It’s time to separate legend from reality
Byzas of Megara must have been positively dumbfounded when he first set foot on the banks of the Bosporus River.
It was the year 667 BC, more than 2,700 years ago, and Byzas was on a mission from the Greek mainland to find new colonies.
His fleet had just landed on the European side of modern day Istanbul. And as he gazed across the river to the Asian side, Byzas could see another small settlement– a tiny colony known as Chalcedon.
From a strategic and maritime perspective, the Asian side of the river was obviously inferior. There was no protective terrain, no natural harbors. And the ground was more of a swamp.
Byzas thought the settlers at Chalcedon must have been blind to build their settlement on the wrong side of the river, when they could just have easily built on the vastly superior European side.
But he wasn’t about to let the Chalcedons fix their mistake; so Byzas immediately seized the land and established a new colony. It became known to history by many names– Byzantium. Constantinople. And now Istanbul.
One of his first priorities was to build a wall… to protect from the Chalcedons just in case they got any bright ideas and tried to seize the European side for themselves.
And over time, the walls of Byzantium grew. Later rulers added dozens of towers and gates. The walls were reinforced and thickened. New walls were added.
By the time Byzantium became the capital of the Eastern Roman Empire in the 300s AD (and was renamed Constantinople), the city’s walls were already impressive. But Rome’s imperial government continued to invest further in the city’s defenses.
Eventually the Walls of Constantinople became legendary; kings and military commanders around the world simply accepted as truth that the city’s walls were impenetrable. And it remained this way for more than 1,000 years.
But the legend finally died on May 29, 1453. After a prolonged siege, the armies of Ottoman leader Mehmed II did what everyone had thought was impossible: he breached the walls of Constantinople and sacked the city.
In retrospect this shouldn’t have been a surprise. By the 1400s, the Byzantine Empire was bankrupt and nearly collapsed. Everyone knew it. Especially the Ottomans.
But there’s something inherently emotional about watching a legend die, so the loss at Constantinople was a shocking event at the time.
History is full of similar stories, as is our popular culture.
Muhammed Ali was 38 years old when he climbed into the ring to face a much younger Larry Holmes in October 1980.
Everyone knew that Ali was slower, weaker, and well past his prime. But he was also a legend… so, despite all rational evidence, people still believed Ali could win. The odds in Las Vegas, in fact, were quite close.
Reality set in when the bell rang; Larry Holmes savagely pummeled Ali for ten straight rounds until Ali’s trainer finally threw in the towel to stop the fight.
A young Sylvester Stallone was in attendance and watched the fight from the first row; it was so brutal he later described the fight as “watching an autopsy on a man who’s still alive.”
Even when it should be obvious, legends still die hard.
It’s difficult to not feel the same way about the Legend of America. People around the world… including hundreds of millions in the United States… don’t want the legend to die.
But the rational data is too obvious to ignore.
Late Saturday night, after narrowly avoiding another shutdown, the US government closed its 2023 fiscal year. And while the final data won’t be published for a few weeks, it looks like the deficit for the year will be close to $2 trillion. And gross interest on the debt will total nearly $900 billion.
That’s on a national debt that now exceeds $33 trillion– an increase of more than $10 trillion (around 50%) from before the pandemic in October 2019.
It’s extraordinary how little the people in charge seem to care.
In fact, not only will this catastrophe continue to be ignored, I’m almost certain that the White House will actually brag about these results; they’ll make some bizarre claim that these abysmal numbers prove that their idiotic policies are working.
And their propagandists in the mainstream media will dutifully repeat this fiction with a straight face to the American public.
Yet even the Congressional Budget Office forecasts that the problem will quickly become much worse.
Just consider that spending for this current fiscal year (which started yesterday) is projected to reach $6.4 trillion. However only about $900 billion of that is “discretionary”, non-defense spending.
In other words, almost all the money that the government spends is either mandatory entitlement programs (like Social Security and Medicare), interest on the debt, or defense.
Conclusion? There are very few options to make a significant dent in the deficit problem. They’ll either have to cut benefits to Social Security recipients. Or slash military spending. Or default on the debt.
It’s doubtful that any politician has the will to do any of those things. So the fallback option, of course, will be to do what governments in trouble have almost invariably done throughout history: print more money.
The Federal Reserve will almost certainly have to reverse course… and not only STOP the interest rate hikes, but reverse them and slash rates back to zero. They might even make interest rates negative, just to give extra, needed support to the federal government.
The impact on the dollar in this case will be substantial, including inflation, and the loss of its dominant global reserve status.
And this brings me back to the ‘legend’ of America’s invincibility.
The legend has already been pierced multiple times over the past few years from a series of national humiliations– the embarrassing withdrawal from Afghanistan, the President shaking hands with thin air, the constant debt ceiling and government shutdown fiascos.
Any rational observer can easily see that that America is past its peak, like Muhammed Ali in 1980. Yet most people still want to cling to the legend of invincibility… and they’ll continue to do so until it finally crumbles for good.
Now, I’ll be the first to acknowledge that the US still has a narrow window to solve its problems. It’s also true that the US is not alone in having gargantuan challenges.
Europe is suffering major fiscal imbalances too, not to mention a migration crisis and war in its backyard. China has its own economic, banking, and demographic emergencies.
But none of that is a sensible reason to ignore such obvious threats. It seems foolish to pin one’s hopes and dreams on politicians who shake hands with thin air, refuse to work together, nor rationally discuss problems and priorities.
And this is why having a Plan B is so critical.
History is an ample guidebook to the future consequences of these challenges. More inflation. Higher taxes. Social chaos. Potentially even war.
Yet while it’s clear we cannot rely on government to fix the problems of their own making, a solid Plan B can mitigate the consequences.
The basics are simple: don’t keep all of your eggs in one basket. Have a place to go. Diversify jurisdictions. Own real assets. Implement simple, legal strategies to reduce your taxes. Protect your assets. Think long term.
There are plenty of solutions out there as well.
But the first step is separating legend from reality.
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