7 Stages BEFORE the Collapse of An Empire

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By Gerelyn
Estimated reading: 6mins
Collapse of an empire

The United States has been a world-leading empire for much of the last century.

But every empire of the past has collapsed, and the U.S. could be the next victim.

The question remains: If an empire collapses, how do you avoid the fallout? And even more importantly, how could you benefit?

In this article, we will explore the seven stages before the collapse of an empire and the financial crisis that is associated with it, with a focus on the U.S. 

1. Hard Money  

Empires typically begin on the right foot by establishing a hard-money system based on reserve assets like gold and silver. 

Creating a currency that’s backed by hard money, such as the gold standard, is a step toward building an empire. 

The U.S. economy went on the gold standard in the 1870s, but it was short lived. 

The gold standard is one in which there is an equivalent amount of gold reserves stored in the Treasury to match the money supply. 

So for every $20 banknote, there’s a $20 gold piece to back it in the vault.

Economies like the United States let a good thing slip away. 

It wasn’t long before the U.S. began printing more banknotes than there was gold to back it up.

After more than a century with sound money, the country began inching away from that model. 

In 1913, it was a 40% ratio reserve, devaluing the currency by over 50%. 

Things went from bad to worse. The U.S. went completely off the gold standard in 1971 under President Nixon. 

President Nixon and the Gold Standard

2. Public Works Administration

The second nail in the coffin leading to the collapse of an empire could be explained during one of the worst economic times in U.S. history — the Great Depression. 

This sad state of affairs prompted then President Roosevelt to create public works programs, funded by none other than currency inflation, aka deficit spending. 

This involved several steps, including: 

  • Increasing the dollar-price of gold 
  • Putting the kibosh on the convertibility of banknotes for gold
  • Prohibiting the private ownership of gold 

The printing of gold certificates came to an abrupt halt. 

Taxpayer dollars were being directed toward public programs, essentially turning the United States into a welfare state as the government sought to take control of the health and overall well being of its citizens. 

3. Military Spending

During World War II, the U.S. economy was fueled by the sale of military and defense equipment like tanks and machine guns. 

Gold was used to pay for products imported from the United States, thereby bolstering the gold reserves of the country, giving the U.S. an advantage over the rest of the world. 

While it might appear that war strengthens the economy, that’s a misnomer. It’s only the case if you’re not the country doing the fighting but instead cashing in by selling guns. 

The Bretton Woods agreement of 1944 changed the dynamic between the dollar and the leading precious metal. 

World leaders agreed to eradicate the gold standard and crown the dollar as the global reserve currency. 

Other currencies were then backed by the U.S. dollar, the latter of which was only partially backed by gold, a recipe for disaster. 

4. War Effect 

War Effect

By the time WWII was over, the U.S. economy had become intertwined with conflict. 

The Korean War, Cold War and Vietnam War followed and the cost of war shot up substantially, whether due to strengthening the nation’s defense or fighting wars overseas. 

The only way for the U.S. to keep this going was to pay for it through currency inflation, or deficit spending, and the cracks begin to show. 

It wasn’t long before the Bretton Woods system was crumbling as the U.S. struggled to live up to its end of the trade bargain to provide gold for what had become an inflated dollar. 

Basically, a bank run on the United States forced the government to move, which brings us to our next phase of the seven stages before the collapse of an empire. 

5. Inflation and the Demise of Purchasing Power 

At this point, President Nixon in the early 1970s is forced to backpedal on the country’s promise to supply gold for U.S. dollars. 

As a result, the gold window was shut and other nations could no longer receive gold for their fiat money, paving the way for the gold price to float. 

The dollar was detached from the precious metal and the store of value it represented. 

It has been downhill ever since, with the dollar shaving off more than three-quarters of its purchasing power since then, removing yet another rung in this game of chutes and ladders. 

6. Crisis of Confidence

With inflation soaring and the purchasing power of the dollar plummeting, the next step in the seven stages before the collapse of an empire is underway. 

Consumers are losing confidence in the staying power of the dollar. Worse, the U.S. debt clock has reached over $30 trillion (and rising), which, in turn, has made other countries uncomfortable about the dollars they hold. 

Meanwhile, China is doing its best to displace the dollar as the go-to currency for oil trade. 

However, what could be more likely on the horizon is a gold-backed oil trading. 

As soon as people start losing faith in their currency, like the dollar, the dominos begin to fall. 

For example, the U.S. becomes at risk of defaulting on its massive debt, which would result in a wave of deflation and yet another financial crisis soon on the heels of the last one. 

Central bankers are already losing sleep over this potential scenario and it’s not even the worst-case scenario — the threat of hyperinflation is. 

7. Store of Value Assets Endure 

In this final phase of the seven stages before the collapse of an empire, fiat currency will fail.

Economies will have no choice but to reclaim a fixed standard so that the currency has some basis for its value. 

The obvious choice is the gold standard, but it could also be something else, like a digital store of value like bitcoin. 

Mike Maloney calls it “the greatest wealth transfer of all time” and the “greatest opportunity of all time.” 

The only way for investors to avoid getting left holding the bag is to own hard money — gold, silver or bitcoin. 

Bitcoin

Conclusion 

Fiat currency was never designed to stand the test of time. 

If history is any teacher, fiat currency has an expiration date and it is going to be sooner than later. 

This would be devastating to the individual investor. 

Fortunately central bankers can’t interfere with the supply/demand of hard money assets. 

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Disclaimer:Please note that nothing on this website constitutes financial advice. Whilst every effort has been made to ensure that the information provided on this website is accurate, individuals must not rely on this information to make a financial or investment decision. Before making any decision, we strongly recommend you consult a qualified professional who should take into account your specific investment objectives, financial situation and individual needs.

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Gerelyn

Gerelyn is a financial journalist who has been covering Wall Street for more than 20 years. After reporting for some of the top trade publications on investment banking, infrastructure and retirement, she was drawn to decentralization and shifted her coverage to the blockchain and cryptocurrency space in mid-2017. Since then, she has contributed to several major Bitcoin, Blockchain, and DeFi news sites, and has also written a children’s book.

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