The Debt Crisis And The War Cycle by Cliff Droke

This is well worth 5 minutes of even the busiest persons day. Shamelessly lifted from another site.

21 July 2011
Many books have been written in recent years on the problems facing us due to our nation’s enormous debt. Indeed, many more could be written before the full scope of the debt problem and its consequences have been exhausted. One of the best books I’ve read which describes the debt problem in its simplest and most fundamental terms was written by one Richard Hoskins, entitled War Cycles/Peace Cycles.
I recently had the privilege of speaking with Mr. Hoskins about this, his most famous book, which was first published in 1985. His book anticipated by many years the infamous credit crisis of 2007-2008. Hoskins’ intimate knowledge of U.S. monetary and economic history, as well as that of his native Virginia, makes him uniquely qualified to analyze our nation’s current monetary and economic problems since, in his words, “The things that are going to happen in the future have already happened in the past.”
In the hour that we spoke over the telephone, Hoskins shared his views on the current global debt crisis, the possibility for another credit crash, the outlook for inflation/deflation, China, and many other topics of interest.
What follows is a transcript of my interview with Mr. Hoskins.
Q: What led you to write War Cycles/Peace Cycles?
Hoskins: I got into the brokerage business with old Francis I. DuPont & Co. in New York, which was the biggest brokerage house in the world at the time but it has since gone out of business. At the time I was being trained and we used to sit beside all the old brokers and talk to them all day long. And they’d tell us about the way things were in the 1920s and ’30s and in the Great Depression when they were coming along and what the stock market was doing. And frankly what they were saying had very little relationship with the books that we were required to study.
I got very much interested in the history of money when I compared what I was told by these old brokers in New York; remember I’m 82, and I got very much interested in what they were saying and what had actually happened here in Virginia. Then I got to work here in Lynchburg, Virginia, where I now live and I found that Lynchburg had as many different kinds of money as we’ve had in the whole United States. So I said, “Why in the world doesn’t someone say something about these things and these regular cycles?” I felt that when these cycles come up people should make note of it.
Q: You emphasized in your book the use of scrip and bank notes for promoting a healthy monetary system. What can you tell us about this?
Hoskins: We had tobacco notes here in Virginia at one time and most people don’t even know what that is. But 150 years ago that was the thing in America. And that tobacco note was worth 800 pounds of prime leaf tobacco that was tested and stored in a warehouse, and they issued a tobacco note on it. These notes were traded from New York to New Orleans as money right in Lynchburg, VA. We were the second largest producer of dark leaf tobacco in the world.
The King of England demanded taxes to be paid in gold and silver. Now where in the world is Virginia going to get gold and silver to pay the taxes? So Virginia printed scrip and we kept the value steady. New England tried doing that but they inflated it out of the roof and North Carolina did the same. But Pennsylvania and Virginia kept their scrip just as level as anything you ever saw. You could buy anything anywhere in the colonies with Virginia scrip.
Well we went down to Mexico and paid five of our Virginia scrip dollars for three of their dollars in silver and we took it back to Virginia and paid our taxes to England in Spanish silver dollars. And England didn’t care where it came from just as long as they got it. Well that’s not in our history books and it ought to be. The prime thing is we made our own money. We fought a [civil] war with the United States for four long years and we were outnumbered four to one and we had almost nothing but we printed our own scrip and we paid for our guns, our uniforms and our ammunition – we paid for everything with our Virginia scrip. So it can be done.
Q: Do you think we’ll ever see the return of scrip in this country?
Hoskins: It’s absolutely inevitable. I’ve had Arabs order this book, War Cycles/Peace Cycles. And let’s face it, there are better books out there, goodness knows! But this is a book talking about us [Americans] and what we did in emergency times. And in emergency times we make our own money in order to eat and in order to live. And so [the government] passed a law saying you can’t do that anymore because our scrip was a lot better than U.S. dollars. But it doesn’t make any difference because in one form or another people will produce scrip. Over in England they’re doing it and there are several islands off England where they’re issuing their own scrip and it’s accepted in the various markets.
Q: So you can see it coming here?
