NORWALK, Conn. (MarketWatch) — Financial commodities traders of U.S. Treasurys and the dollar need to step back and ask themselves, why did Rome fall — and is the “American Empire” about to repeat history?

Some historians suggest that ancient Rome collapsed because Christianity weakened the bonds that had held it together. Some claim it was because the Empire got too big for its britches, fighting in all corners of the world in wars it couldn’t win or pay for. Others note that a plague, brought back from the East, was ravaging the empire. By 180 A.D. at least fourth of the population of the entire empire, both civilian and military, had perished.

Or is it simply that empires always implode and Rome’s time had come?

It probably wasn’t any one thing — but fast forward to today and the biggest empire on earth has some cracks showing too, and they’re eerily similar.

In their new book, Empire of Debt, authors Bill Bonner and Addison Wiggin explain in their own unique style, “In America, we know what we have to do. We have an empire to run… people to boss around, sabers to rattle… Unfortunately, history shows that running an empire is a disastrously expensive business.”

Fiddling while the Empire burns

If some things are sounding a little familiar read on. Back in ancient Rome, political leaders tried to turn attention away from domestic problems by focusing on war and the great games at home. A moderate estimate of $100 million dollars a year was spent on the spectacle of the games. The cost of it, though, more than doubled between 96 A.D. and 180 A.D.

To compound the difficulties, there was an adverse balance of trade. Roman currency, for example, poured into India and the East to pay for luxury items. Is the China and U.S. trade gap ringing a bell?

During the time of Nero, based on the accounts of Roman historian and dramatist Seneca, it’s estimated that it cost Rome $5 million dollars a year to import its luxuries from the East. And not at all unlike today — as the bill for all of this was footed by the taxpayer. Things got even worse when the taxpayers simply couldn’t pay anymore.

Garage sale at the White House

As it was crumbling, to many Rome seemed prosperous — but it was a myth. In the second century A.D. the Roman Empire was overspending to such an extent that it was moving to an economic crisis. When in 167 A.D. Marcus Aurelius was attacked, he was forced to sell the crown jewels, as well as his household furnishings, to finance the war. Can you imagine the Bush and Cheney families having a garage sale on the White House lawn to fend off outraged citizens?

The plundering of Rome, destroyed great art, cities, roads, trade, and the loss of any sense of European unity — it’s difficult to imagine any good came of it. But some good did result — like the abolition of slavery in Europe.

As for the U.S., well with Patriot Act and the President having more power than any other president, the U.S. might be leading right into the same fate as Rome. The ancient empire had a heavy dependence on defense contractors (mercenaries as they called them in Roman times).

Exactly like Rome, the U.S. is becoming heavily in debt and its commodities and natural resources are being gobbled up at an alarming rate that can’t be sustained. The growing greed and corruption within the government is at an all time high.

So how best can a financial commodity investor benefit from the demise of the dollar and U.S. Treasurys?

Ides of March: Ten-year notes

One way to play a coming of reckoning day for the U.S. economy is to short March ten-year Treasury notes (TYH6) using options. March treasury note 107 puts are trading at about 32 points right now, are relatively inexpensive and position a trader to benefit.

Another way is to simply buy gold bullion, futures or even stocks. As a flight to quality instrument, gold is unmatched in times of currency uncertainty — and we’re already seeing a significant rally heading into the end of the year.

The drive to protect dollar denominated assets by fund managers and independent investors alike will drive more interest in buying gold — unless of course those same fund managers and investors want to get fed to the lions.

— Kevin Kerr, MarketWatch
December 2005

Bonner and Wiggin have a slightly precious term for such speculators: the lumpeninvestoriat. It’s a simple concept: Crowds can only understand truths when they are so boiled down that they are no longer appreciably true. “People in China need air-conditioners” is something anyone can understand, but it ignores the fact that the reality on the ground is phenomenally complex. The underlying capital realities for the companies as they exist matter not at all — just give me press releases, show up on CNBC, get “coverage.” Make “the number,” however possible. Grow. Sound familiar?…

Financial Reckoning Day offers an excellent lesson in economic history written in an engaging and entertaining fashion. Despite its subtitle, Financial Reckoning Day is not concerned with Wall Street forecasting. Nor is it a do-it-yourself survival manual. Rather, it is a nature book. It is as if the authors had returned from postgraduate “field research” in the jungles and savannas of this “funny old world” excited about the new insights they uncovered. Insights into the nature of man as a rational (or irrational) investor; the nature of information and human progress; the nature of crowds; of war; of money and central banking; and of the indomitable forces of demography. But in place of a tedious doctoral dissertation, they entertain us, using a rare genre called “literary economics.”

So, what will the future look like? Well, as Paul Volcker, chairman emeritus of the Federal Reserve Board, likes to say, “It will all have to be adjusted someday.” In the future, there will be a lot of adjusting. Which means more of the same. More speculative bubbles and pops; more economic booms and busts; more military victories and defeats; more political freedom and repression; more individual virtue and vice. Nature has her laws. She may not always behave as predicted, but eventually she comes around. Those who understand her whims and charms stand to survive, if not thrive. By sharing the results of their “field study,” Bonner and Wiggin may save many from being counted among the “unforgiven.” If not, they at least will have left us a legacy of good entertainment (and on paper that, perhaps in the future, will be of equal value to the paper on which Chairman Greenspan is writing his “legacy.”) Financial Reckoning Day may turn out to be one of your best long-term investments.

— Bill Man, The Motley Fool 
January 2004

THE season’s ranking of political bestsellers illuminates some of the western world’s deeper fears. History’s colonial overhang, the perils of globalisation, America’s chronic financial incontinence, modern morality, hyper-judgmental Christians, hypocritical liberals and angry British envoys who wear red socks. Everything but the kitchen sink, really.

2. EMPIRE OF DEBT: THE RISE OF AN EPIC FINANCIAL CRISIS. By Bill Bonner and Addison Wiggin. JOHN WILEY; 370 PAGES; $18.45 AND GBP11.89

How deficit spending, gluttonous consumption and military adventurism, they say, will bring America to its knees. By the duo who brought you Financial Reckoning Day.

The Daily Reckoning

The narrative Wiggin spun out for me over lunch is repeated, nearly verbatim, by almost everyone in the gold community. “This is the blow off phase for the Great Dollar Era. We’re in an unsustainable trend right now,” Wiggin told me, ticking off the miscalculations that have brought us to the brink of an economic apocalypse. To begin with, the U.S. has become the world’s biggest debtor, with three outstanding obligations at alarming highs: consumer debt, or our mortgages and credit cards; the federal deficit; and our current account deficit with foreign countries. Federal Reserve Chairman Alan Greenspan, Wiggin continued, has simply shifted one bubble — the ’90s bubble in stocks and bonds — into another, in real estate and “overconsumption,” or the American propensity to pay for an ever more lavish lifestyle on credit.

Stephan Metcalf, 
New York Times Magazine
June 2005