel between imperial America and that other peculiar empire of the twentieth century, the Soviet Union. They comment that what made the Communists so "obnoxious was not their own goofy creed but their determination to do precisely what [America] wanted to do, remake its adversary into something more like itself" (p. 209). Changing the world is an expensive undertaking, and the Soviet empire was bankrupt before the end of the twentieth century, but was the American empire really in any better financial shape?

Thus is the history of the Western world according to Bonner and Wiggin. But is this interpretation of events reasonable? Is it even plausible? Indeed, there is much to hate about this book. And yet, therein lies its beauty. For Bonner and Wiggin toe no party line; rather, they expose the chicanery and buffoonery of every political persuasion. No matter where you stand on the political spectrum, you are bound to find something in this book to offend you. And this is a good thing, because we all need to be knocked down a peg or two from time to time. Bonner and Wiggin play the role of the little boy in the tale of the emperor's new clothes who is willing to admit that he cannot see the royal robes--the emperor is naked, and the empire is broke.

On page after page, Bonner and Wiggin challenge the conventional wisdom. For example, they dispute the commonly held belief that "democracies are more peaceful than other forms of government" (p. 109). As evidence, the authors point to World War I, which, they insist, "was already a largely democratic war" (p. 112) even before Wilson involved the Unites States in it to make the world safe for democracy. Of the major combatants, only France was officially a republic, but England, Germany, Austria-Hungary and Russia were constitutional monarchies with at least limited popular political participation. Indeed, there is evidence that King George V of England, Kaiser Wilhelm II of Germany and Tsar Nicholas II of Russia, who were all first cousins, worked together to keep their countries out of conflict, but they were overwhelmed by popular sentiment, which "found the prospect of a short, sanitary war charmingly distracting" (p. 115). Furthermore, when the Tsar was deposed in 1917, the democratic Provisional Government kept Russia in the war; it was the autocratic Bolsheviks that withdrew Russia from the conflict. Bonner and Wiggin also challenge the belief that democracy is the best form of government, maintaining that in "a modern democracy, it is relatively easy to stir the masses to absurdity" (p. 164). This is not to say that the authors favor autocratic rule. Rather, they mean that we should think carefully, before imposing democratic institutions on unwilling populations, whether we are really doing them--or us--a favor.

Bonner and Wiggin also see a parallel between the British Empire at the beginning of the twentieth century and the American Empire at the beginning of the twenty-first. A hundred years ago, the British Empire had become moribund and was going increasingly into debt to the then economically vigorous United States, especially to fund its participation in the Great War. (Indeed, the authors suggest that Wilson sided with the British not because they were more democratic but because they owed us more, and Wilson wanted to make sure that debt could be repaid.) Now, the economy of the American Empire has stagnated as it becomes increasing indebted to the new global economic engine, China. There are many reasons why China is growing while America stalls, but one important reason has to do with the fact that "Asian workers are younger and cheaper" (p. 233). As a frequent traveler to China over the last sixteen years, I have witnessed firsthand China's unfolding economic miracle. Its people are young, well-educated and ambitious; they are determined to make themselves wealthy and their country the world's next superpower.

However, the American economy is not simply being bogged down by an aging population; it is also being destroyed by a collective delusion that debt does not matter. As Bonner and Wiggin point out, "America's empire of debt rests on many huge deceptions," such as that "the rest of the world will take American IOUs forever" and that "domestic savings and capital investment are no longer necessary" to maintain the economy (p. 290). Instead of saving, the typical American family takes out home equity loans, thinking that the rising values of their houses means that they are getting richer. Thus, Americans use creative financing and "the savings of poor people in foreign countries" (p. 285) to maintain a standard of living they cannot afford. Nevertheless, this debt will eventually have to be repaid. "For what is a national debt," the authors observe, "but an intergenerational obligation, a burden placed on infants by their parents and grandparents" (p. 200). The revelers may claim that tomorrow will never come, but those who have remained sober (and solvent) can see that there are major problems ahead for the United States.

It may be too late to turn the United States from economic decline; its people seem to lack the willpower and the foresight. However, that does not mean that individual Americans are doomed to financial despondency, as long as they are willing to face certain facts. Bonner and Wiggin emphasize that you always have to work to make money, either by selling your labor or by putting in many hours learning about good companies to invest in wisely. Furthermore, you do not get rich by playing the stock market; instead, the authors argue, "you get rich by buying companies at good prices, holding them for a long time, and not spending your money" (p. 309). This sounds exactly like the kind of advice that my grandparents would have given.