Hoskins: In the United States, in disaster areas like California and New York I foresee a time when they’re going to have to do something. What else can they do? They’ve got this horrendous debt-usury system that has outlived its usefulness. In North Dakota they’ve got their own state bank and they show a surplus every year. It’s a state run bank, not a private run bank like the [Federal Reserve] in the U.S. It’s natural to assume that people will seek sound money solutions in difficult times.
Take Lynchburg, they needed bridges and roads and money for a canal to run goods from Richmond and Tidewater on into the mountain region of Ohio and so forth. How did we get money? We printed scrip and we taxed it out of circulation. You wanted to go across the bridge built with your scrip, you had to pay scrip. So the money was going out of circulation as fast as it was coming into circulation. You didn’t have to take scrip but everybody did. It can be used to pay taxes and then it vanished from circulation and then they printed up new money.
For people to say that the dollar is the only thing we can use, they’ve lost their ever-loving minds! They haven’t studied their history books and they don’t know what we’re capable of. And these people that have a monopoly on the money system and have issued all this horrendous debt all over the country, their time is coming. And I think it might be closer than a lot of people realize.
Q: Where are we in the long-term economic cycle in your view? Are we going to see inflation or deflation in the years ahead?
Hoskins: Your guess is as good as mine. We do know what the short-term is, however. Every four years at election time the market peaks out. We’ve been doing this for a long time and everybody knows that. The next one is coming up in 2012. It might be a little early this time because it was a little bit early last time, but around 2012 it should be the time that everything peaks out. Then two years later [the cycle] should bottom out. But everything moves so fast now that it’s hard to keep a schedule, but that’s the normal schedule.
Q: In your book you talk about the intricate relationship between war and the economy. Do you see the U.S. returning to war anytime soon?
Hoskins: When we run into a big problem with money, what do we always do in a usury system? We go to war. And what’s the reason for that? We go to war to borrow money into existence, to force people to borrow money into existence. And then they’ll have money to spend on ice cream cones and cars and boats and everything else after all the killing is done. This time they built something we never heard of before – usury notes or IOUs that resulted from building houses. Everybody had to have a house and everybody had to borrow money for the house and the banks were issuing bonds all over the place. Well it just so happened that it all came to an end. And when it came to an end all the money that it been borrowed into existence carried interest that must be paid, because if you don’t pay interest on an IOU what do they call it? They call it default, bankruptcy, call it anything you want, but it came in a hurry and all these banks were up to their necks in IOUs that had no collateral worth speaking of.
Now all of a sudden we had to have money and going to war is too slow. We’ve been fighting these brushfire wars ever since World War II and that keeps the money rolling and keeps a certain amount of money being borrowed into existence all the time. It helps a lot but we had to do something and do it fast, so they did something that had never been done before. They went up to Washington and voted a great big war debt overnight. They called it a stimulus bill. It was more than what World War I and World War II cost and they did it in one day! And there they were with money all over the place. But it didn’t even wet the surface of the problem because so much money had been borrowed and there were so many bonds had been issued that it did little to pay for the IOUs that were coming due. It still doesn’t.
Q: It certainly boggles the mind.
Hoskins: A lot of those bonds are now selling for pennies on the dollar. What are they going to do? Well they just don’t talk about it. It’s never happened before. So we borrowed enough money for a major war and it worked for almost 24 months but now it’s getting a little bit sloppy and things are looking toppy, although the market should go up for another four to five months anyway, but it looks toppy. But if we head into another deflation, now that’s another problem that they don’t allow to happen anymore.
We know what happened to Genghis Khan’s great empire. He had the greatest empire in the world and he had a money system exactly like ours. He printed paper money and he had a way of making people take his paper money – if you didn’t take his paper money he’d cut your head off. His money system worked for a long time but finally there came a time when people started issuing too much money and they became too independent and the time came they refused to take it. And the empire collapsed because of the money system.
I’m 82 years old so I’m not going to live to see all of this come to fruition. But right now it seems to me like there’s a lot of people jockeying for position to become the leaders of the next great political movement in America. I’ve seen liberals becoming conservative and conservatives becoming liberal. They all call themselves Tea Party people and you wouldn’t recognize what people call themselves right now. I’ll tell you this, there’s no need for people to go through all the things I see coming. If they don’t do something and get this thing under control like we did over 200 years ago then we’re going to have widespread warfare in this country.
Q: So where are we in the long-term war/peace cycle?
