Today's Coming Crisis Movie

Thursday, March 1, 2012

Paper Promises: The Eternal Debt Cycle

A populist movement has emerged from the heartland of America that is campaigning for a fundamental change in economic policy. European nations are locked into a fixed exchange rate system and struggling to repay their debts. As Mark Twain once remarked, “It is not worthwhile to try to keep history from repeating itself.”

The current debt crisis is merely the latest in an age-old battle between creditors and debtors. Creditors have a penchant for devising systems to fix the value of money, so as to protect their interests. But every so often, the system breaks down as the borrowers become overwhelmed by the burden of their debts.

While creditors want to fix the supply of money, debtors usually want to expand it. That was the cause of the great populist campaign of the late 19th century, led by William Jennings Bryan. In some ways, Bryan was the Barack Obama of his time–a Midwestern Democratic senator who was a powerful orator. But the movement Byran led was more akin to the Tea Party, drawing its strength from the farmers in the heartland states. Those farmers were being squeezed by a combination of falling crop prices and the fixed value of their debts. So Bryan campaigned for silver to be added to the money supply—the 19th century equivalent of quantitative easing—famously declaring, “mankind shall not be crucified upon a cross of gold.” Read More