Tuesday, November 28, 2023

“If all money becomes worthless, then so does all government, and all society, and all standards”


The title of this article is a quotation from the book "Before the Deluge" by Otto Friedrich, examining the economic collapse of the Weimar Republic in the 1920's, and how that paved the way for the rise of Adolf Hitler.

It's a very good book, and worth reading.  I may publish an excerpt or two from it in my "Saturday Snippet" series in the not too distant future.

I was reminded of the book when it was cited in an article titled "How Inflation Precipitates Societal Collapse".  Here are a few excerpts.

In the early Republic of Rome, the Roman State engaged in a policy of territorial expansion and with each conquest of a neighboring region the State plundered the defeated empire’s treasury and increased its own hoard. However, after suffering defeat against the Germans in 9 A.D., Emperor Augustus terminated the policy of expansion and the flow of wealth from foreign lands ceased. Augustus, and the emperors who followed, thus faced insufficient revenue. Taxes could only be raised so much without whipping up the sands of revolt, and so, as Joseph Tainter explains:

“When extraordinary expenses arose the supply of coinage was frequently insufficient. To counter this problem, Nero began in 64 A.D. a policy that subsequent emperors found increasingly irresistible.” 

Joseph Tainter, The Collapse of Complex Societies

This policy involved debasing the value of the standard Roman silver coin, the denarius, by infusing it with cheap metals such as copper, and “clipping” both gold and silver coins, or in other words, reducing the size of them. The excess precious metal obtained from clipping and debasing coins was then used to create more coins, and with these newly minted coins the Roman State covered its debts and expenses and fattened the pockets of statesmen and political insiders.

The modern equivalent of this policy is the expansion of the supply of paper, or digital, money. However, whether one debases and clips coins in order to create more coins, prints more paper money, or adds digits to an account held with a central bank, the result is the same – monetary inflation. The quantity of money is increased, and all other things equal, this leads to price inflation and a rise in the cost of living.

. . .

The story of Rome contains often neglected, but important lessons. One of these lessons is that when a government, or banking elite, claims the right to expand the supply of money without limits, it plays with a fire that can quickly spiral out of control and end in economic ruin, revolution, or even outright societal collapse.

There's more at the link.

I recommend reading the article in full, and comparing the historical incidents it describes to what we're seeing from the Federal Reserve and the Treasury in our own time.  The parallels are unmistakeable, and very scary.

I speak from personal experience in dealing with out-of-control inflation.  Not only did I live in a permanently double-digit inflationary economy in South Africa during the 1970's and 1980's, but I was one border away from Zimbabwe and its hyperinflation of the early 2000's.  By then I was living in America, but I'd seen all the precursors to the hyperinflation there during the 1980's and 1990's, and it came as no surprise.  Based on that experience, I predict that unless we radically and quickly change course, we're headed down the same road.  Look at any episode of hyperinflation in history, and compare what caused it then to our economic policies now, and there's no mistaking what's coming.

If anyone says I'm wrong, or the economists who are increasingly drawing attention to those parallels are wrong . . . ask them whether they've studied history.  If they blithely cite "modern monetary theory" instead, you'll know they're charlatans and liars who have no idea what they're talking about.  Listen to those who lived through such times, and learn from them, and prepare yourselves accordingly, to the extent that you can.



Aesop said...

Point Of Order:
"However, whether one debases and clips coins in order to create more coins, prints more paper money, or adds digits to an account held with a central bank, the result is the same – monetary inflation."

Twaddle. Codswallop. Poppycock.
And that's as far as I'll go on your blog, rather than further characterize the effluvia from the southern ends of a north-bound herd of steers.

Rome would wish they had expanded the money supply, but the reason for inflation is that they only inflated the currency supply.

Neither dollars now nor brass and tin coins then are "money", which is why inflation occurs.
Money can't be inflated.
Currency can.

Gold and silver are not inflatable assets.
Only debased currency is.

Friedrich should have known the difference, no matter in what language, or when he published.

