This week, the United States opened its largest and most expensive embassy ever – in Iraq. It is like the Vatican City, say reports, a country within a country...both heavily fortified and luxurious...ready for a siege or a party.

But let us return to our beat – money. Alas, nothing much happened in the world of money yesterday. Instead, markets stood still – as if waiting for something to happen. The Dow eased off only 20 points. The price of oil stayed at $118. The dollar held at $1.56 per euro. And gold rose $5 – remaining where it has been, below $900.

Gold is correcting. Is the bull market over? Readers will remember what we can’t forget what happened to gold in 1980. The price of gold shot up over $800...but then began a bear market that lasted 20 years. Many people think it is happening again. But we also remember that the United States had a positive current account in 1980...and that Americans owned more of foreigners’ assets than foreigners owned of theirs...and that Paul Volcker pushed lending rates above 15% in order to protect the dollar!

Look to the left, dear reader. Look to the right. Do you see Paul Volcker at the Fed? Nope. Volcker is still alive – warning that there is a painful adjustment coming. But at the Fed itself, there is only Ben Bernanke, promising to drop dollars from helicopters, if necessary, in order to keep the economy bubbling along. And since the United States lives so far beyond its means...and owes so much money to so many people...the likelihood that a Paul Volcker will come along to protect the dollar is probably about as likely as Alan Greenspan being elected as the new Pope.

No, fear not. The Fed is unlikely to fall victim of a sudden attack of monetary integrity. The dollar is unlikely to rise very far against gold.

Still, the current correction could take the price down another $100 and still be above the 50-week moving average. So hold onto your gold...and hold onto your hats.

Elsewhere in the news, we find that OPEC has said $200 oil is a possibility. It hit $120 over the weekend. And truckers are protesting high gasoline prices. In other places, mobs are protesting the high price of food. You might think that these people don’t realize how markets work...that they don’t know that prices aren’t set by popular demand.

In fact, what they know is how government works. If you can make a big enough stink about something, the government will intervene in the markets on your behalf. In fact, governments are already controlling prices for fuel and for food all over the planet. But there is no problem so bad that government can’t make worse.

*** We are here in Rome trying to learn something – on your behalf, of course, dear reader. So far, what we’ve learned is that the Abruzzo and Barolo wines are rich, complex and smooth. The wines we’ve tried from Compania, on the other hand, seemed a little green...and a little sharp. But the Barolos tend to be expensive. Last night, our restaurant didn’t have a single one less than $150.

As for the world of money...we have found out what brought the empire down. Money, of course. They ran out of money. But that was only a part of the story...and not even the most interesting part.

“The empire held together pretty well,” explained our guide, “at long as it was controlled by Rome’s leading families, who shared the same culture and the same values. But as it expanded, it came into contact with more and more groups. And in order to protect the borders – which had become vast even before the empire itself was officially recognized under Augustus – more and more soldiers were required, and more and more money.

“I saw in the paper that you Americans opened a huge embassy in Iraq and that it was very expensive. Well, that’s what the Romans did too. They had garrisons all over the empire. And each one was expensive to maintain.

The ‘cursus honorarium’ – it was the route to power and prestige, like today, we go to a good college and then get a job with a good corporation and then we might go into politics...well, then, young men who were ambitious had to go into the army and take their post at these distant garrisons. And then they began to bring people into the system from the outside...and spend their lives outside Rome. Many leaders were no longer from Rome and some rarely even came to Rome. And many of the soldiers weren’t Roman either.

“When the empire was still expanding, there was a lot of money coming into Rome. Whenever they conquered another city or another tribe, they brought in more gold, silver and slaves. But when the empire stopped expanding...they had the cost of maintaining the borders, but no source of revenue.”

Now, let us check in on today’s empire. Where does it get its money? How could it afford such an extravagant embassy – in an area where it has no real interests?

How can it afford the trillion-dollar tag for the Iraq War? We will state the obvious: it too is running out of money. But unlike the era of Caesar Augustus Caesar or Romulus Augustus our modern government can conjure money out of thin air. It doesn’t even have to print it up on a piece of paper. It’s enough just to send an electronic transfer.

Now we will ask you a question, dear reader: What is an electronic transfer? Or, in an electronic transfer, what is transferred?

“Electrons,” you will answer. Or perhaps “information.” Or a “symbol of wealth”...something that represents money.

And here...back to penises for a moment. We once overhead a woman in a tour group in Paris, gazing at the Place de la Concorde. The leader had just informed her that the long, talk obelisk in the middle of the square might be considered a “phallic symbol.” She turned to her neighbor and asked:

“A phallic symbol of what?”

The electrons...or even the paper dollar...may be a symbol too. But a symbol of what?

More to come...

Bill Bonner
The Daily Reckoning