This month, we return to the idea of a Jubilee from another perspective…
The year was 1885, and Mr. Clemens had it all…
He was 50 years old and had achieved everything he ever wanted. He was fabulously wealthy. He and his wife had inherited a fortune from her family and had three lovely daughters.
Oh, and he was also the best-known author on Earth.
By that time, Samuel Clemens – known to the world, of course, by his pen name Mark Twain – had already published Adventures of Huckleberry Finn, which established him as a major author, as well as the The Adventures of Tom Sawyer and The Prince and the Pauper.
On top of that, Clemens’ publishing company – Charles Webster & Co. – had secured the rights to President Ulysses S. Grant’s memoirs. That went on to be the best-selling book in the history of American publishing up to that point.
Figuring he’d reached the point where he could do what he wanted… and having tired of life on the lecture circuit… he retired to his palatial Connecticut mansion.
As the money poured in from his publishing company and the royalties of his own books, Clemens settled into a lifestyle of lush consumerism. As filmmaker Ken Burns noted in his 2002 documentary Mark Twain… the Clemens household was spending $30,000 a year on expenses and generously supported charities and extended family in an era where the average annual wage was less than $500.
“If there is one person who is more thoroughly and unceasingly happy than I am,” he wrote around this time, “I defy the world to produce him.”
In 1889, Clemens published his fifth novel, A Connecticut Yankee in King Arthur’s Court. It was a commercial and critical flop. Claiming not to care, Clemens called the book his swan song, retired the “Mark Twain” name, and gave up writing as a commercial enterprise.
He no longer needed the “Mark Twain” brand… After all, he was a proven success in the business world.
Clemens went on to invest $25,000 in a steam-generator venture. He threw another $25,000 at steam pulleys, placed another $25,000 bet on a maritime telegram, and $50,000 on a new engraving venture. Meanwhile, Clemens’ publishing company signed up Civil War hero William Tecumseh Sherman, General Custer’s widow, and Pope Leo XIII in an effort to replicate the success of Grant’s memoirs.
Clemens’ big bet was on the Paige Compositor, an electronic typesetter that had 18,000 moving parts and could do the job of six men. Clemens bought half the company and bragged “[This machine] can do everything a human could do, except drink, smoke, and go on strike.”
Always the dreamer, Clemens filled the margins of his manuscripts with calculations of how many Paige machines they’d have to build to meet global demand.
As you can probably guess, things turned sour. The steam investments went up in smoke. The telegram and engraving businesses also failed. None of the memoirs came close to replicating the success of Grant’s. And the Paige Compositor required monthly infusions of $3,000-$5,000 just to stay afloat. In the end, Clemens dumped $300,000 (more than $7 million today) into the Paige Compositor.
By Christmas 1890, the best-known author on Earth had lost almost all of his wife’s inheritance, taken out loans against the assets of his publishing company, and could not find anyone to loan him money. By 1893, Clemens was bouncing between hotel rooms and the guest rooms of friends.
Two years later, Clemens declared bankruptcy. There was no alternative. The debts had mounted to more than $200,000. But pride was also at stake here… and the family name. Clemens publicly guaranteed he would pay all of his creditors in full, even though he was not required to do so under bankruptcy law.
Rather than sulking, the disgraced Samuel Clemens dusted off the Mark Twain brand and got back to work. He had failed as a businessman, but Clemens would use the two professions from which he retired – lecturing and writing – to regain his financial footing. Mark Twain was back.
There was one problem… Twain hated the lecture circuit. In the days of smoky locomotives and large oceangoing steam liners, a five-continent lecture tour would be a grueling siege on the senses. It was, as Twain put it, a “heart-torturing idea.” But he did it anyway.
In April 1895, Twain headed west to start his lecture tour throughout the U.S. and Canada. From there, he set off for Australia and New Zealand and four months of packed houses… Then to India for three months where he kept countless British ex-pats entertained with his wit and humor… Then for two more months of lecturing around the rapidly colonized African continent, before finally heading back to England to wrap up the first year of his debt-retirement binge.
After a year of the grind, Twain lamented that his lecture tour “seems as if it has already lasted 1,000 years.” But after just one year on the road… Mark Twain had paid back $35,000 of Samuel Clemens’ debts.
Twain would spend the rest of the decade in Europe publishing, lecturing, and relentlessly chipping away at his debts. By fall of 1900 – a little more than five years after hitting the road – he repaid the last of his debts. Twain returned to the U.S. a star, and the world had nothing but respect for the man who publicly endured a decade of trials to pay them.
As Andrew Carnegie said, “Our friend entered the fiery furnace a man, and emerged a hero.” Thomas Edison said, “The average American loves his family. If he has any other love left over for some other person, he generally selects Mark Twain.”
Sadly… Twain’s story is more than 100 years old.
In the intervening century, the world’s governments have crafted a different, disgraceful model for debtors to follow…
Walking Away From ‘Odious Debt’
It started out as pure theater: Red silk from the orient and solid silver cuffs, studded with the Russian crown jewels. Even the walking stick was bathed in gold. Tsar Nicholas II would wear this spectacular costume to the Russian Imperial winter ball in 1903.
But Alexandre Zak rejected the excesses he saw. It’s not because Zak was a communist. He was a professor of finance and law at the university in St. Petersburg during the Tsars’ regime. He fled Russia after the Leninist revolution. He landed first in Estonia, then later New York, where he advised the U.S. Justice Department during World War II.
By then, Zak had Americanized his name to “Alexander Sack” and written one of the key texts in international financial law, “The Succession of Public Debts of a State.” In it, he argued – back in 1927 – that some government debts were so outrageous that they could not rightly be owed by the people.
Sack based his doctrine around despotic regimes that piled up debt for self-interest as opposed to the state’s or people’s needs.
