In CURRENCY WARS, the Rothschild family’s famous quote, “Give me control of a nation’s money and I care not who makes its laws,” sharply
reveals the harsh reality of monetary issuance as the core of national sovereignty.
The book uses the Rothschild family’s historical control over the European bond market to demonstrate how financial capital reshaped
political landscapes through monetary leverage.
This logic of “financial power overruling law” was vividly manifested during the Federal Reserve’s creation — the 1913 Federal Reserve Act
was essentially a process where Wall Street bankers, through secret meetings, converted private debt into permanent national debt. From
that point on, the U.S. lost control over money issuance and fell into a debt trap, “mortgaging future tax revenues to a privately owned
central bank.”
The Symbiotic Paradox of Debt and Money
Jefferson’s prophecy — “If America allows private banks to control money issuance, they will impoverish the world through inflation and
deflation” — stands as the ultimate footnote to the modern debt crisis.
The book points out that under the fiat currency system, money essentially represents “circulating IOUs,” with each dollar backed by the
government’s claim on future tax revenues from its citizens.
The mechanism of “debt monetization” inevitably leads to a vicious cycle of “ever-increasing debt and interest devouring the economy.” For
example, the Federal Reserve’s QE bond purchases have inflated global central bank balance sheets to 130% of GDP. This is essentially a
modern iteration of the “systemic wealth transfer” strategy exposed in Currency Wars: creating asset bubbles followed by sudden tightening
to transfer wealth to financial giants.
The book’s interpretation of the 1971 dollar-gold decoupling resonates intertextually with the Rothschild logic of “controlling money is
controlling the world.”
When Nixon ended the Bretton Woods system, humanity fully entered a “wilderness of suspended credit,” echoing Roosevelt’s 1933 forced
gold confiscation — government abandonment of monetary anchors is never a technical choice but a release forced by debt expansion.
As the book states: “Stable currency value is the government’s responsibility, but market forces cannot be ignored.” The 1890 collapse of
Argentine bonds and the expansion of the Bank of Japan’s balance sheet jointly affirm the historical pendulum swing of monetary systems —
from hard currency discipline to fiat excess.
Looking back from the historical vantage point of 2025, with global debt-to-GDP at 360% and the yen having depreciated 60% against gold,
the warning in Currency Wars that “monetary power will ultimately turn on itself” carries urgent real-world significance.
From hard currency discipline to fiat indulgence, from credit collapse to system rebuilding — this is the very history unfolding before us.
Perhaps, as illustrated by the Venetian ducat silver coin’s purity dropping from 99.5% to its nadir in cycles, when we talk about money, we
are really talking about humanity’s eternal struggle between greed and reason. The nine-step evolution of the debt crisis is merely the
harshest formulaic replay of this struggle.
The Dual-Track Crisis Logic of the Monetary System: The Essential Divide Between Hard Currency and Fiat
The core classification of crisis cases must start from the monetary system — the difference between hard currency systems and fiat
currency systems forms the underlying logic for understanding modern economic crises. In a hard currency system, governments back their
payment promises with scarce assets such as gold, silver, or anchor them to a strong currency like the US dollar. This anchoring mechanism
essentially ties monetary credit to scarce resources beyond government control.
Historical experience shows that when debt exceeds hard currency reserves, government default becomes inevitable. For example, in the
19th century, Argentina defaulted on railway construction debt, causing its gold-standard currency system to collapse within three months,
with the paper currency depreciating by 87% against gold. Similarly, before Britain abandoned the gold standard in 1931, the Reserve Bank of
India’s gold reserves could no longer cover the circulating pound notes, leading to a one-day 15% plunge in the pound-dollar exchange rate.
The “cliff-like collapse” effect of default can be seen in Argentina’s bond prices, which fell approximately 20% between December 1 and
December 15, 1890. This crisis was triggered by overexposure of the Barings Bank in Argentina, especially large debts from Buenos Aires city
infrastructure and western railway construction. The Argentine government’s inability to repay these debts, coupled with Russia threatening
to withdraw deposits from Barings, caused a liquidity crisis at the bank.
