Andrew Henderson

Andrew Henderson

Founder of Nomad Capitalist and the world’s most sought-after expert on global citizenship.

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Lessons from the biggest economic collapses in history

Dateline: An undisclosed location in the USSA

What can history tell us about the future of America?

The world has been splattered with all sorts of economic collapses, in every industry, at big and small scales. So I wanted to take a day and review five of the biggest economic collapses and draw some parallels.

The current trend in the US is towards collapse, but for all the prognosticators and pundits with their doomsday predictions, things keep muddling along in the Land of the Free, good enough to where to the average citizen, nothing appears to be wrong. What’s beneath the surface is alarming, but when will this so-called collapse happen, if ever?

Rather than make wild predictions, we at Nomad Capitalist like to take measured, sober approaches to the future.

Sure, our economy is built on a house of cards, but knowing precisely when or how it will collapse is impossible. Will it be after the next elections? When massive inflation finally hits? When the current housing bubble bursts?

And will it be a sudden collapse, leaving people destitute and rioting in the streets? Or more of a slow, measured downturn where each year just gets a little worse than the last?

We don’t know. But we have history.

And history offers sobering lessons of economic collapse we can learn from… but likely won’t.

Let’s start with The Panic of 1893.

Even pre-Federal Reserve, the US had some pretty infamous collapses. As railroads took over as the main form of transportation in the country, some pretty heavy investments were made into the technology.

Railroads overextended themselves, couldn’t cover their expenses with revenues, and in 1893 the Philadelphia and Reading Railroad collapsed, bankruptcy was declared, and the panic was set off. At this same time, the silver market was experiencing turmoil.

Several new silver mines were discovered in the 1880’s, driving the price of silver down. Here comes the government solution. The US government stepped in and started buying silver to artificially increase its value.

See any problems here?

As we would expect, this resulted in a depression. This one lasted 7 years and at its peak, unemployment levels were at 17-19%. Government intervention in the market spelled trouble.

Then, of course, there was the 1929 Great Depression in the US.

We all read about this one in the history books, but have we learned the lesson? (And I don’t mean that things like Dodd-Frank will solve all of our problems.)

The Great Depression had huge implications not only worldwide, and for US economic policy for decades to come, but in the psyche of millions of Americans that was even passed down to future generations.

It’s also the most recent one in history that Americans think of when they are discussing the current economic situation.

The Roaring 20’s was the bull market of all bull markets, due to exciting new technologies, new financial instruments, and of course- the Federal Reserve and it’s devastating effect on the economy.

Prices went haywire.

Ultimately, the crash led to the longest depression in American history. Over the four years from 1929 to 1933, production at the nation’s factories, mines and utilities fell by more than half. People’s real disposable incomes dropped 28 percent.

Stock prices collapsed to one-tenth of their pre-crash height. The number of unemployed Americans rose from 1.6 million in 1929 to 12.8 million in 1933.

What can we learn? For one one, myths die hard. Like the old “FDR and a war finally got us out of the depression”. But mainly, when governments go overboard with money printing, and then start implementing price controls, there is danger ahead.

In the 1470s, the Medici family were the elites of their day in Florence. They were the Bush’s and Clintons combined.

They founded the worldwide banking system at the time. And then… they tried to expand, and the bank became overstretched, and started running out of reserves.

In 1478, two members of the Medici family were assaulted in church in Florence. This led to the Medici unable to reassert complete control of the bank.

As the bank approached insolvency, Lorenzo de’ Medici taxed Florence’s citizens to obscene levels,  in the name of- you guessed it- military defense. In 1494 the bank finally collapsed due to the corruption and irresponsible investments. The Florentine economy lost millions and took years to completely recover.

Close to every Nomad Capitalist’s heart should be the story of John Law. In fact, I’ve written extensively about the debacle before.

John Law established the first central bank in France. The concept of printing money was introduced, and Law’s banks ended up printing five times as much money as the entire wealth of France.

Sound problematic? How about solving that little issue with hope?

That was Law’s solution. He informed the citizenry that the new colony of Louisiana was filled with gold. He hoped that the investment would produce actual value to his worthless paper money. When that eventually turned out not to be true, the bubble burst, there was a bank run, and the value of Law’s currency was cut in half- leading to devastating inflation that crippled the French economy for many years.

You may not know that perhaps the worst economic collapse in modern history happened right here in the USSA a century and a half ago.

It was the 1850s. One of the goals of the Confederate army was European recognition. They attempted to do this by cutting off cotton exports. The Union also blockaded Confederate ports.

Trade revenues plummeted, and the confederate currency was deemed worthless. When the war ended, the Confederate economy was in shambles. This combined with Lincoln’s dabbling in central banking and dollar inflating hurt not just the South but the entire country for a long time.

For some reason, politicians today still want to impose sanctions and embargoes around the world, thinking that will solve its problems. Politicians could care less about your economic prosperity; to them, it’s all about keeping the party going.

Let’s learn from history this time. Instead of trying to predict when bad things might happen, we can see signs of history repeating itself and be able to protect ourselves instead of being caught up in the herd.

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