SHOCKING STORIES ABOUT MONEY

These shocking stories about money and civilization go much deeper but I have summarized them for quick reading.

Rome (200-300 AD)

The money of ancient Rome was - silver coins called Denarius.

Beginning Emperor Nero of Rome in 64 AD, the kings of Rome chose the easy way to mint coins with lesser and lesser silver (AKA print money) to meet their expenses and pay back their debts.

Subsequent emperors went along on this path of minting coins with same denominations but with cheaper and cheaper metals.

The later emperors found this increasingly irresistible - just mint coins with lesser and lesser silver without raising taxes.

Every time the kings had large expenses or military expansion or new fancy projects, they just minted coins with lesser and lesser silver, diluting the coins with cheaper metals like copper.

Problem of inflation that was slow at first got more and more intense with each decade.

"If you want to study inflation today, go to a museum where they have coins minted in the past and see what happened to the silver coins of ancient Roman Empire."

The denarius had lost 60% of its value and it was far from over.

By 285 AD, the currency was so worthless that empire resorted to forced labor. The establishment did not accept taxes in their own currency, instead demanded supplies that can be directly used by the military.

Even essential goods now cost a fortune, so much so that people could not afford to live in cities and towns.

In second century a modius of wheat (nine liters), during normal times cost 1/2 denarius... the same modius of wheat sold in 335 AD for over 6000 denarii, and in 338 AD for over 10,000.

By 301 AD, price controls were introduced - shortages everywhere now.

Gangs of Roman soldiers roamed the countryside to loot villages and towns. Trade collapsed.

COMPLETE LAWLESSNESS.

Emperors changed every few months. Civil wars, political instability, crime and chaos was everywhere.

People could not afford to live in cities and towns and even villages became expensive.

Europe descended into dark age for a thousand years.

"From barbarism to civilization requires a century; from civilization to barbarism needs but a day."

West Africa (1400-1600 AD)

Decorative glass beads called Aggry beads was the money of the people of West Africa. Since glass making tech was non-existent here at the time, these beads were hard to produce and reliably scarce.

When Europeans first appeared in West Aftrica, they realized how these glass beads could be mass produced in Europe's factories.

As European ships packed with glass beads arrived, the locals gave up their assets and goods for what they believed were precious and rare beads.

"Those who do not understand history, are doomed to repeat it."

All wealth of people was sucked away within a couple decades. African society was being impoverished in slow motion.

The locals became desperate and poor that many had to sell themselves to slavery.

This is how trans-Atlantic slave trade started, continued for centuries and claimed millions of lives.

Ships laden with these beads sailed from European ports to Africa, unloaded the beads and filled up with slaves and headed to the west.

France (1718-1720)

John Law, a well known "economist" at the time, was able to introduce paper notes in France. His bank - Private General Bank (Banque Générale Privée) was able to issue paper receipts backed by some government notes, bills and some gold. John Law even bought private company "Mississippi Company" to back his bank notes.

He succeeded in getting backing from King Louis XV - and renamed his bank to Royal Bank (Banque Royale) and absorbed all the rival banks - meaning his paper notes were now backed by the King himself. These notes were now the national currency of 18th century France.

As share price of "Mississippi Company" stock rose, he was able to print even more paper notes. He even used those notes to buy stock of the same company.

There was so much money in the system that a lot of people got rich on paper - this is where the term millionaire was born.

The country was swimming in paper money, every other guy was a millionaire. Inflation was crazy but the French people felt really wealthy.

Inevitably, the stock of the company collapsed and all the paper became worthless.

Within a few weeks, John Law became an outlaw in France but he found another country - Belgium was the next country to experience John Law's "money printing" experiements.

Micronesian Island of Yap (1871)

The tiny island of Yap had a beautiful system of money.

These huge stones shaped like disks were the money. Even the smaller stones could not be stolen because everyone on the island knew who owned this particular stone.

All trade exchanges were settled by announcing to the whole village - the new owner of the stone (partly or whole). The ownership record of every stone was noted by all elders in their own personal journals - a true distributed ledger of its time.

