Graphic of the Day: When History Repeats….

This striking chart demonstrates why there have been patterns of similarities in history…

Writes Simon Black at the Sovereign Man (bold mine)

But it’s not just debt burdens that are problematic. ‘Rich’ countries in the West are also rapidly debasing their currencies, spawning tomes of regulatory impediments, restricting the freedoms of their citizens, aggressively expanding the powers of the state, and engaging in absurd military folly from Libya to the South China Sea.

Once again, this is not the first time history has seen such conditions. In our own lifetimes, we’ve seen the collapse of the Soviet Empire, the tragi-comical hyperinflation in Zimbabwe, and the unraveling of Argentina’s millennial crisis. Plus we can study what happened when empires from the past collapsed.

The conditions are nearly identical. Is our civilization so different that we are immune to the consequences?

Probably not. And the cycle that has befallen so many great powers before us– decline, collapse, turmoil, and reset– will likely happen in our time too.

But it’s not the end of the world. Not by a long shot.  It’s a complete reshuffling of the deck. A brand new game with brand new rules. And the old way of doing things (like printing money backed by nothing) will be resigned to history’s waste bin.

One of the things that we see frequently in history is that this transition occurs gradually, then very rapidly.

Think about the Soviet Union, which you may recall. One day, they were the greatest threat to the planet. The next day, the wall came down. It happened so quickly. It’s like what Hemingway said about bankruptcy– it happens slowly at first, then all at once.

Unfortunately we don’t know where we are along this path. And we won’t know until we’re over the cliff on the way down. Everything will feel normal until then.

The repetition of crises had been the outcome of the short term obsession of attaining political goals mostly through economic and political repression.

Thus it is equally nonsense to assert debt by itself creates all these troubles.

For instance this self-contradictory claim by populist analyst John Mauldin…

As an aside, it makes no difference how the debt was accumulated. The black holes of debt in Greece and in Argentina had completely different origins from those of Spain or Sweden or Canada (the latter two in the early '90s). The Spanish problem did not originate because of too much government spending; it developed because of a housing bubble of epic proportions. 17% of the working population was employed in the housing industry when it collapsed.

…who earlier admits that

Debt (leverage) can be a very good thing when used properly.

The reality is that debt can be distinguished through productive and consumptive activities where debts from consumption (welfare, government spending) and malinvestments (for instance convergence of interest rates and moral hazard from policies in the euro which brought about a bubble) have all been a result of interventionism or emanates from political policies that leads to business cycles or bubbles.

In a paper submitted to the classical liberal organization, the Mont Pelerin Society, which recently held a meeting in Prague, Terry College of Business University economics professor George Selgin gives a terse but insightful dynamic of the Euro crisis, (bold mine) 

Philip Bagus (2012) explains the particular course by which Greece was able to take the European Monetary Union hostage. Banks throughout the Eurozone, he says, bought Greek bonds in part because they knew that either the ECB or other Eurozone central banks would accept the collateral for loans. Thus a Greek default threatened, first, to do severe damage to Europe’s commercial banks, and then to damage the ECB insofar as it found itself holding Greek bonds taken as collateral for loans to troubled European banks.

In short, in a monetary union sovereign governments, like certain banks in single-nation central banking arrangements, can make themselves “too big to fail,” or rather “too big to default.” As Pedro Schwartz (2004, p. 136-9) noted some years before the Greek crisis: “[I]t is clear that the EU will not let any member state go bankrupt. The market therefore is sure that rogue states will be baled [sic] out, and so are the rogue states themselves. This moral hazard would increase the risk margin on a member state’s public debt and if pushed too could lead to an Argentinian sort of disaster.

Indeed, the moral hazard problem as it confronts a monetary union is all the worse precisely because sovereign governments, unlike commercial banks, can default without failing, that is, without ceasing to be going concerns. This ability makes their ransom demands all the more effective, by making the implied threats more credible. A commercial bank that tries to threaten a national central bank using the prospect of its own failure is like a suicide bomber, whereas a nation that tries to threaten a monetary union is more like a conventional kidnapper, who threatens to harm his innocent victim rather than himself.

Next, it is not debt alone, but rather attempts at the preservation of the status quo which has been founded on unsustainable political-economic premises through political and financial repression which makes conditions all the worst.

This means that the popularity of absolving culpability of those responsible for them, the “inattentiveness” to genuine conditions and or the cognitive fallacy of selective perception out of political bias or economic ideology signifies as principal reasons of the recurrence of patterns in history. 

This block excerpt from philosopher George Santayana gives as some useful lessons; from REASON IN COMMON SENSE Volume 1) [bold mine]

Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement: and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it. 

In the first stage of life the mind is frivolous and easily distracted; it misses progress by failing in consecutiveness and persistence. This is the condition of children and barbarians, in whom instinct has learned nothing from experience. In a second stage men are docile to events, plastic to new habits and suggestions, yet able to graft them on original instincts, which they thus bring to fuller satisfaction. This is the plane of manhood and true progress. Last comes a stage when retentiveness is exhausted and all that happens is at once forgotten; a vain, because unpractical, repetition of the past takes the place of plasticity and fertile readaptation. In a moving world readaptation is the price of longevity. The hard shell, far from protecting the vital principle, condemns it to die down slowly and be gradually chilled; immortality in such a case must have been secured earlier, by giving birth to a generation plastic to the contemporary world and able to retain its lessons. Thus old age is as forgetful as youth, and more incorrigible; it displays the same inattentiveness to conditions; its memory becomes self-repeating and degenerates into an instinctive reaction, like a bird's chirp.