When governments abandon hard currency anchors and switch to fiat systems, currency value becomes entirely dependent on market trust
in the central bank. A landmark moment was August 15, 1971, when Nixon announced the dollar’s detachment from gold, causing the gold
price to surge $3.2 per ounce within 10 minutes — a historical record at the time. Roosevelt’s earlier 1933 abandonment of the gold standard
was a prelude: the US Treasury forced citizens to surrender gold at $20.67 per ounce, then revalued it to $35 per ounce three months later,
effectively implementing a 40% currency devaluation.
Under the fiat system, central banks guide markets through interest rate adjustments and debt monetization tools but still cannot escape the
destiny of debt expansion. Take Japan as an example: after the bubble burst in the 1990s, private sector debt-to-GDP rose from 170% to
220%, forcing the Bank of Japan to launch quantitative easing from 2001. By 2023, its balance sheet reached 130% of GDP, causing the
yen’s real effective exchange rate to depreciate 58% compared to 1995.
Though this “gradual erosion” differs from the sharp collapse in hard currency systems, it causes comparable long-term damage — since
2013, the yen has depreciated about 60% against gold and 45% against the dollar, with domestic purchasing power shrinking 6%, reflecting
a real wealth loss despite a mild 1% annual inflation rate.
The Nine-Stage Evolution of Debt Crises and Historical Warnings
When governments and central banks simultaneously approach a state of “technical insolvency,” the crisis typically unfolds along the
following logical sequence (actual order may vary by country, but core mechanisms remain consistent):
Step 1: Debt Spiral — Public and Private Sector Leverage Peaks
Private sector leverage breaches critical thresholds. For example, before the 2007 US subprime crisis, household debt reached 130% of
disposable income, the highest since 1940. Governments passively absorb debts due to implicit guarantees, forming a “debt dam.” In 2008,
the US injected $700 billion through TARP, and federal debt-to-GDP surged from 62% to 85%. This dual-sided debt expansion often
coincides with asset bubbles — e.g., in the 1980s, Japan’s land market value exceeded four times that of all US land.
Step 2: Crisis Transmission — Private Debt Defaults Trigger Systemic Risk
Corporate and household default waves emerge. In 2009, US credit card default rates rose to 10.5%, auto loan defaults to 5.4%.
Government bailouts accelerate debt-to-GDP growth — during the 2020 pandemic, US federal debt grew 26.9% of GDP, the highest since
WWII. The 1997 Asian Financial Crisis exemplifies this: Korean corporate foreign debt defaults led to won depreciation, forced IMF $58 billion
rescue, and sovereign credit rating downgrade to junk.
Step 3: Debt Squeeze — Market Trust Collapse and Sell-Offs
Government bond issuance exceeds market absorption capacity. In 2012, Greece’s 10-year bond yield spiked above 30%, daily trading
volume reached 22% of outstanding bonds, creating a “supply-demand imbalance trap.” Resolution requires policy adjustment to restore
balance (e.g., ECB’s OMT plan in 2012) or falls into a debt liquidation cycle — before Russia’s 1998 sovereign default, foreign ownership of
its bonds reached 40%, and a sell-off triggered a 300% depreciation of the ruble versus USD within two weeks.
Step 4: Paradox of Tightening and Easing — Market vs. Central Bank
Bond sell-offs drive long-term rates higher: during the 2022 UK gilt crisis, 30-year yields surged 150 basis points in one day. Currency
depreciation pressures intensified; the pound fell below 1.04 USD. The economy contracted 0.6% quarter-on-quarter. Central banks counter
tightening by initiating easing — for example, Bank of Japan’s 2001 QQE expanded base money supply by 30%, leading to a vicious
“currency depreciation–debt sell-off” cycle. Similarly, in the 1970s US stagflation, the dollar index fell 37% over a decade while 10-year
Treasury yields climbed from 7% to 15%.
Step 5: Central Bank “Printing Money to Save Markets” — From Routine to Crisis Edge
When rates hit the zero lower bound, the Fed lowered the federal funds rate to 0–0.25% in 2008 and launched three rounds of QE totaling
$4.5 trillion. The “borrow short, lend long” strategy embeds loss risk: in 2023, the Fed’s interest expenses on liabilities exceeded earnings on
assets, causing a single-day loss of $32 billion. The 1930s Great Depression provides a precedent: the Fed’s bond purchases extended
asset duration to 12 years while liabilities were just 1.5 years, sharply increasing capital loss risk amid rate volatility.