Misunderstanding the difference between currency and money is more than half the reason government monetary shenanigans can be practiced upon the population with impunity: people are monetarily ignorant to the extreme.

That's how you get a US dollar currently worth 1½¢ (less than the cost of the actual paper and ink to print them) in real terms compared to anytime from 1932 back to the early 1800s.

Gold-backed dollars were uninflatable, and thus remarkably stable over centuries.

Dollars (paper or digital) can be inflated.
Ounces of gold and silver, not.

That's why the US Constitution gave the government the power to coin money, not to print money.
If it's coined, it can be money.
If it's printed, it's merely currency being treated as if it were money. But it isn't, nor ever could be, and your monthly grocery bill over time proves the truth of that fact.

That aside, I doubt that anything humanly possible will - nor even could, at this point - stop the action of gravity with respect to the US and world financial markets.

What's coming is well-known to anyone who ever saw Wile E. Coyote run off the edge of a cliff in a cartoon while chasing the Roadrunner.

It won't be anything like as funny in real life.

The book referenced is otherwise valuable for planning purposes, and some predictive abilities.
Later on, in bleaker times, as a substitute in the outhouse.

Xoph said...

Keep in mind BRICS. Even if you have inflated dollars will others take them? Look at where the things you buy are made, will they still sell to us?

What will banks do when no one can pay their loans? What will gov't do when you can't pay your property taxes.

Given our current government, what will they give away to foreign debt holders when loans are called due?

If you are able to set stuff aside, keep it quiet. You will be labeled a hoarder and the needy will confiscate everything you have in retribution. The one eyed man was not king.

HMS Defiant said...

Profligate governments are damned if they inflate and damned if they don't. You can read all of history to see some rulers goaded to madness by needing money to wage war and the steps they took when denied the ability to inflate. Either way is a horror show and it happens again and again throughout all of history as if nobody ever reads the damned thing or if they do, thinks it won't apply to them this time. Every war and every economy ruined by currency manipulation it is simply because the elite ruling class thought they could 'get away with it.'
More lamp poles and more rope.

Michael said...

The Taxman sets what is "money". We can Pooh Pooh all we want about what is money beyond an agreed medium of exchange between people.

When Rome debased the currency pretty soon the prices rose to reflect the "REAL VALUE" in Silver and Gold the debased coinage had. Although they "Created MORE MONEY" with debasement the market soon caught up with the ongoing fraud and the value of good for that Denaris dropped.

Who here gets PAYED in Graims of Gold .9999 pure for their services?

Who here pays their taxes, buys their gasoline and so on using other that DOLLAR denominated credit or "Ahem" Money?

WHEN the US Dollar like the Weimar Mark blows down the street as ignored trash the impact on everybody who isn't running "illegal" FX moneys will suffer as described in this article.

Or as history shows he who has extra potatoes is often sought after by the once RICH Doctor to swap for family silverware.

boron said...

@ Aesop
I understand (I think) that when Richard M. Nixon took us off the gold standard in '71, he essentially allowed the dollar to become valueless with the exception (I believe) that foreign governments could no longer exchange their dollars for gold. I did not understand why President Nixon (and by whose suggestion) did it at the time and I still can't understand what purpose it served.
If a government, Russia under Vladimir Vladimirovich for example, should decide to sell some of its reserves of precious metals on the open market, doesn't/wouldn't that inflate a gold-backed ruble, not that Mr. Putin would ever consider doing such a thing.

Anonymous said...

All governments are inherently worthless, and the greatest evil ever created by man. A currency collapse may only help expose that truth.

Will said...

Nixon apparently did something else, besides leave the gold standard. He appears to have set up the rule that no one could view the gold in Ft Knox. Not even Congresscritters have been allowed inside since then. The gold in the NY reserve can be seen, as that serves other banks and public uses, and removing our gold from there would be instantly known/confirmed.
Scuttlebutt is that he sold off most/all the gold in Ft Knox to pay down the bill for the Vietnam War and/or the Space Race. A fifty year puzzle.

lynn said...

