Chart Of The Day: Currency Devaluation, Old School Style

Tyler Durden's picture

Our chart of the day comes courtesy of Dylan Grice, and his fascinating "Hyperinflation in Japan" presentation given at the CFA annual meeting in Edinburgh which we will shortly share with readers, which shows that currency devaluation is not a Ben Bernanke, nor even a central bank, phenomenon. As the chart below shows, and as most monetarists know too well, it was the Romans who engaged in the first act of voluntary currency devaluation-cum-dilution, by progressively reducing the silver content (yes, even back then currencies were backed by precious metals: and guess what - no CDOs squared, cubed, or quadratic, were conceived by the local office of Goldmanus Sachus) until such time as it hit zero... and the Roman empire was no more. Ironically, the nearly 100% devaluation of the currency in Roman times took just over 2 centuries. This compares somewhat favorable to the 97% drop in the purchasing power of the US currency since the inception of the Federal Reserve.

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Long-John-Silver's picture

Nero played one while Rome burned.

topcallingtroll's picture

propoganda from his enemies who accused him of orchestrating the fire so he could seize the lands.  Besides the violine wasn't invented yet.  He was probably playing a lute, according to the original propaganda which has been lost in antiquity.

Spirit Of Truth's picture

And Obama is playing the ukulele....literally with his pitifully photoshopped birth certificate (the local registrar that purportedly signed it signed "U.K.L. Lee"):


Spirit Of Truth's picture

Holy crap, the ukulele is classified as a plucked LUTE!


chumbawamba's picture

Impromptu cultural lesson of the day:

al oud ==> lute

Check out the origins of Flamenco.

My fellow monkeys, We all came from the same place.

This has been your impromptu cultural lesson of the day.

I am Chumbawamba.

chumbawamba's picture

Maybe he was playing the skinflute?

<ba dumb dumb tssssssssssssss>

I am Chumbawamba.

Budd Fox's picture

Violins were not even exixting then, he played a string instrument called "cetra" or "Lyrae"

Manthong's picture

Hmm.. at the end of that chart they all got religion.

Constantine came along - note the reversal.

bbq on whitehouse lawn's picture

Is there sex with silver? Or do i need violins?

hambone's picture

Diztortionz Bitchezzz!

Allz aboutz uz iz Distortionzzz.  Allz fearz de resetz butz de fartherz wez goz from de groundz, wez fartherz da dropz.

Iz all about propz, dropz, and flopz.


treemagnet's picture

Well maybe, but the quality of our linen is really, really improved.  We're all fuked.

Gene Parmesan's picture

If we don’t learn from the History Channel, we are doomed to repeat the History Channel.

WizDumb's picture

There's re-runs...didnt'cha know??

faustian bargain's picture

I DVR the History Channel and play it over and over again, at my leisure.

Argentum's picture

Oh, this going to bring out some excellent Romen twists on names...

Agentumus Minimus.....

Tracerfan's picture

To the guy who posts on ZH all the time and says "paper" is more important than "real", get real.

I'm referring to RobotTrader, who wrote this nugget only a few minutes ago:

"Proof positive that 'Paper' rules over 'Physical.'"

At least the Romans substituted other base metals for their silver.

Paper is what you wipe your ass with, fool.

Lets_Eat_Ben's picture

haha nice.

Paper as a store of value is a hard sell, but they pulled it off. Imagine a common Roman citizen in the modern age, scoffing at the idiocy of paper money.

Guy Fawkes Mulder's picture

I am reminded of this anecdote, from Chapter III ("Banks") of J.K. Galbraith's "Money: Whence it Came, Where it Went":

Under a royal edict of the second of May, 1716, [John] Law, with his brother, was given the right to establish a bank with capital of six million livres, about 250,000 English pounds. The bank was authorized to issue notes. This it did in the form of loans, and, as might be imagined, the principal borrower was the state. The government used the notes in turn to pay its expenses and pay off its creditors. The notes were declared legal tender for payment of taxes.


