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When the Roman Empire was on the rise, its coins were almost pure gold and silver.  As the Empire matured, its coins were composites; tin was mixed with silver, copper with gold.  At the end of the Empire, the coins were all base metals.

One hundred years ago, the British pound sterling was already in decline and the US dollar in ascent.  As the pound retreated, so did the once mighty British Empire.
When Soviet Communism failed, the world focused on the fall of the Berlin Wall.  It was the collapse of the ruble, however, that led to the fall of the Soviet Empire.  Because when you can't pay your military, tanks sit idle in the motor pools, submarines rust in the ports, and jets don't fly.

History is clear.  The fall of currency presages the fall of political, economic, and military power.

This is why today's economic headlines must be viewed in a broader context than just recession, inflation, elections, and stock markets. The recent economic maladies are well documented.  Weakness in housing prices, sub-prime and prime defaults, and ill-advised (and possibly criminal) leverage of exotic mortgage products by Wall Street sharpies are all symptoms of a problem that is just now coming to the fore.

And while the public tries to determine what exactly happened, the finger pointing has just begun.  Unfortunately, there is plenty of blame to go around. Individuals lied about their incomes to get loans.  Real estate agents and mortgage originators misrepresented products to ensure they got their commission or fees.  Banks and brokerage firms then packaged, multiplied, leveraged, and "derivatized" these toxic loans and sold them as AAA rated paper to trusting (and often times greedy) investors.
And while all this may be portrayed as a real estate, banking, or Wall Street issue the reality is that it is an integrity issue. 

Trust at multiple levels has now broken down and this mistrust has crossed international borders.

Thus, our integrity issue has become of strategic importance to the United States.
The fact is our political and financial leaders are now being forced down a road they likely did not want to go. The Federal Reserve slashed interest rates .75% and is trying desperately to "inject liquidity" into the markets.  Meanwhile, the White House and Congress are debating the details of a stimulus package that starts at $150 billion.  At a time of record debt and rising prices, these are not measures leaders would normally take.

And while these measures may be necessary to forestall a recession, soothe the markets, and stimulate consumption, they do so at the expense of the dollar and at the expense of our reputation.  Dropping rates and printing money certainly reduces foreign demand for dollars.  But more importantly, it also reinforces the idea that we will stick our problems to our trading partners via a debased currency.

Closer to home, Americans sense the economy is slowing while they know prices are rising.  After all, there is little difference between printing $150 billion and adding tin to silver. Regardless of the short term consequences of rate cuts and stimulus packages, it is becoming increasingly clear there is some economic pain in our future.  How we deal with that pain will determine the future strength of the nation.

If we respond (as many of our leaders are now advocating) with harsh punishments for those who violated the law, with fiscal and monetary discipline, and with a sincere desire to deal openly and honestly with our trading partners then we have a chance to repair the damage that has been done and emerge stronger…just as we did after the Great Depression.

If not, we may wake up someday, and find like the Romans and British before us, that we lost our strength because we lost our currency because we lost our integrity.