One of the things that’s
really unique about this part of the world, Esthonia, 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?
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