Step 6: Technical Definition of Central Bank Insolvency — Vicious Cycle Onset
When central bank net assets turn negative and cash flow gaps are filled by printing money, a spiral of “rate hikes – currency depreciation –
debt sell-off” ensues. In 2022, Turkey’s central bank net assets were −$21 billion, with the lira depreciating 44% versus USD within the year.
The Weimar hyperinflation of the 1920s is a classic case: the Reichsbank printed money to cover fiscal deficits, and in 1923 the mark plunged
from 4.2:1 to 4.2 trillion:1 versus USD, with daily bread price increases of 200%, a practical demonstration of “central bank insolvency
inflation.”
Step 7: The Art of Debt Restructuring — The Test of “Harmonious Deleveraging”
Policymakers must balance deflationary debt relief with inflationary monetization. In the 1940s, the US extended debt maturities (40% of
GDP debt) and maintained moderate inflation (5.2% annually) to deleverage. Imbalance leads to “inflationary depression,” e.g., Argentina in
the 1980s saw hyperinflation of 3,079% in 1989 and a GDP contraction of 10.2% due to aggressive monetization.
Step 8: Unconventional Policy Toolbox — Dual Nature of Controls and Redistribution
Capital controls and special taxes appear. Cyprus’s 2013 crisis saw deposit levies (9.9% on deposits above €100,000), sparking bank runs.
US wage and price controls in 1971 briefly curbed inflation but led to a 40% rise in auto industry strikes. These measures forcibly
redistribute wealth and delay crises but may induce panic — after Argentina’s 2018 foreign exchange controls, the USD premium once hit
100%.
Step 9: Monetary Credit Reconstruction — Painful Transition from Depreciation to Anchoring
Ultimately, high real rates punish debtors and reward creditors. Volcker raised Fed rates to 20% in 1980, triggering a 2.6% GDP contraction
but successfully curbing inflation. Concurrently, currency re-anchoring to hard assets restores trust, e.g., Argentina’s 1991 currency board
pegged 1 peso to 1 USD backed by gold reserves. Reserve currency countries enjoy “excessive debt privileges” but history shows eventual
backlash: Rome’s crisis in the 3rd century after silver content fell from 98% to 1.5%; Bretton Woods collapse due to excessive dollar
issuance (gold coverage only 22% in 1971).
Historical Lessons: The Monetary System’s Swing and Debt’s Destiny
From the 13th-century silver standard — exemplified by the Venetian ducat’s remarkably stable 99.5% silver content for over a century — to
the 21st-century depreciation of the Japanese yen, the monetary system has persistently oscillated in a cycle of “hard currency constraint
→ fiat currency indulgence → credit collapse → system reconstruction.”
The key to understanding this cycle lies in grasping the symbiotic relationship between debt and money. In the 16th century, Spain’s influx of
American silver loosened monetary constraints, pushing the debt-to-revenue ratio from 200% in 1515 to 1,000% by 1596, which ultimately
triggered three sovereign defaults.
Since the 1970s, under the global fiat currency system, the debt-to-GDP ratio has risen from 160% to 360%, while central banks’ balance
sheets have expanded twentyfold. Regardless of the system, excessive debt inevitably breaches the critical threshold of monetary credit.
The difference lies in whether the collapse is “cliff-like” — such as the 1994 Mexican peso crisis — or “chronic” as seen in Japan’s lost
three decades.
The nine-step evolution of the debt supercycle serves not only as a crisis early-warning roadmap but also as a key to understanding the
fragility of the modern economic system. When policymakers become entranced by the fiat currency system’s illusion of “gradual
depreciation,” history’s warnings, embedded in past collapses of hard currency regimes, come alive: prior to World War I in 1914, European
central banks’ gold reserves failed to cover circulating banknotes. Similarly, in 2023, global central banks’ total assets reached $30 trillion,
while gold reserves at market value amounted to only $3 trillion — a credit vacuum fundamentally analogous to the gold standard’s collapse
over a century ago.
