News of the disaster had swept the Americas and Europe much like the news of the Market crash would some 220 years later.

Reference: John Debry, former President of HRD, inc.

LINK: http://www.hrd1715.com/1715_Story.html

Skippy…if we screw around the environment will punish us sooner or later, nearly every human calamity is exacerbated by the environment or is the precursor to the tipping point.

THE 1715 FLEET DISASTER

As a result of France’s Louis XIV policies of expansionism, Europe was ravaged by two major wars, between 1688 and 1715. These wars disrupted trade between the Americas and the Old Continent, and Spain, highly dependent on the riches of the New World to finance her own policies of expansionism in Europe, suffered greatly. The first of these wars, the War of the Grand Alliance, ended in 1697 with the Treaty of Ryswick, but in 1701 another broke out, this time over the succession of the Spanish crown. Charles II had died childless, but on his deathbed, had named as his heir Philip, the grandson of Louis XIV of France. Leopold I, the Holy Roman emperor, who wanted to see his son, Archduke Charles, ascend the throne, did not kindly receive this decision. Leopold also wanted to prevent at all cost any close alliance between France and Spain. War broke out, with England and the Dutch on one side, and Spain, France, Portugal, Bavaria, and Savoy on the other.

At the end of this period of hostilities, Spain was in dire need of financial relief. At the King’s order, a fleet was dispatched to America in order to bring back urgently needed gold and silver, which had been accumulating during the war. The eleven ships making up the fleet assembled in Havana in the summer of 1715. The fleet was made up of the Esquadron de Terra Firme, which served South American trade routes out of Cartagena, and of the Flota de Nova Espana which served the trade of Mexico and Manilla Galleons out of Vera Cruz, on the southeastern coast of present-day Mexico. The Griffon, a French merchant ship under the command of Capitaine Antoine Dare, was given permission to sail with the Spanish combined fleet. Now, every one was busy getting ready for the long and treacherous journey back to Spain. Additional cargo was being loaded. Inventories were taken. Fresh water and food items were placed aboard each ship. After a two-year delay, the mighty Plate Fleet was ready to sail home to Spain.

The five ships of the New Spain Flota were under the general command of Captain-General Don Juan Esteban de Ubilla. Juan Esteban de Ubilla was himself on the Capitana, which carried some thirteen hundred chests containing 3,000,000 silver coins. There were also gold coins, gold bars, silver bars, and jewelry, as well as emeralds, pearls, and precious K’ang-Hsi Chinese porcelain which had been brought to Mexico by the Manila Galleons. The Almiranta carried nearly a thousand chests of silver coins, each individual chest containing some 3,000 coins. The Refuerzo carried eighty-one chests of silver coins and over fifty chests of worked silver. Another ship, a patache, carried some 44,000 pieces of eight. One frigate helped complete the Flota. The French ship Griffon, commanded by Captain Antoine Dar, had received permission to sail with the fleet. In his 1975 book, "The Funnel of Gold", historian Mendel Peterson estimated the value of the registered cargo of the combined fleet at 7,000,000 pieces of eight, which represented a real value of about $86 million (1975) of our money.

Regarding the Dutch situation in 1778, I'm sure that you know given what you're reading, though others may not, that popular revolution followed very shortly after that date, initially overthrowing that 'rentier regime' before temporary supression by external reactionary forces. Indeed, the Dutch Revolution preceeded that of the French. Squeeze cellulose between a rock and a hard place, and you get an explosion. We're nowhere near that in the US, though. It'll take ten years, if not a generation, in my view.

Regarding, 'if the US recovers it's standing, it will be the first to do so,' it's important to keep in mind that we are dealing with a very small sample of imperial or quasi-imperial economic powers, and with significant dissimilarities, not least in eras and institutional supports. It is hard to draw a valid conclusion from such a small set—and believe me, I ponder these questions closely myself—even if ALL prior instances are similar in trajectory.

So what's different now? The biggest difference is that the US is bigger as a share of the global economy, as a share of the financial economy, and especially as a share of global consumption-demand. Even while credit-squeezed and endebted, the demand pull of the US outweights past comparable societies. Personally, I think that relative US decline _is_ highly probable to the point that any other outcome is higly _im_probable, but I don't think there is a conclusive case to that effect.