Hoskins: We have tried a war cycle. A war cycle on top of a war cycle? I guess that’s possible.
Q: You’re referring to the possibility for a third quantitative easing program (QE3) I presume?
Hoskins: Yes. Will that lead to inflation? Sooner or later it’s bound to lead to inflation. What about a deflation? Well in deflation some people don’t eat. Now you’ve got revolution. I don’t think [the government] will allow that, not with the high unemployment we’ve got right now. If you are forced in deflation to find a way to feed your family, to feed your children, what would you do? I’m afraid that would lead to widespread revolution.
Q: So is it safe to assume that the current Administration will do all it can to stave off deflation?
Hoskins: They’ve got to do that and at the same time they’ve got to try to stop inflation from getting out of hand. But inflation is the way the world goes. Given the choice between inflation and deflation, they’ll choose inflation every time. Just look at what the dollar has done over the last 50 years. This thing has to come to an end. But with the people we’ve got right now running the government I don’t think they care about anything except getting what’s theirs.
Q: In War Cycles/Peace Cycles you briefly mentioned the Arab Petrodollar War, which led to the confiscation of American oil properties in Arab countries in the 1970s. You concluded that this forced world merchants to borrow new money into existence to pay the increased oil prices. Does this assessment still hold true for the high oil prices of recent years?
Hoskins: The people who own the oil fields are the corporations. The people who own the corporations are the banks and the entity which owns the banks is the international trade cartel. When you raise the oil price or lower the oil price that’s the same as adjusting the money supply and it’s done so very fast. I think that’s the way they do it. Most of these oil companies are owned by companies outside the Arab countries in which they’re located. These Arabs countries have plenty as a percentage.
But that’s not why [the U.S.] is going to war over there. The Arabs have started no interest banking in most of these states. And no interest banking is a real killer to usury banks [i.e. banks that charge interest on loans]. The Bible says you’re not supposed to have any interest [on loans] but we don’t pay any attention to the Bible anymore. But so does the Islamic holy book, the Quran. In the Arab world they’ve been on a religious kick since about 1900 and it’s getting deeper and deeper. And one of the things they believe is that you shouldn’t charge interest. So they opened a bunch of no interest banks. And those no interest banks took over all the business that had been handled by the interest banks, or by the usury banks, out of the West and all the local branches in these Arab countries. Well the usury banks weren’t going to stand for that, so one by one each of these countries with a usury banking system were being shut down. The Western banks let them open back up with the provision that it had to have a usury system.
It was so obvious back when I wrote the book that I predicted that the Arab countries would be one of the major places where the U.S. would be going to war.
Q: So you’re saying that U.S. involvement in the Arab world has more to do with interest banking than with oil, per se?
Hoskins: Absolutely. Back in 1980 interest rates were around 20 percent. If you just paid the interest on a 15 year loan of, say $100,000, at the end of that 15 year period you would have paid $300,000 in interest and still had to pay off the loan principal of $100,000. That’s the way interest works. That’s why the usury banks lent the kings of all the various European countries money so freely. And [the interest] built up. And at any one time the people took the money and spent it for their own uses but then there was no more money left, so they had to borrow more money. And if you want to borrow more money you’ve got to have a war because people don’t voluntarily borrow anything. But if you get a war started you get plenty of money.
All the European countries, in fact all the countries of the world, were overwhelmed in debt. And all the interest alone keeps the banks alive. Without a dime of principal ever being paid back – just the interest alone – that’s what’s causing all the world’s troubles.
Q: Have you ever seen a country with a usury debt system survive the test of time? What does history tell us happens to a country that embraces such a system?
Hoskins: Let’s take a country that we all know about, Rome. It got started and we know it became great and then the bankers came in. And these were the same bankers that had come into Egypt and had taken over Egypt earlier in history. They took over Rome and one of the first things they did was run the farmers out of business. Because a farmer who produces his own food and through his cottage industry raises everything he needs doesn’t need anything else or anybody. He’s self-sufficient. So the first thing the bankers did was to go after the self-sufficient farms. The countryside was soon deserted but the city of Rome was almost a million people.
