The 18th century Dutch pattern suggests that we are witnessing the final stages of the American empire

Almost exactly a year before the date of this article, I was with old friends at their beautiful home in a gated community beside the Trump National Golf Course in Jupiter, Miami Florida. Our hosts drove us both to the NASA Space Centre and stunning floating grass wetlands, and within a relatively short drive we were witnessing a very different America, housed in mobile accommodation parks. We now understand why wealthier households are prioritising the security of their communities. Subsequently, and in the light of their President’s unpredictable behaviour, ignorance of history, threats to Nato allies and total disregard for the international rule of law, it has been tempting to question the longevity of North American hegemony. However, I have concluded from (and plagiarised!) subsequent research that strongly suggests that the seeds of the end of US dominance were sown many decades before Donald Trump’s entry to the White House.

Although we are witnessing the final stages of the American empire, we should not expect a sudden collapse or a single day when the US Dollar becomes worthless. The Dollar’s demise as a trusted reserve currency has been a long and drawn-out process, uncannily similar to the Dutch experience in the 18th Century. The Dutch Republic had the strongest navy, the most advanced financial system and the highest standard of living. The Gilder was the global reserve currency. And yet, over the course of just 50 years, the Dutch gave away their superpower status. The country did not lose a war or suffer a plague, it was their elite class - the merchants, bankers and politicians - who dismantled the Dutch economy. Concerned by the absence of domestic growth opportunities and the cost of maintaining an empire, they exported their wealth and lent capital to overseas competitors, dismantling their own nation to preserve and grow their personal fortunes.

To understand why the US stock market hit all-time highs while the country’s bridges rust and the middle class evaporate, the Dutch pattern provides a clear indication of how a ruling class separates its own destiny from that of its people. In the 1600s, the Dutch were the workshop of the world and the innovators that mastered the art of wind energy. They processed imported raw materials and with superior technology exported finished ships and machinery, generating massive surpluses of capital. Amsterdam became the world’s richest city, and the Gilder, backed by the dominance of the Dutch economy, became the world’s reserve currency.

Wages rose; the Dutch became wealthier and compared with emerging competitors in England and France it became expensive to build ships in Amsterdam. The Dutch labour force had changed from the hard-working innovators of the previous generation and became comfortable and complacent. Dutch investors saw that returns on investment into productive facilities in the Netherlands had become less attractive. Labour was too expensive and the domestic market was increasingly competitive. And so the Dutch Republic shifted from an economy of production to an economy of finance and became the world’s banker. Far from representing the natural evolution of a developed nation, when the Dutch empire stopped making things and started making money from money, it had sown the seeds of its own destruction.

Through the 1700s, the Amsterdam Stock Exchange became a casino. The Dutch elite invented complex financial instruments and created bubbles in exotic assets. The wealthy got wealthier while their domestic economy struggled. The middle class that had formed the backbone of the Dutch Republic’s supremacy began to fracture, while the elite had found a new and profitable home for their capital across the channel. Britain in the 1700s was industrialising and needed funding to build their own empire, and Dutch bankers lent massive sums to the British government and industries. They bought British bonds, invested in the British East India Company, and funded a navy that would eventually blockade their ports and strangle their economy. This was the elite’s exit - the migration of capital from Holland to Britain in pursuit of higher returns.

The Dutch elite kept living in their beautiful canal houses in Amsterdam, but their wealth was no longer tied to the health of the Dutch Republic - their assets were safely parked in London, earning 5% interest guaranteed by the British crown. They had built a lifeboat for themselves and left everyone else behind. The US is living through the same cycle. From 1945 to 1970 America was the workshop of the world, manufacturing steel, cars, and electronics. Because there was growing international demand for American products, the dollar was king. But again, wages rose, regulation increased, and the rest of the world caught up. In the 1980s and ‘90s, America mirrored the Dutch decision 250 years previously that their future was in services and finance, and they began to dismantle the physical economy, shipping factories, technology and manufacturing jobs to China, Mexico, and Vietnam.

America shut down their engine of value creation while American workers were sold the logic of cheaper goods. GDP rose, stock markets soared and the elite became richer. However, in reality, all they had done was destroy the domestic manufacturing sector that had created these massive surpluses of capital, just as it did in the Netherlands. This capital needed somewhere to go, but there were few American factories left and returns from investing in American infrastructure were too modest. No, just as the Dutch funded the rise of Britain, the American financial elite funded the rise of industrial China. The logic was identical - why pay an American worker $25 an hour when a Chinese worker costs $2? The American elite have detached their fortunes from America. Today, Apple has factories and customers in India, Europe and China; Blackrock owns assets in every currency and in every jurisdiction. They have hedged their US exposure and transferred their loyalty away from the United States to the global market economy - and to the optimum corporation tax jurisdictions. In the late 1700s, as the Dutch economy hollowed out, society became polarised, with the rich protected in gated communities while the poor descended into poverty and squalor. There were riots and anger, but no solutions - the resources needed to fix the problem had been invested in London.

