Inflation - debasement of currency and fall of empires and civilization

Every generation needs a revolution - an entrepreneurial revolution

Fall of Empires - Rome and US

This post is going beyond the scope of the page - entrepreneurship   But it is wise to watch this video and learn from this.  Paraphrasing Churchill, we say that going deep into history makes us fully understand and much more so the future   We gain more insight into the currency management, money and credit and how they affect local business.   Even the military, and strong local and central govts.

The Roman empire

This Maloney compares the Roman empire and the current US situation.  There are parallels and we must be aware of the perils we are facing so that we can avoid the mistakes of the  past civiization that has collapsed  What must we do as individuals and entrepreneurs to avoid the doom and steer clear of the challenges posed by the debased monetary policy

1.  Rome started with stable monetary policy, stable currency that was backed by pure gold

2. But the Punic wars (war with Hannibal) and massive military structure all over the empire and massive infrastructure  caused the central govt (the Republic) caused to engage in deficit spending

3.  This led to the debasement of the currency, like removal of edges of the coin, melting them and minting new coins or simply inflating the value of the coins

4.  To appease the masses, the top brass of Rome, the emperors led in Circus and Bread programs.   Circus - the  regular spectacle at the coliseum featuring gladiators and the Bread - a welfare program where about 20% of the population get wheat ration daily.   Where did Rome get the money for these

5.  This lead to strong govt  to collect taxes, made the central govt corrupt - due to cronyism.  To curry favors from the emperor and the senate   

6   Led to the strong influence of the military over the govt

These led to disorder chaos and eventual falll of the Roman empire  It was not the war with Vandals that  brought that Rome, the monetary system did and imploded the empire

Similarity with the US

1.  The US started on a similar footing with Rome with stable currency/money in the beginning

 The US Constitution prescribed only Gold and silver as the  legal tender in the settlement of debt

  and other obigations

    

  

• Clause 1 Proscribed Powers

• No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

Because of this the  US dollar became merely a certificate of deposit of gold or silver   The US dollar or silver can be redeemed through the US dollar

2.  US has to engage in deficit spending due to its involvement in two World Wars

3.  In 1944, just as the world war II was coming to an end, there was this Bretton Woods agreement that led to abandoning of the gold standard (perhaps to speed up war recovery through printing of loca currency and deficit spending by countries) and instead making the dollar the  world currency pegged 

(reserve) pegged at $35 dollars per ounce.  This led to the establishment of the IMF and IBRD

Bretton Woods agreement

So how then the value of currency determined - by comparing the value of currency against a basket of currrency that keeps fluctuating on a daily basis

4  Due to the deficit and massive spending due to Vietnam war Nixon on August 15, 19711 declared at least temporarily that redemption convertibility of US dollar to gold was to be no longer allowed.  And strict price control  for 90 days.  It is to be noted that inflation or price of goods going up is not the product of manipulation by traders who are just out to make a living but because of wrong monetary policy and is merely a result of debasement of currency brought about by lack of a gold standard, and/or rise in money supply.  Nixon is not only famous for Watergate scandal and or Vietnam war, but for the disruption/debasement of the US monetary system

Nixon ends convertibility of dollar, impose price controls

How come Japan is into negative territory?

Rizal Philippines
April 24, 2016

Japan has again fallen intor recession

Japan has been into recession (contracting economy) for several years now.  The President IMF, LaGarde is worried not so much with less developing countries but with Japan. Japans public debt is 237% of its GDP, the highest among developed countries - WSJ  Although yen is now the darling of world currency, she was worried about too much debt of Japan, although mostly yen denominated (US has plenty of debt too - almost trillion dollars)

And its giants like Nissan, Toshiba, and Sharp have been taken over by foreign partners.  Of late, Mitsubishi is in trouble because of its alleged cheating on emission tests (like VW)  Because of the recent earthquake at Kyushu, giant car makers Toyota and Honda have ceased production because of disruption of supply chain.

From Japan Times - Sharp and Toshiba face dire prospects

The combination of  natural calamities, (earthquakes) aging population plus mistakes in fiscal and monetary policies have brought Japan into this challenges.  Let us add management complacency and smugness.  The Japan tiger of yore has become slow, and probably unmindful of world developments which included China.  The Japanese management and technological prowess on Kaizen, QFD, Gemba, TPM 5s was overcome by cheap and mass produced products from China. Everybody was caught unprepared.

Some say that loss of entrepreneurship fueled by conservative Japanese banks who favored large and and ongoing concerns, contributed to loss of innovation and change in Japan.  The likes of Akio Morita of Sony and Konosuke Matsushita who were for sound management and innovation was gone.

IMF chief worried about US shutdown, and even more on raising the US debt ceiling

I watched last night that IMF chief Chiristine Lagarde is very much worried about the US Govt showdown (now on its fifth day) It may have long term damage not only to US economy but to the entire world as well.  US problems/woes could drag the rest of world economy with it.

It is a "mission critical" in a speech she delivered at George Washington University | October 3, 2013 (from Nation)

If US fails to resolve the budget and raising the debt ceiling, US may default on payment of its debt papers and result in massive default (like your credit card company cancelling your credit card) and US may have to pay in cash.  Will this make life for Americans less gloomy (many dont frequent restaurants and coffee shops as they used to pre October 1, 2013

Japan must also reform its economy;  its debt has reached 250% of its GDP with its per capita debt standing at $90,000 for every Japanese.

Do you agree with Christine?  Earlier, I made a post on the bad shape of Japanese economy.  Is Japan now suffering for its WW II sins?

Many of the Asian markets were lower yesterday due to US shutdown.

Are Asian markets and US related?  Can you see the relevance of US problems and Asian capital markets?