Britain Didn’t Win Any Wars

What will happen now?

Britain entered the 20th century as the world’s creditor. In less than 50 years, it was the world’s largest debtor. British national debt stood at just 29% of GDP on the eve of World War I in 1913. It hit 143% after World War I, and reached an all-time high near 250% of GDP after World War II in 1946. It was so broke it had to beg the U.S. for the 1946 Anglo-American Loan of $3.75 billion.

Britain did not finish repaying that loan until December 2006, 61 years later. And in the meantime, it lost its entire global Empire and saw its standard of living collapse relative to the rest of the world, even against its own former colonies. Singapore, three times poorer than Western Europe in 1960, is today roughly twice as rich per capita. Hong Kong, a British possession until 1997, overtook the mother country in income per head decades ago.

Much like America, Britain bankrupted itself with useless foreign wars that it lost. The propaganda that passes for public-school education in America teaches that these were noble, existential battles: that World War I was a war to end all wars, and that World War II was a battle against pure evil.

The reality is nothing like that at all.

There is no coherent explanation for World War I, which was fought among three royal cousins – King George V, Kaiser Wilhelm II, and, through his wife, Tsar Nicholas II, all grandchildren or in-laws of Queen Victoria – over nothing beyond their own rivalries, and which left Europe bankrupt.

And while everyone loves to believe that England won the Battle of Britain in World War II and then defeated the Nazis alongside the Americans, the truth is starkly different. Britain had no ability to guarantee Poland’s sovereignty, the very thing it declared war to defend, and lost the war on the Continent in a matter of weeks, leading to the disaster at Dunkirk in the spring of 1940.

The truth of World War II is never taught in schools: Russia defeated Germany and Aldolf Hitler, and the U.S. had very little, almost nothing, to do with it. The war in Europe was effectively over the moment Hitler lost the Battle of Moscow and began his retreat. That happened on December 6, 1941, when the Soviet counteroffensive shattered the German advance. This was before America had fired a shot in the war – Pearl Harbor was December 7.

The Wehrmacht lost roughly four out of every five German soldiers killed in the entire war on the Eastern Front, fighting the Red Army, not the U.S.

As for a battle against evil – maybe. But then you’ll have to explain the difference between Hitler and Russia’s Joseph Stalin. One (Hitler) murdered 6 million Jews. The other (Stalin) starved 5 million Ukrainians to death in the Holodomor, shot or worked to death millions more in the Terror, and was, at the moment of his death in 1953, preparing his own campaign to destroy Soviet Jewry. Like my kids would say “6-7” – there’s no difference.

Here’s what matters and what they don’t teach in school: foreign wars bankrupted Britain, and a bankrupt society turns on itself. The General Strike of 1926 put millions of workers into the streets in a confrontation the Baldwin government openly likened to a coup. It was the eruption of a class division sharpened by the Great War: working-class veterans who had fought beside their betters refused to return to the old hierarchy, while returning troops met mass unemployment and a housing shortage, and socialism surged as the proposed answer. There were no winners at Verdun. Or the Somme. Just as there were no winners at Saigon, or Mosul.

And in America today, you see a society that has lost confidence in its own institutions and elites. Just like Britain in 1926, we are arguing not about policies, but about what our nation is. We can’t even agree on what a woman is!

Where Britain’s fault line was primarily class, America’s today runs along race, region, and identity. We have a racial form of Marxism, called disparate impact, designed to award benefits to various groups based on racial identity rather than merit. But the mechanism hardly matters: when the currency stops being a reliable store of value, the social trust that money underwrites frays, too, and the society starts arguing about who deserves to succeed, instead of simply allowing the market, with a sound currency, to decide who succeeds.

Britain’s terminal humiliation had a precise date: October and November 1956. Britain, France, and Israel invaded Egypt after Egypt’s President Abdel Nasser nationalized the strategic Suez Canal. Militarily it was a success. Financially, it was a catastrophe, because the United States, unwilling to tolerate the adventure, threatened to sell its holdings of British bonds and to block International Monetary Fund (“IMF”) support, triggering a run on the pound. Britain folded within weeks.

The British Empire did not die on a battlefield. It died in the bond market.

Earlier this year, Bridgewater Associates founder Ray Dalio – the largest hedge-fund builder of the modern era, whose All-Weather fund is, like Porter’s Permanent Portfolio, an intellectual descendant of Harry Browne’s work – declared that the United States had just experienced its own Suez moment over the Strait of Hormuz.

The U.S. and Israel will win the kinetic war with Iran. But can we hold the bond market? Dalio says no.

Watch out for allies and creditors losing confidence, the loss of its reserve currency status, the selling of its debt assets, and the weakening of its currency, especially relative to gold.

When you hear the new Federal Reserve Chair Kevin Warsh’s tough talk about inflation, remember this: every quarter-point Warsh adds now lands on $39.4 trillion of debt, driving that trillion-dollar interest bill higher still. Inflation is a choice, he says.

He is lying. The arithmetic leaves him no choice at all.

P.S. If you want to learn more, I urge you to read my new book 2029: The End Of America, Why The Age Of Paper Money Is Ending And How To Survive The Coming Global Monetary Reset, available now at Amazon.

Tell me what you think of today’s Journal – good, bad, or anything in-between: porterstansberrydirect@gmail.com

Good investing,

F. Porter Stansberry
Stevenson, Maryland