Little extract from: THE GOOD, THE BAD, THE UGLY
by Frank Giustra
"In the long run imperialism and over-consumption are a recipe
for economic decline. We only need to look back at the 16th
century Spaniards, the late 18th - early 19th century French
or the late 19th century - early 20th century British for
historic examples of countries trying to run concurrent war-
monging and consumption.
Of the three, the experience of the 16th century Spaniards
makes for the best comparison with the Americans of today. For
nearly 100 years immense supplies of gold and silver (the
likes of which Europe had never seen before), plundered from
the natives of Central and South America flowed into Spanish
coffers. Sadly, this 16th century version of excessive money
supply growth managed only to fuel the nations' spending
habits, while at the same time disincentivizing their
willingness to produce. Instead of turning this windfall into
productive wealth, Spain used it to buy "consumer goods" from
other nations. As a result, Spain's debt to foreigners soared
and all the gold and silver was exported out of the country
(think current account deficit without the ability to "print"
more gold).
With all this new-found wealth, it didn't take long for the
kings of Spain to think themselves superior and embark on a
mission of bending the world to their will. Charles V, not
satisfied any longer with being a mere king, lobbied
intensely, using bribes and threats and eventually convinced a
"coalition of the willing" to make him emperor of the Holy
Roman Empire. After loosing quite a few of its booty-laden
ships on the high seas, Spain, claiming self defense, declared
that it would no longer make a distinction between the pirates
and the nations that harboured them. To eliminate this "state-
sponsored piracy", they decided to strike at the worst
offender - Britain (although I doubt that Philip II ever
suggested that he was merely trying to free the British people
from oppression).
Boasting their technologically superior Spanish Armada (not
dissimilar to America's air supremacy), they waged what proved
to be a disastrous war against Britain whose smaller ships
proved far too wily. Years of wars ensued with a variety of
other countries that did not share Spain's view of the world.
Having already traded their gold and silver for consumer
goods, the nation had to turn to debt-finance to pay for these
wars. As Spain's tab reached the limit, their lenders, the
Fuggers of Augsburg (16th century version of the Japanese)
were forced to convert their debt into long-term loans.
Eventually, Spain's creditors cut them off and the nation, now
bankrupt, introduced to the world the now time-honored
tradition of default by a sovereign state.
Of course, in their time very few of the above mentioned
governments or their citizens would have ever believed such an
economic fate would befall them. I suspect most Americans
today wouldn't either. Truly amazing when one looks at the
current sad state of America's public and private balance
sheet and its voracious consumption appetite. For although
past global powers had their excesses, it took the Americans
to really put the "pro" in the term profligate."
-- Frank Giustra