Lost Guardrails: Currency, Debt, and Democracy's Perilous Path

The Perilous Path: When Guardrails Fail in Finance and Democracy

Throughout human history, our aspirations often outstrip our natural capabilities. We cannot fly without engineered assistance, nor can we reliably manage complex currency systems without robust, artificial guardrails. This fundamental truth underscores many of the challenges facing contemporary societies, particularly in the Western world, where the absence of such crucial restraints threatens both economic stability and democratic integrity.

Consider the tragic tale of the tailor who, on February 4, 1912, leaped from the Eiffel Tower, believing his homemade "flying suit" would grant him flight. He perished upon impact, a stark metaphor for grand ambitions unsupported by fundamental principles. Similarly, in the financial realm, we recall the dot-com investors who soared before a dramatic crash, and observe today's AI investors, donning their own metaphorical "flying suits" in hopes of sustained ascent. These anecdotes highlight a recurring pattern: overconfidence in artificial constructs, be they wings or speculative markets, often leads to sobering falls when foundational safeguards are neglected.

A Parisian Reflection: Weltschmerz in a Changing Climate

Amidst a recent visit to Paris, a city cloaked in a melancholic grey and chilled by a sharp drop in temperature, the prevailing mood seemed to mirror this broader sense of foreboding. The shift in weather, coupled with France’s zealous, albeit sometimes reckless, response to its ‘climate emergency’ – evidenced by the ban on outdoor gas heaters – underscored a discomforting truth about grand societal interventions. While environmental concerns are critical, the sudden removal of small comforts reflects a larger pattern of policy changes impacting daily life, sometimes without fully considering the immediate human impact.

It was during this visit that a conversation with an old friend, a publisher and Greek and Latin scholar, brought into focus the concept of "weltschmerz" – the profound sadness born from realizing the world is going to ruin. Our discussion quickly turned to the structural issues confronting the West, extending beyond immediate political concerns like immigration or energy policy, which, though significant, are relatively easier to address. The real, underlying challenge, our friend posited, lies in the inherent vulnerabilities of popular democracy.

The Erosion of Democratic and Financial Safeguards

Ancient Greek thinkers, keen observers of political cycles, understood that popular democracy, while appealing, functions effectively only for a finite period. Its Achilles' heel is the perpetual demand for "free stuff" from the populace, a demand that, once met, becomes politically untenable to retract, even as nations teeter on the brink of insolvency. America’s founders, well-versed in classical wisdom, attempted to mitigate this flaw through a dual approach. First, they established a constitutional republic, placing a necessary distance between federal power and the immediate whims of the voting masses. As John Henry, founder of the Committee for the Republic, eloquently states, the United States has gradually transitioned from a liberty-centered republic to an "unconstitutional democracy with overpowering global ambitions," systematically dismantling constitutional safeguards in pursuit of an ill-defined global agenda.

Second, the founders sought to impose financial discipline. They mandated congressional approval for declarations of war, thereby limiting military expenditures, and critically, insisted on coinage limited to 'gold and silver'. These two "guardrails" – requiring congressional assent for war and a commodity-backed currency – were designed to restrain both imperial overreach and fiscal profligacy. Both, regrettably, have since been removed, with the gold standard's final link severed by President Richard Nixon in 1971.

The Gold Standard: A Historical Bulwark Against Plunder

The 'golden guardrail' was particularly vital, serving as a powerful check on governmental abuse of monetary power. Economist Friedrich Hayek, in 1975, presciently observed that "the pressure for more and cheaper money is an ever-present political force which monetary authorities have never been able to resist." He argued that, with the significant exception of the gold standard period from the 18th to the 20th centuries, governments throughout history have consistently leveraged their exclusive power to issue money "to defraud and plunder the people." The gold standard, established in the 18th century, suffered a major blow during WWI and, though partially re-established after WWII with the dollar linked to gold, saw its ultimate demise in 1971, opening the door to unchecked monetary expansion.

Failed Attempts at Reinstating Fiscal Responsibility

Since the severing of the gold link, various attempts have been made to reintroduce some form of fiscal discipline. In the 1970s, efforts were made to push for a Constitutional Amendment to outlaw deficits. In the 1980s, Grover Norquist championed 'The Pledge', compelling prospective members of Congress to commit to not raising taxes. More recently, debates surrounding the raising of the debt ceiling have become a recurring political spectacle, invariably ending with the ceiling being raised – over 80 times since the 1960s. Each of these initiatives, though well-intentioned, ultimately failed to provide the necessary structural restraints.

Consequently, all the original guardrails are effectively down. We find ourselves in an era reminiscent of the "bad old days," where governing elites can, with relative impunity, manipulate and devalue 'paper' money, leading to a silent transfer of wealth from the public. While former President Trump might boast of "defeating inflation," the underlying economic realities suggest a far more precarious situation. The United States faces annual deficits of $2 trillion, with neither major political party demonstrating the will to genuinely tackle spending. Projections indicate an additional $55 trillion in national debt over the next three decades, which could lead to an approximately 80% loss in the dollar's value.

Conclusion: The Unanswered Question

With the guardrails dismantled and a clear political appetite for increasing rather than curbing debt, the critical question remains: what, if anything, can stop this trajectory? Without fundamental changes to how democratic societies manage their finances and govern themselves, the journey 'off the rails' seems set to continue, with profound implications for economic stability and the future of Western nations.