The Coming Bond Market Collapse by Michael G. Pento

Author:Michael G. Pento
Language: eng
Format: epub
Publisher: Wiley
Published: 2013-03-18T16:00:00+00:00

The Economic Laws of Debt

For hundreds of years, the sun never set on the British Empire—its span across the globe ensured that the sun was always shining on at least one of its numerous territories. On July 1, 1997 the United Kingdom transferred sovereignty of Hong Kong to the People’s Republic of China PRC, officially ending 156 years of British colonial rule, marking the technical end of the British Empire. However, the allegorical sun had set on the British empire after World War II, if not before.

By 1922 the British Empire held sway over about 458 million people, one-fifth of the world’s population at the time. The empire covered more than 33,700,000 km2 (13,012,000 square mile), almost a quarter of the Earth’s total land area.24

Despite British victory from the Second World War, the effects of the conflict were weighty, both at home and abroad. Much of Europe, a continent that had subjugated the world for several centuries, was in ruins; the balance of power had shifted to the United States and the Soviet Union. Britain was bankrupt; insolvency was forestalled in 1946 with a $3.5 billion loan from the United States.25

Britain, in contrast to France and Portugal, adopted a policy of peaceful disengagement from its colonies. Like the Roman Empire in its day; the British Empire had a profound effect on all aspects of the world. England introduced the concept of the fractional reserve banking, a system in effect today.

In mid-seventeenth century England, there were no banks of deposit until the outbreak of the civil war. Before the war, merchants stored their surplus gold in the king’s mint. Shortly before the outbreak of the Civil War, Charles I needed money and confiscated a huge sum of £200,000 of gold, under the guise of a “loan.” The merchants eventually got their gold back, but decided not to redeposit it in the mint. Instead, they chose to deposit their gold in the coffers of private goldsmiths. The warehouse receipts of the goldsmiths were soon used as a substitute for the gold itself. Eventually, the goldsmiths fell prey to the temptation to print pseudo-warehouse receipts not covered by gold and lent them out; fractional reserve banking had arrived in England.26 In fact, paper money, as we know it today, originates from the European fractional reserve banks of the seventeenth century, where the search for more money by governments was the main driving force.

In the 1720s, Prime Minister Sir Robert Walpole’s introduced the funding system “scheme” in England. And from then on, government debt never needed be repaid. “It was enough to create a regular and dependable source of revenue and use it to pay the annual interest and the principal of maturing bonds.” For every retired bond sold, a new one was issued. In this way, a national debt could be made perpetual. Walpole’s system proved its worth in financing British expansion in the eighteenth and nineteenth centuries. “The British Empire was built on more than the blood of its soldiers and sailors; it was built on debt.

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