His doctrine claimed this illegitimate – or “odious” – debt belonged to the regime and not the nation. So it should fall along with the regime’s demise. Sack’s examples included the reign of Austrian Prince Maximilian I, who was “emperor” of Mexico from 1863 to 1867…
Maximilian was a puppet of France’s Napoleon III and was “elected” Emperor while French troops were massed in Mexico City.
Once the French troops left, Emperor Maximilian lasted all of 11 months. By the end of 1867, he had been captured and sent to the firing squad along with his top generals. The new Mexican state – backed by the United States – repudiated the debts run up by Maximilian, the French puppet. And the creditors – the French, mostly – got nothing.
Sack later argued that the reign of Maximilian was abhorrent and that the Mexican people should not be harnessed by this “odious debt.”
“It is a debt of the regime, a personal debt contracted by the ruler,” Sack wrote, “and consequently it falls with the demise of the regime.” What he meant was, we won’t buy the Emperor’s New Clothes.
Few people would argue that people recently freed from true oppression should have to shoulder debts incurred to guild their despot’s palace… but you shouldn’t be surprised to discover that modern governments have found it useful to scorn their own obligations.
Take Ecuador… In 2008, President Rafael Correa declared the nation’s $3.9 billion in foreign-held debt “illegitimate.” He claimed the prior corrupt and despotic regimes were responsible. Exactly which despotic regimes he meant is unclear. The country has been a democracy since 1979.
As the Washington Post reported at the time…
Ecuador is ceasing payments not because the oil-rich country cannot afford to pay but because it has made a political decision not to…
Correa has been threatening default and demonizing foreign investors since his presidential campaign in 2006. Most recently, he has cited a presidential commission report that found evidence of criminal violations by previous governments that sold debt to pension funds, hedge funds, and other overseas investors.
These problems didn’t go away under Correa’s watch, however. While he claimed to have lowered debt while he was in office, the real numbers show that he increased it… potentially to levels not allowed by the country’s constitution.
And this year, the country’s new leftist president Lenin Moreno is trying to refinance “expensive” foreign debt. According to Reuters: “Ecuador has to cough up some $6 billion for debt payments and oil-for-loans, mostly to China.”
What’s next for Ecuador? Why, more debt:
Moreno said he had reached out to the World Bank for potential financing that could help him fund ambitious social programs including free education, health and housing for lower-income families, and subsidies to eradicate extreme poverty.
And you’re no doubt familiar with the well-documented problems in Greece…
Among violent protests outside parliament, the people of Greece called for debt repudiation, claiming the debts aren’t their responsibility. Eric Toussaint, who heads up the do-gooders at the organization The Committee for the Cancellation of the Third World Debt, joined the Greek people by saying… “Greece must unilaterally suspend repayment of its debt.” In one interview, he questioned the legitimacy of the debt related to the Olympic Games and debt relating to Greece entering the European monetary union.
Other cries of odious debt came from left-wing politicians in Germany. According to a translation from a local documentary, Sahra Wagenknecht from the German left-wing political party Die Linke, argues that part of the national debts in the European Union countries is illegitimate because they resulted from policies against the people’s interest.
More recently, these cries have turned into action…
Look at Croatia. In February 2015, it erased more than $20 million in debts for 60,000 people. This was money owed to banks, telecom operators, municipal authorities, and utility companies.
Not a single person or investor was refunded for their losses. And it’s probably no surprise that the stock market went down significantly over the next year (see chart).
This of course has nothing to do with Sack’s ideas. He wanted countries and citizens to take responsibility for money borrowed willingly for public purposes. He argued that states must repay their legitimate debts for international commerce to flow. He was strictly focused on tyrants who used their office to enrich themselves.
Regardless… we’ll hear more about Sack’s thesis in the years to come.
Right now, the Department of Justice in Washington is already coordinating an investigation into fraudulent loan practices around the country. Many academics and economists are pushing for a Jubilee. A half-dozen laws have already been introduced in Congress.
After all, the debts of Western governments are so immense, they can never be paid back.
Central banks have tried to cover the interest payments with more borrowing and money printing. But we are seeing ominous signs that central banks have reached the limit of their ability to perpetuate our culture of debt.
And that leaves one choice…
The bull market that began back in March 2009 in stocks, bonds, and real estate is the result of this central-bank manipulation.
The major Western governments are all guilty of creating trillions of dollars out of thin air, which they then use to prop up the price of financial assets around the globe.
What happens if the world’s central banks lose control of the paper-money system?
What if the world’s leading sovereign governments become so highly indebted that no one is willing to hold their obligations, not even their own citizens?
What happens if the governments whose obligations form the foundation of the world’s monetary system were to be rendered not only bankrupt, but actually insolvent?
We’re seeing plenty of signs of this today.
A financial revolution is already underway. More and more individuals find themselves suffocating from overwhelming student-loan, auto, and credit-card debts.
As is the case in any crisis, the wealthy will make a fortune… so will the prepared.
For example, the incredible rally in bitcoin and other “cryptocurrencies” has been partially fueled by a growing distrust of governments and central-bank manipulation…
More than ever before, people are seeking out nontraditional assets that can’t be devalued by the irresponsible actions of central banks around the world. But regardless of what happens to bitcoin and the cryptocurrency markets, the consequences will be devastating for traditional currencies. These consequences will come to a head. Eventually, they will lead to an all-out “Debt Jubilee.”
What could possibly go wrong?
Porter Stansberry founded Stansberry Research in 1999 working on a borrowed computer at his kitchen table. Since then, he has built the firm’s flagship newsletter, Stansberry’s Investment Advisory, into one of the industry’s most widely read publications.
Today, Porter is well-known for doing some of the most important – and often controversial – work in the financial advisory business.