America today has a culture obsessed with celebrity and identity politics; The media apparatus keeps the population fighting over cultural issues while the economic foundations wither. The financial press is actively complicit in the concealment of the impending collapse of the Dollar’s status, silent on the trebling of the silver price in twelve months while Bloomberg headlines a brief 5% pullback as a collapse of an inflated market for precious metals. This is a feature of the decline. When the elite can no longer offer the people prosperity, they must be distracted and convinced that their money is sound. And while the people are distracted, the elite are moving their wealth. The mechanism of this modern exit is more sophisticated than it was in the 18th century, but the result is the same. The Dutch used gold transportation, bonds and merchant banks. The American elite use the Euro dollar system, offshore tax havens, and now the digital ledger.

Debt plays a key role in their exit. In the final stages of the Dutch Republic, the state raised enormous amounts of debt to maintain the illusion of power and prosperity. They borrowed to keep their navy afloat, to pay welfare and interest on previous borrowings. The US government’s trillion-dollar deficits generate funding for contractors, pharmaceutical companies, banks, and to pay interest to the holders of treasuries. The middle class pays taxes and suffers the resulting inflation from currency printing and the Dollar’s debasement. It is a system that drains the productive economy until the debt becomes too large to service and the currency begins to lose trust.

In 1780, the fourth Anglo Dutch War provided their moment of truth. The Dutch realised too late that their ships were outdated and their coffers were empty. The British navy that they had helped finance crushed them, and the Bank of Amsterdam, the Dutch symbol of financial stability for 170 years, became insolvent, having lent its gold reserves to the bankrupt Dutch East India Company. The Dutch golden age had ended with the whimper of a default. The United States is approaching its Bank of Amsterdam moment, with $38 trillion in federal debt and over $100 trillion in unfunded future liabilities for Social Security, Medicare, and an unaffordable military that struggles to maintain its Navy. The American elite has access to the best available data and knows that the arithmetic is unsustainable and that the debt can never be repaid in real terms. They therefore convert their paper wealth denominated in the dying currency into hard assets that can survive any transition to a replacement currency system, and this is why you see the billionaire class buying assets that cannot be inflated away.

In the Dutch era, to move your gold physically to London was a risky process. Today, you can move billions of dollars into the digital realm in seconds. The billionaires are moving their capital from the state ledger to the blockchain, preparing for the day when US Treasury bonds are no longer considered risk free assets. When the dollar loses its status, the American state will not be able to afford imported goods or fund its military. The standard of living for the average American, stagnant since the late 1970’s, will collapse. But the elite will be richer than before having successfully exited the falling empire, because they will own the scarce assets, land, energy and digital coins, priced in the new currency.

The tragedy of the Eighteenth-Century Dutch experience was the quiet acquiescence of the population. Up until the very end, the average Dutchman believed he lived in the greatest country on earth. He looked at the beautiful buildings, the history, the art, and told himself that it would last forever. He could not imagine a world where Amsterdam was a lesser city. This arrogance blinded him and made him slow to react. He kept saving in Gilders when he should have been buying gold. He kept trusting the Bank of Amsterdam when he should have been withdrawing his deposits. Americans suffer from the exact same blindness - from a religious belief in American exceptionalism, believing that the laws of gravity do not apply to them. Americans believe that the country can print infinite numbers of Dollars without debasing their currency. They believe that the country can de-industrialise without causing poverty and that their military is invincible. This excess of self-confidence is used by the elite to keep the population compliant while they plunder the country using increasingly worthless paper currency.

As capital fled from the Netherlands, the dikes and canals began to suffer from deferred maintenance. Today, it is the American power grid and water systems. Deferred maintenance is a physical manifestation of capital flight. The money that should be decontaminating sewage is being used for dividends and stock buybacks - the UK’s privatised water industry provides a prime example. In America, the money that should be upgrading the grid is being used to service the interest on the debt. In the 1700s, the ambition of a young Dutchman was no longer to be an explorer or an inventor. It was to be someone who lived off the interest from government bonds. Today, the ambition of much of our youth is to be an influencer or an investor wanting to get rich without working. This cultural shift is a symptom of the economic reality. When work doesn't pay, people stop working, and a nation of gamblers cannot compete with nations of builders. This is why the rise of the East is inevitable, because while the West argues about share valuations, they are pouring concrete, while Americans trade derivatives, the Chinese mine lithium. You cannot eat a bond or live in a share certificate. That is why the American elite are buying real things such as farmland and making massive investments in private energy infrastructure. Worthless paper claims are being exchanged for tangible assets, selling the past, the dollar, to buy the future - resources and tech.

If we follow the Dutch script, the American predicament does not end with an apocalypse. The Netherlands is still there. Amsterdam is still a beautiful and popular tourist destination, but no longer a shaper of history. The Netherlands became a satellite of the British Empire and subsequently lost its sovereignty as part of the European Union. Their standard of living stagnated for a century, and the Dutch went from being the masters of the world to a province of Europe. Because the country is both bigger and American society is less compliant, the fall for the United States will be harder. The more likely outcome will be a society of extreme wealth at the top living in fortified enclaves, surrounded by poverty and instability. The central government will remain, but the real power will reside in the corporate fiefdoms and decentralised networks.