“Another central banker admits the truth about the US dollar”

“Politicians within US government have routinely demonstrated an outrageous level of pettiness, incompetence, and the inability to solve even the most basic problems.”

“They have absolutely no control over abhorrent deficit spending. They go into debt to pay people to NOT work. They ignore downgrades of their sovereign credit rating. And they actually cheer themselves when the deficit is “only” $2 trillion.”

“America’s central bankers, meanwhile, conjured trillions of dollars out of thin air without any clue of the repercussions. They failed to predict inflation. They failed to diagnose it. They failed to do anything about it.””

We are six years away from the projected failure of the USA Dollar. Here is a projection of what life in the USA could look like when that happens. “The Mandibles: A Family, 2029-2047”

2029 is probably peak retired baby boomer in the USA. The math is not pretty when Social Security and Medicare are distributing $2 trillion per year EACH then.

Tom Bridgeland said...

Nate Silver on inflation:

lynn said...

BTW, I do believe that Social Security in the USA will be means tested in the next few years. I am hoping that Medicare will not be means tested.

Anonymous said...

I believe the inflationary forces have passed the rubicon at this point. I honestly don't think we will be able to reign in the debt and interest itself, never mind the politicians and reasons for it's existence in the first place. At this point it appears the plan is to blow the bubble harder and faster.

There will be a massive inflationary shock at some point, period. As our host has said, anyone with a summary knowledge of the last 100 years can see it, well read and educated people can offer hundreds of examples. What excuse will be fed to the masses remains to be seen, however the value of the scrip in your wallet, bank, safe, mattress, or wherever, is and will lose value, from here on in until it implodes. Convert your federal reserve notes into something, anything that stores value outside of US Dollar denomination. Given my understanding of history, I am moving exclusively away from any form of fiat. Our issues are not unique to the US, but rather the entire western world. Rubles and Yuan might be your only currency hedge.

Aesop said...


The US gold reserves were being looted by foreign governments, who were giving us back profligately printed greenbacks, and departing with pallets of bullion, at an artificially low-set official gold price of $35/oz.

The market price of gold quickly reset to the actual value (at the time) of $360/oz in 4 years, and over $600/oz. in nine years, after wild inflation began to reflect economic reality.
In real terms, the dollar's value dropped by 95%, which is how gold went up comparative to the dollar by nearly 20:1.

Nixon also wanted to fix our trade imbalance by gutting our currency, because when dollars are too strong, our products can't be sold overseas: someone making $5/yr in Trashcanistan cannot ever afford a $6000 tractor.

All he accomplished was driving the last nail in the dollar, by removing the last check on printing infinity fiatbux to pay for everything.

That chicken is about to come home to roost.

And I have no problem taking intrinsically worthless greenback currency in pay as long as it works to buy things, or pay Uncle back with.

They are nonetheless currency (i.e. legal tender), but not money, and never were, though they can buy actual money. Only a fool imagines one is the other.

Time is going to make that crystal clear, again.

I have a One Hundred Million Dollar Zimbabwean note from 2008 pinned to my bulletin board to remind me of how stupid such confusion is.

Actual value of that note:
5¢US in December 2008. That's hyperinflation.
US$ 0.000000001 (1/billionth of 1¢ now), i.e. worthless, except as a conversation piece and souvenir, which I bought for a quarter.

The difference between Zimbabwe 2007-2015, and the U.S. now is somewhere between minutes to months, perhaps years, but probably not decades.

Good luck with your dollars when the Treasury starts adding zeros to everything, and the Ponzi scheme collapses worldwide.

Enjoy the decline.

lynn said...

I forgot, Medicare is already means tested. Because my parents have some long term investments paying them, they are double paying the Medicare premiums. my wife just got on Medicare, I suspect that her Medicare premiums will go up after they figure out we are both still employed. The federal government seems to have two speeds, slow and slower.