These stones could be only obtained by sending 20-30 men to another island, cutting it off the steep side of a mountain and shipping it back in tiny boats.

Trade and business flourished for centuries on this stone money called Rai Stones.

Until one day - a European explorer landed on the island and wanted to find out how to mine those stones on a large scale with advanced techniques.

Germany (1921-1923)

In the early 1920s, Germany experienced a period of hyperinflation, which is a condition where the price of goods and services increases rapidly and out of control. There were several causes for the hyperinflation in Weimar Germany, including:

The cost of World War I: Germany had to pay large sums of money in war reparations as a result of losing World War I. This put a strain on the German economy and government finances.
The government's printing of money: To pay for war reparations and other expenses, the German government printed large amounts of money. This caused an increase in the money supply, which in turn led to an increase in prices.
The collapse of the gold standard: The German economy had been on the gold standard, which means that the value of money is tied to the amount of gold that a country has. After World War I, Germany was no longer able to maintain the gold standard, which made the German mark less valuable and contributed to the inflation.

The effects of hyperinflation were severe and wide-ranging. It caused people's savings to lose value and become worthless, making it difficult for people to afford basic goods and services. Businesses had trouble staying open because their costs were increasing while the value of their profits was decreasing. The hyperinflation also led to a decline in the standard of living and a loss of confidence in the government and the economy.

In simple terms, the war reparations costs along with government printing more money than they had led to an increase in the money supply, leading to a decrease in the value of currency and an increase in prices of goods and services making it difficult for people to afford basic things.

USA (1971)

In 1971, the United States government, under President Richard Nixon, suspended the gold standard, which meant that the value of the dollar was no longer tied to gold.

This suspension of the gold standard was in response to several economic factors, including an increase in inflation, a trade deficit, and the costs of the Vietnam War. By suspending the gold standard, the government was able to inflate the money supply and reduce the value of the dollar in order to lower the trade deficit and reduce inflation.

The effects of the suspension of the gold standard were significant. It marked the end of the Bretton Woods system, an international monetary system that pegged the value of currencies to the value of the US dollar, which in turn was pegged to the value of gold. This allowed other countries to devalue their currencies as well, resulting in a significant increase in international trade and investment flows.

The suspension also allowed the Federal Reserve to implement monetary policies that were not constrained by the gold standard, such as lowering interest rates, which helped to boost economic growth. It also allowed the government to fund the cost of the Vietnam War and other social programs without increasing taxes.

The suspension of the gold standard also contributed to the increased volatility of the foreign exchange market. Since the value of currency wasn’t fixed to gold, the exchange rates started to fluctuate based on the demand and supply of the currencies.

In conclusion, the suspension of the gold standard in 1971 marked a significant turning point in the history of U.S. monetary policy and had far-reaching effects on the economy, international trade and investment flows, and the foreign exchange market.

USA (2008)

QE starts as a response to overleveraged banks failing to maintain sanity of their balance sheets. Crashing asset bubbles made banks illiquid but they had to be bailed out by the central banks.

Central banks began to buy troubled assets by printing money to buy them.

Also central banks started to buy their national government bonds by printing money.

The inflation this caused to common people is evident on almost all countries.

All major countries (2020)

You might already know this, but here it is -

In wake of global shutdowns due to pandemic in 2020, almost all asset prices came crashing down. These assets were on the balance sheets of banks and financial institutions which meant, they would go insolvent or bankrupt. Every single country in the world faced imminent collapse of the banking and financial system like 2008.

As a result, every country began printing money (buying bonds off banks to get them money aka Qualitative Easing or QE).

Banks were saved. But who paid for it - prices of everything went parabolic and everything became less affordable - common man's savings were diluted.

LESSON

In every era, on every continent, people who have held weaker forms of savings, were fooled and lost their purchasing power.

In the words of Saifedean Ammous -

"History shows it is not possible to insulate yourself from the consequences of others holding money that is harder than yours"

Weaker money is that which can be diluted by someone with ease.

Hard money is that which is scarce and cannot be easily created out of thin air.

As you can imagine - hard money always wins.