If America falls, it is not a given that China will take over their mantle. The new empire is not necessarily a new location, but a digital layer that sits on top of the world. The ultra wealthy are not defecting to China but to the internet. They are building a civilisation that exists in the Cloud, governed by smart contracts rather than parliaments. Capital is moving to the blockchain and into AI. History has shown that when the nation state becomes untrustworthy and a bad place to invest, investors find alternatives. They are doing so now and leaving the rest of us with the bill for the old one, and inflation is the way that the old regime is being closed down. In the Dutch era, the elite relied on international law to protect their British investments. If you take the trouble to read the terms of service of the major tech platforms, you realise that you are agreeing to be governed by their laws, not the laws of the land. They can de-platform you and seize your digital assets without due process - the technology giants do not answer to any parliament.

So, if our ship is sinking and the captain has already sailed off in the only lifeboat, what is the strategy for the remaining passengers? First, they must stop waiting for the politicians to fix their country - the maths is settled and it cannot now be changed. Second, they must adopt the mindset of the Dutch elite rather than the peasant. The peasant waited for the government to save him and he starved. The elite saw the reality and diversified. We must diversify our lives and hold assets that have global value - gold, maybe even Bitcoin, and most certainly skills that will be in demand worldwide. Finally, and most sadly, we will be forced to detach our identity from our countries of origin. We are raised to be patriots, but patriotism in the face of a looting class is dangerous. We can take pride in our country, its people, sports teams and history, but we must accept that the system is not working for us.

The Dutch pattern showed us that empires do not end in a puff of smoke following a specific event - or sacking by Goths. The Dutch Republic was sold off for parts, and to steal the Econ Empires analogy, the United States’ furniture has already gone, and the copper wiring is being removed, but ordinary citizens do not have to go down with the house. The Dutch lived this, as did the Romans, and now it’s America’s turn. The exit has happened, the pin is out of the grenade, and the collapse is simply the lagging indicator of what has already taken place. We must not be the last ones to realise that the party is over. The Dutch ignored these signs until the water was already over the dikes, and although we cannot predict the future with accuracy, we can at least prepare for the likely outcome.

When the FIAT currency Ponzi Scheme is finally exposed, it will happen quickly as it dawns on the population that they have been deceived, and that the true situation has been kept hidden while the elite prepared their escape. There probably isn’t enough gold in existence, above or below ground, to allow all of us to escape from FIAT currency and banking scams into a transportable, universally accepted currency that cannot be printed at will. It is likely that a significant proportion of the gold that exists is already above ground - in central banks’ and investors’ vaults, or adorning the population’s necks, wrists and fingers - and other less visible parts of the body!

As always, timing is uncertain, but column inches highlighting these risks are noticeably increasing. I therefore find it surprising that the FIAT currency confidence trick has survived for this long, but it is surely better to take the available precautions early rather than risk delaying until after the event.

About the author 

Jo Welman had a career in the City spanning 45 years and worked in a wide variety of financial sectors. After graduating from Exeter University in 1979 with a degree in economics, Jo spent ten years at Baring Asset Management where he managed a range of UK and US pension funds and unit trusts, investing across multiple sectors including bonds, international equities, commercial and residential property and private equity.

In 1989 Jo became Managing Director of merchant bank Rea Brothers’ institutional and private wealth investment management division. Over the following decade Jo launched a series of specialist investment trusts and funds in a variety of industry and property sectors, before forming a joint venture with reinsurance broker Benfields (now Aon Benfield) and raising one of the first limited liability corporate capital vehicles for the Lloyds insurance market in 1993. As part of his long-standing involvement in the insurance industry, Jo co-founded the Benfield Re-Insurance Investment Trust plc (Brit) in 1995. Following the sale of Rea to Close Brothers in 1999 Jo became Chairman of Brit Insurance Holdings Plc and in 2001, in partnership with Brit and Benfields, he co- founded specialist asset management firm, EPIC Investment Partners (EPIC).

Jo continues to provide corporate finance and investment advice to entrepreneurs and private investors. He sits on the board as a non- executive director of ARK Syndicate Underwriting

“Feet up by the pool”

Jo does not receive any remuneration for his EPIC commentary. Instead, EPIC is pleased to promote the latest edition of his book “Feet up by the pool”.

Profits from sales of the book go to The Money Charity, a charity that shares Jo’s objective to help fill in some of the worrying gaps in the school curriculum. These omissions leave many young adults lacking in the financial awareness that they need to survive in a world where they will rely on their own savings if they are ever to stop working. Even if they earn the right to a full State Pension, today this amount hardly covers council tax and utility bills, and so they need to save and build up a sum of capital amounting to around twenty times their desired retirement income. A frightening number.

As Jo eloquently says, “If we can do our bit to raise awareness of the impending UK saving and pensions crisis, the exercise will have been worthwhile.”