Bonner is a very entertaining and witty writer.

But in this book he's saying (over and again) not much more than:

1. Empires are created by vainglorious self-deluded fools.
2. Empires always overreach and go broke and collapse.
3. America is an Empire.
4. America buys more from overseas than it sells there, and that's bad.
5. Americans spend too much and don't save enough.
6. The housing market is a bubble due to pop.
7. Gold is a good store of value.

That's about it, along with some fragments of schoolbook history. Hope I "saved" you some money!

I read this tag team of financial prognisticators' first book, Financial Reckoning Day, and LOVED it. Well, loved it in the way you can love a book that tells you history is all for naught and the financial world as we know it is coming to an end (at least they smiled when they said that, in a bemused kind of way).

But it's my understanding these guys wrote that book and some of this one while over in France (they're also the team behind the Daily Reckoning ezine, which I also read). There must be something in the wine over there that makes you see a little more deeply into things than most are prone to here in the States. Or maybe it's the distance from their homeland (they're both American) that gives them perspective.

Because I found Empire of Debt, which I just got and finished, nearly as eye-opening as the discussion they'd already started in the last book. In short, easy credit and wild spending will get us in the end. Already, it's nipping at our heels. Even while most of us, right on up to the powers that be -- who should be exercising a little more caution, but instead happen to be the worse over-spenders of them all -- refuse to pay attention to the message.

But it's there in the history books. And it's in this one, which you could call a kind of history lesson as much as you could call it a forecast for things to come. Great material and well done. Definitely worth a read for anyone (smart) who cares about the future of the world economy.

This book is an interesting concoction - akin to the contrarian stance in the marketplace. When everyone else is buying shares, these guys are advocating gold. When economic growth sits at a healthy 4.2% per annum - these guys preach gloom.

The basis of their argument is the record US foreign debt, and they see this as the banana skin on which the USA will ultimately slip. The argument has some merits, but the outcome is not as inevitable as the authors argue.

The irony of debt is that it can actually integrate an economy more closely with that of the rest of the world. Just as the old adage goes that if you have a million dollar overdraft at the bank, you get really great service, so too - if a nation has a high debt exposure, then the rest of the planet is more inclined to talk business. Who, after all, could afford to see America fail? Could China? Could Europe? I doubt it.

So I'm not so sure that the gloom is warranted - and I find this tendency of today's political and economic commentators to choose one stance or another academically weak. The truth in economics is seldom anything but a series of "but on the other hand..." statements. Debt is bad...but on the other hand.

Next question posed by the authors: Is America an Empire? Does it behave as an empire? These authors believe it does, but again I'm not so sure the truth is that simple. Sure, Iraq really does appear to be about oil hegemony at the highest politcal level - but on the other hand the American economy is made up of so many non-political commercial organisations that it is unrealistic to say that the USA behaves as a single minded Roman-styled empire. Microsoft, or Dell or Amazon will do their own thing with or without the politicians.

So this alarmist book makes an interesting, entertaining quick read, but the thesis isn't deeply explored and the ideas are rather too glib. Your view of the book will depend upon your underlying political disposition, and that, ultimately is a failing of this text; it doesn't present any news that will either educate or even change our minds.

I have been a reader of The Daily Reckoning for some time. I didn't expect any new material in Empire of Debt, but I was interested to see how some of my favorite themes were tied together into a book as opposed to an e-letter.

The results are mildly amusing, unsurprising and about as deep as the water on my windshield during a mild drizzle.

The whole book could have been easily summarized into a brief article. But it wouldn't have been as funny.

Here are the key points:

1. Any leader with the power to act imperial will.
2. Most emperors were smart enough to make a profit from the empire.
3. The American empire loses lots of money and makes less economic sense than any other empire in recent memory.
4. American economic policies will lead to an astonishingly rapid decline in the value of the American dollar.
5. American assets are tremendously overpriced and will either fall in price or remain at current price levels for a long time.
6. Buy gold.

If any of those points are new to you, you will probably think this is a four or five star book. Clearly, the authors understand that they are looking at an economic disaster in the making. The book would have been greatly improved by providing more advice about how to improve matters or to profit from them.

