All Roads Lead to (Ancient) Rome

In not facing these fundamental challenges, current governments will encourage social unrest and force their successors to adopt a combination of predatory taxation, sovereign default, inflation, and devaluation, with unfavorable demographics compounding all these issues.


We are touching here on the essential shortcoming of the euro. Since its creation, Greek, Spanish, and Irish banks and governments have been able to borrow like Germans, Austrians, or the Dutch, under the cover of what was perceived to be the implicit uniformity and guarantee of the euro. As such, the common currency fueled insane property bubbles and equally insane public and private indebtedness and corruption. Logically, internal trade imbalances and competitive gaps kept widening. To simplify, life under that common currency regime has been like telling wolves and sheep to enjoy freedom together in open fields, while the suggested write-down on the Greek debt is equivalent to providing more grass to those sheep in the hope they will last longer. Incidentally, if consulted, the sheep may say no to the bailout package and the euro altogether.

America is not so different. There, an even more general asset and liability bubble has expanded under the influence of the low interest rates, counterproductive tax system, and lax regulatory environment that have prevailed for most of the past two decades. Only the dominance of federal over local government debts, the facilities offered by holding the world reserve currency, and the stabilizing role of a few very large foreign sovereign investors effectively funding American consumers through massive purchases of U.S. assets have prevented something similar to (or worse than) the European debt crisis from happening—so far. The current path is neither sustainable nor desirable.

Ancient Rome teaches us two things. The first is that there should be some explicit quantitative policy regarding monetary creation. Ancient economies’ monetary aggregates were capped by the availability of precious metals. Counting on private borrowers to create money leads post-gold-exchange-standards economies to a dangerous dependence on profligacy. This fuels a general sense of irresponsibility at all levels of our societies. Political authorities should not be thinking of ways to encourage essentially bankrupt consumers to borrow more. Consumers should stop thinking of themselves as consumers, reflect on what they bring to the outside world, and adjust their expectations accordingly. Wealth should be a consequence of adding more value, not of borrowing more.


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