So what's the same? US policy is completely tied to the past, and unable to revise/reform/reinvent. This was true of all the prior cases, and is the kiss of death, really. We must rethink and reform to avoid decline. We have been doing exactly the opposite for thirty years, and are doubling down under The New Guy. That implies no change in trajectory, and the trajectory as mapped is downward to lesser grace.

It's about time that influential members of the US financial blogosphere re-visit Keynes, Friedman inheritage in a harsher way.

Krugmanites beware:)

This observation by William White could be summarized as: It's the real economy, stupid.

Money that chases itself in the paper economy does not create wealth. Indeed as we have seen, it destroys real wealth by distorting the dynamics and priorities of the real economy.

I wonder if this is the reality we are creating in Africa with the fashionable "End Poverty" campaign.

Pumping US$72Billion p.a. through their governments
(Recommendations of the MDG Africa Steering Group June 2008)…

Instead of fostering the local business and trade that would be needed to bring in US$72 Billion in honest tax revenue so they could work their way up..

All the great empires since the dawning of the Renaissance have faced the same dilema. If the U.S. recovers from this tailspin, it will be first to do so.

The uniqueness of Spain lay not so much in this contrast, as in the absense of a middling group of solid, respectable, hard-working bourgeois to bridge the gulf between the two extremes. In Spain, these people, as Gonzalez de Cellorigo appreciated, had committed the great betrayal. They had been enticed away by the false values of a disoriented society—a society of ‘the bewitched, living outside the natural order of things.’ The contempt for commerce and manual labour, the lure of easy money from investment in censos and juros, the universal hunger for titles of nobility and social prestige—all these, when combined with the innumerable practical obstacles in the way of profitable economic enterprise, had persuaded the bourgeoisie to abandon its unequal struggle, and throw in its lot with the unproductive upper class of society…

The Castile of Gonzalez de Cellorigo was thus a society in which both money and labour were misapplied; an unbalanced, top-heavy society, in which, according to Gonzalez, there were thirty parasites for every one man who did an honest day’s work; a society with a false sense of values, which mistook the shadow for substance, and substance for the shadow.
~
–J.H. Elliot, Imperial Spain: 1469-1716
~

The contemporaries who bemoaned the economic decay of the Dutch Republic in the last half—more especially in the last quarter—of the 18th century were inclined to place the principal blame on the allegedly self-satisfied and short-sighted rentiers and capitalists, who preferred to invest their money abroad rather than in fostering industry and shipping at home and thus relieving unemployment…

[T]he Dutch newspaper, De Borger…stated (19 October 1778) that the economic decline of the nation had reached such a pitch that it seemed as if ‘the body of the Commonwealth would shortly consist of little more than rentiers and beggars—the two kinds of people who are the least useful to the country.
~
–C.R. Boxer, The Dutch Seaborne Empire: 1600-1800
~

From the 1860s at least, the value of imports had consistently exeeded the value of exports. By ordinary assumptions such a situation should not have been possible. Yet Britain seemed to be buying more than it was selling overseas. How was the difference being made up, if not with earning from exports? The answer seemed to be that, under the system of “free imports,” the nation was living off its capital, exporting securities to finance current spending. Presumably this could not go on forever…

“whereas at one time England was the greatest manufacturing country, now its people are more and more employed in finance, in distribution, in domestic service… I think it is worthwhile to consider—whatever its immediate effects may be—whether that state of things will not be the destruction ultimately of all that is best in England, all that has made us what we are, all that has given us prestige and power in the world.”

~
–Aaron L. Freidberg, The Weary Titan: Britain and the Experience of Relative Decline 1895-1905

The real money is making money. It's as simple and obvious as that.

Richebaecher and most of the Austrian economists would tell us that we have just seen a period of huge malinvestment that will require more housing stock destruction a la Victorville, CA down the line.

My question to you is this: is it possible to reflate this credit bubble again with some other asset?

By and large, the consensus view is no – we have just seen a near terminal collapse in the financial system. However the key is the word 'near' because, unlike the 30s, we still have huge financial sector overcapacity with its concomitant credit bubble inducing effect – even after our brush with systemic risk.