Then the taxes started. There’s nothing too good for the political leaders. You could hire a Roman army and with that army go in and whip another province or country and rule that country for a year or two and then you had to turn it over to the Roman government. But during that year or two everything that you got out of that country was yours. If you were a banker and could afford to hire a Roman army, in many cases it was really worth it.
Q: So how did it all end up?
Hoskins: It ended up with only five banking families owning all of Rome. Where were the Romans? They had moved out because the taxes they had to pay were unbearable. Each child that was born was taxed and since the girl babies produced less than the boy babies, they left the girl babies out in the open to die of exposure. At the time of Jesus there were more Greeks and Greek slaves being buried in Roman cemeteries than there were Romans. There were almost no Romans left in Italy. They had gone to North Africa, Spain and France and all over the place. For armies the Romans had to hire Germans, Syrians and soldiers from all over.
Then the time came for them to rebuild the walls of Rome. Since it was prohibitively expensive to have children, people in Rome had generally stopped having them. And the walls of Rome were rebuilt only an eighth of the length of the original walls. That’s how much the cities had declined in population. All the food that came to Rome came from Egypt and Egypt was a monopoly belonging to the banking families. The food came on lots of ships but they found they could ship the food much cheaper in these huge container ships. Instead of seeing hundreds of sailing ships all over the Mediterranean you’d only see maybe one big container ship a week. When the Vikings finally found their way into the Mediterranean they went from one end to the other and cleaned it out and those big ships were gone, and Rome starved. And when Rome starved they couldn’t collect anymore taxes, which meant they couldn’t pay the soldiers, which meant the soldiers went home and all of a sudden the borders of Rome collapsed and the invaders came in. And what did they find when they came? They found cities that were virtually vacant, much like Detroit.
Rome is probably the best example you can find of what happens to a country when it goes over to usury in a big way. We’ve only been into usury banking for about 500 or 600 years now in a big way. Sooner or later the same type of thing will happen to us. Birth rates will go down and foreigners will come in. And a debt-free foreigner is worth a lot more than a person up to his neck in debt driving a Mercedes, because that guy has the potential to borrow more money into existence while the guy driving the Mercedes is through.
Q: Is the China economic story for real or is it a another over-hyped economy destined to go to the same way as Japan and the Soviet Union?
Hoskins: The China that we see in the newspapers is not the China that really is. Today the corporations are running China. The banks own the corporations. Who set up the banking system in China? I haven’t heard that widely discussed but I’d imagine it’s the same people that set up Japan’s banking system. If that’s so, then China’s banking system runs the country because the borrower is slave to the lender, that’s the law. China is something different than what we’re being told in the media. China is no more Chinese than Japan is Japanese or America is American. And it’s not by accident that all the big corporations are going over to China or that all these Americans are going without jobs.
Q: In your book you mentioned the “1920s Turkey Shoot” where half the banks “gobbled up” the other half. You went on to predict another “Turkey Shoot” where the banks will once again go on a takeover rampage. Do you still foresee this happening?
Hoskins: It has been happening and it’s still happening right now. Frankly all you need is one big bank and a few branches around town. And that’s what we’re headed to and that’s what we’re going to get.
Q: What do you think will become of the banking industry before all is said and done?
Hoskins: The banking industry as we know it is an alien entity. Take for instance the Bank of Amsterdam. They were at one time the biggest bank in the world and they didn’t charge a dime of interest, none at all. A ship captain would come in and he needed cargo and a crew. The Bank of Amsterdam would round up a cargo and crew for him and send him on his way. The people who put up the money for this venture got a share of the enterprise. If the ship sunk on the high seas, there was insurance that took care of it. If it went over the seas and made a lot of money and came back to Amsterdam, then everyone who had a share in the enterprise got their share of the profit. If the trip was loss then they all took their loss. That’s the way it was run and it was the biggest commercial operation in the entire world. And it ran until Napoleon shut it down and instituted usury banking. Incidentally, the Bank of Amsterdam model was the same way banks ran in Virginia at one time before the usury banks took over. We did very well here for 200 years without it.
Q: Do you have any thoughts on the emergence of the micro lending industry?
Hoskins: It’s just another facet of the old usury game. I’ll tell you, we’ve got to straighten out this country, there’s no question about it. But we’ve also got to help out some of these other people in other countries that require help and are being bamboozled. Because if we don’t nobody else will.