I would say that you could skip this book if you already understand those lessons, but the humor is well done. It would be a shame to miss the sections praising "do-nothing" presidents.

Straight talk. That's what this follow up to Financial Reckoning Day is all about. Most people don't like to hear bad news. They can't handle life's economic truths, especially during the time of a bubble. Most would rather live in denial and be secure in their warm falsehoods, such as: real estate will only go up, stocks will only rise and inflation will remain stagnant. But authors Bonner and Wiggin shine a light on the nation's economy that is rarely seen in today's media. They expose the delusions our government is operating under and explain how it will erode your portfolio - unless immediate action is taken.

Empire of Debt is best described as ironically humorous... scornful... mocking... its conclusions are based in historical reasoning which read in a clear and consistent manner. Look at this exchange from the book:

"What should an investor do to protect himself," our friend asked.

"Buy gold."

"Gold? What a strange idea. I haven't heard anyone mention gold in many years. It seems so out-of-date. I didn't think anyone bought gold anymore."

"That's why you should buy it."

It's clear thinking like this that you don't find today... (unless you subscribe to their e-letter called The Daily Reckoning - it's written in the same vein.) Empire of Debt is a wry pleasure to read. I recommend this book highly.

Empire of Debt is probably the most important history book you will ever read. It puts the two great world wars, the Vietnam war, the Cold war, and the war in Iraq in a historical perspective that I've never seen anywhere else. It looks at American history through the lens of empire building and challenges the reader to admit that the corruption at all levels of American society today is the same corruption that brought down the ancient Roman empire. If you call yourself a conservative, you may find after reading this book you are nothing more than a Reaganite liberal (euphemistically called "neoconservative"), made in the image of Woodrow Wilson. And the objective evidence for this is whether or not you are living within your means. My dad used to say to me, "If you say you are going to do something, and then don't do it, the end result and effect upon others is identical to an outright lie." In a similar vein this book makes one realize that spending more than you make is as immoral as outright theft and a violation of the eighth commandment, "You shall not steal." The inescapable conclusion is that we are a nation of liars, thieves, rapists, and pillagers, doing the same things that all empires in history have done. We arrogantly think our way of life is the supreme way of life, and we are willing to kill and steal in order to impose it upon other nations. But history has repeatedly vindicated the supremacy of One who says, "The borrower is servant to the lender," (Prov 22:7). May God have mercy on us!

In a society already encouraging people to 'buy now' and worry later, this book provides essential diagnosis and prescription for much-needed changes. Both authors discuss very pertinent financial information in a manner which makes the book interesting and readable to the 'average person' I included.

America's spendthrift attitudes are driving the country into debit and making a mockery out of our international standing. How can we even think that we have the right to influence what goes on in the world stage when the USA obviously does not have it's own affairs first in order?

Using their unique brand of sharp insight and witty humor, Bill Bonner and Addison Wiggin argue that big government has created these problems. They clarify that we are actually living in the era of big government today.

However, the authors are much less interested in politics and partisan battles than examining disciplines. Instead of having pointed fingers, they want us to concentrate on the consequences of actions to having created current conditions. Foresight is so little encouraged in most other other books examining current affairs that it is a radical suggestion.

What a read.

This book is far more readable and entertaining than Friedman's drippy, World is Flat.

The idea that Americans are the most innovative, smart and democratic society in the world (as Friedman contends) is exactly the sophomoric and arrogant line of thinking that will lead to our downfall -- if we don't mind our P's and Q's.

We simply cannot continue to sustain this country as we are right now. 71% of our GDP is being artificially propped up by consumer spending. And the average consumer has NO money left to spend!

If you only read one chapter...turn to page 261 and read the section titled "Something Wicked This Way Comes." It will be the most eye-opening 11 pages you read all year.

Two insights from this book made it a worthwhile read for me. The first was the explanation of Nixon's 1971 decision to abandon the gold standard (not to redeem US money to foreign creditors with gold). I never understood why this guaranteed fiscal irresponsibility, and what a key decision it was. Second, the lure of empire and the crucial decade of 1910 - 1919 is highlighted, when "progressive" politics led to a series of utterly disastrous decisions, the results of which are still shaking out today. If the authors' style is troublesome to some reviewers, I found it amusing and insightful.