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[Suresh]

Book Take on Empire of Debt: The Rise of an Epic Financial Crisis by Bill Bonner and Addison Wiggin

Amazon.com: Empire of Debt by Bill Bonner and Addison Wiggin

I. The United States as an empire will be shorter lived than other empires

I.A. A typical empire receives tribute from vassal states. The tributes impoverishes the vassal states and enriches the center state of the empire. The typical empire collapses as the tributes received don't keep up with the costs of expanding the world order according to the empire. As this process unfolds, the empire typically devalues its currency in an attempt to continue funding the expansion. At some point, the devalued currency is spurned as failing to maintain its value.

I.B. By way of contrast, the United States is an odd sort of empire in that it does not receive tribute in the traditional sense from any vassal states. Therefore, its expansionist tendencies can only be paid for by devaluing its currency and hoping that no one catches on and spurns the currency. That funding style makes for a particularly short lived empire. Worse, because of it spends more on imports than exports, its current account deficit has turned the United States into Squanderville and its vassal states Thriftville to use Warren Buffett's allegorical concepts.

I.C. Symptoms of a typical empire include a citizenry that believes in its superiority of culture, values, etc. and that that superiority can continue indefinitely into the future.

I.D. By way of contrast, symptoms of the U.S. empire include a citizenry that believes that debt-based capitalism is sustainable.

II. A contrarian investor is aware of his current environment in the context of history

II.A. According to Stanford psychology prof. Amos Tversky, investors' perceptions of risk are overinfluenced by recent history. For instance, that leads to people paying too much for stocks or houses under the mistaken belief that prices of same will continue to go up indefinitely into the future, thereby posing little risk.

II.B. Relatedly, investors look for meaning in things where there are none. They misapprehend the randomness of events. For example, out of a group of coin flippers, they notice one guy has flipped his coin and got heads 10 times in a row. They don't appreciate that the odds of the guy flipping another head is still 50/50. Instead, they bet that he has some special power of flipping heads and may bet on heads again at say 60/40 odds. This is where the contrarian investor sees opportunity. She recognizes that the odds have not changed and takes the other side of the bet. Will the next flip be tails? Maybe. Maybe not. But, tails is the way to bet, and over the long haul will make the contrarian investor a net winner.

II.C. The way to relate the coin-flipping example to, for example, the stock market and the housing market is as follows. When any market becomes a one-way bet to typical investors, that is the time to become a contrarian investor. Does that mean taking the opposite bet will immediately net the contrarian investor untold riches? No. It just means that over time, the contrarian investor will come out ahead.

II.D. Likewise, when it becomes inconceivable to typical investors that the U.S. dollar will not always be the world's most dominant reserve currency, that is the time to consider gold as a store of value, instead of U.S. dollars.
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Suresh

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