A Short History Lesson

By 400 AD, the Roman Empire in the West was in severe trouble. More emphasis had been placed on the building of the “New Rome” of Constantinople since the early 300’s, and as such, the western end of the Empire had been left to moulder. Foriegn immigrants (derided as “barbarians”) were pouring over the border, and the once mighty Roman army had changed into a small, professional core supporting numerous low-quality border troops of dubious value. Service in the Army was unpopular, so Rome was forced to make more use of Germanic troops who were offered citizenship, land, or both to serve. Because of this, the Roman army took on a much more mercenary attitude, and loyalties among these troops shifted constantly, and the Germanic ‘foederati’ were usually more loyal to individual leaders than to the concept of “Rome.”

The cost of these troops, along with the cost of maintaining the Imperial Infrastructure and feeding the citizenry caused massive finanical turmoil. Every year the Roman currency was debased in an effort to find enough funds to cover the costs of the Empire, and as a result, inflation was rampant. The Roman Denarius originally contained around 4.5 grams of silver in each coin, but by the 400’s the amount of silver in each coin was approaching zero. As a result, confidence in the currency plummeted, and older coins fetched much more than their face value since they actually contained the precious metal that suppsoedly gave the coin its value.

The combination of outside pressures, wars, personal power grabs and desctruction of the currency proved to be too much for the Western Empire, and by 430 AD, it was a shadow of it’s former glory. By 476 AD, it was gone.

Let’s review the major facts:

  • The Army had a small, professional core that was stretched beyond it’s limits, having to rely more and more on costly mercenary troops of dubious loyalty.
  • In order to find the funds to pay for the troops, the wars, and keeping the infrastructure intact, the Empire was forced to debase it’s currency and triggered mass inflation.
  • The average Roman citizen wasn’t interested in protecting the state that gave him the privileges he expected and demanded. This was the period of “bread & circuses” in Rome proper.
  • The leaders of the time were more interested in pursuing personal power, and settling score with old rivals, versus actually serving the greater good.

Sound familiar?

With the Democrats regaining power in January, we have a small amount of time to try and avert the worst aspects of the financial crisis that looms in the background. The mainstream media doesn’t spend much time on the economy these days other than good news from Wall Street, but there is a small but growing network of commentators on the internet that are taking a much different point of view concerning the state of the economy, and the health of the US Dollar in particular.

I’m no economist, but I read enough different sources to see that things are not looking too good for the dollar. If the housing slowdown can be ‘contained’ and avoid spilling over into the general economy, we may be looking at a simple recession for a few years. If this cannot be done, then things will get ugly. The housing market is one of the mainstays of the US economy these days, and if it goes, it will not only lay off a number of people in industries directly tied to the housing market, but the subsequent fall in housing prices will mark the end of the ‘house as ATM’ phenomena that has been keeping consumer spending going. If that happens, it will mean trouble across the spectrum, especially since it could mean the problem turning into a vicious cycle of layoffs, foreclosures, and more layoffs. I agree with George Ure’s idea that as far as housing goes, you need to either own your property outright, or be mortgaged to the hilt; any position in between is trouble.

Many pundits are now advocating a move into precious metals to avoid loss of wealth due to a weakening dollar. I’m not sure how useful it would be having a huge store of gold if the economy has imploded and everyone is scrambling to simply survive. Gold’s primary lure is that it has been a steady store of value over many centuries of time. Back in Roman days, an ounce of gold would be enough money for a man to buy himself a nice set of clothes, including shoes, belt, etc. That same ounce of gold today would buy you a complete suit along with a nice pair of shoes, belt, etc. The fact that gold today costs around $630 per ounce compared to $20 back in the 1920’s says more about how the value of paper currency has been watered down. If you have some funds you’re not expecting to use over the next few decades, putting them into precious metals may make sense.

In the short term, though, I plan on putting any excess funds into things of value. Next spring, I plan on sending out a huge order for gardening seed, for example. Purchasing items that will help me me a little more self-sufficient seems to make more sense than socking money away in mutual funds or stocks that are bought and sold in a rigged market.

I think that a financial storm is coming… I have no idea when or how nasty it will be, other than the conventional wisdom that that longer it’s held off, the worse it will be when it finally does arrive. In the meantime, I would urge all of you to start checking out some additional sources of financial insight beyond the usual suspects. Do your own research, and see what makes sense to you.

Here are some starting sights I recommend:

321 Gold (lots of finanical insight, not just PM’s)

Financial Sense

Urban Survival

Whiskey & Gunpowder

There are a number of other good sites out there as well. Hopefully this small list whets some people’s appetites for a broader appreciation of the financial world. The numbers can be crunched to promote alomst any viewpoint. I find that some of these sites’s views line up better with reality than what you’ll find on CNN, the WSJ and other places.

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