Initially the notes were eminently acceptable not only for taxes but for all purposes. This was because Law, apart from holding that any banker who did not keep a sufficient reserve in good coin to redeem his paper was deserving of death, promised redemption in the currency of the weight of metal it contained at the date of issue of the paper. The kings of France, in accordance with long-establish practice, had been steadily reducing the weight of the metal in the French currency, hoping as always that less gold or silver would do the work of more. Accordingly, Law seemed to be providing security against royal malversation. For a while, as compared with the coins of the same denominated value, Law's notes commanded a premium.




Law opened branches of his bank in Lyons, La Rochelle, Tours, Amiens and Orléans; presently, in the approximate modern language, he went public. His bank became a publicly chartered company, the Banque Royale. Had Law stopped at this point, he would be remembered for a modest contribution to the history of banking. The capital in hard cash subscribed by the stockholders would have sufficed to satisy any holders of notes who sought to have them redeemed. Redemption being assured, not many sought it. It is possible that no man, having made such a promising start, could have stopped.


The first loans and the resulting note issue having been visibly beneficial -- and also a source of much personal relief -- the Regent proposed an additional issue. If something does good, more must do better. Law acquiesced. Sensing the need, he also devised a way of replenishing the reserves with which the Banque Royale backed up its growing volume of notes. His idea was to create the Mississippi Company to exploit and bring to France the very large gold deposits which Louisiana was thought to have as subsoil. To the metal so obtained were also to be added the gains of trade. Early in 1719, the Mississippi Company (Compagnie d'Occident), later the company of the Indies, was given exclusive trading privileges in India, China and the South Seas. Soon thereafter, as further sources of revenue, it received the tobacco monopoly, the right to coin money and the tax farm.


The next step was to place on the market the stock in what was now a primeval conglomerate. In 1719, this was done with a more visible, audible and at times violent response than ever bbefore or possibly since. The jam of people seeking to buy the stock was dense; the din of the sale was deafening. Transactions were in the old bourse in the Rue Quincampoix. (Later they were moved to the Place Vendôme and finally to the grounds of the Hôtel Soissons.) The value of adjacent property rose sharply from the demand of people seeking to be close to the action. The shares rose phenomenally in value. Men who had invested a few thousands early in the year were worth millions in a matter of weeks or months. Those so transformed were called millionaires; it is to that year, evidently, that we owe this useful French word. As the year passed, more and more stock in the conglomerate was fed out to the investors.


Meanwhile the Banque Royale was also steadily increasing its loans and therewith the notes in which they were taken away. In the spring of 1719, it had some 100 million livres in notes outstanding; by midsummer there were 300 million more. In the last six months of 1719, another 800 million were issued.


The sale of stock, it might be assumed, was creating a vast fund for the development of the Louisiana wilderness. Alas, it was not. By a beneficial arrangement with the Regent, the proceeds of the sale of the Mississippi stock went not to the Mississippi but as loans to pay the expenses of the government of France. Only the interest on the loans was available for colonial development and to mine the gold that would go into the Banque Royale reserves. To simplify slightly, Law was lending notes of the Banque Royale to the government (or to private borrowers) which then passed them on to people in payment of government debts or expenses. These notes were then used by the recipients to buy stock in the Mississippi Company, the proceeds from which went to the government to pay expenses and pay off creditors who then used the notes to buy more stock, the proceeds from which were used to meet more government expenditures and pay off more public creditors. And so it continued, each cycle being larger than the one before.




The notes, needless to say, were the problem. Early in 1720, the Prince de Conti, offended it is said by his inability to buy stock at a price he considered right, sent a bunch of the notes to the Banque Royale to be redeemed in hard currency. They were a sizable package; three wagons were sent to carry back the gold and silver. Law appealed to the Regent, who ordered the Prince to turn back a considerable share of the metal he had thus received in exchange. But others, acting out of a deeper insight, were busy getting Law's paper into metal and the metal into England and Holland. One, a jobber named Vermalet, "procured gold and silver coin to the amount of nearly a million livres, which he packed in a farmer's cart, and covered with hay and cow-dung. He then disguised himself in the dirty smock-frock, or 'blouse', of a peasant and drove his precious load in safety into Belgium."


Presently it was neccessary to restrict the payment of specie in return for the notes -- the enduring signal that the boom was over. Later Law took a further and far stronger step -- in his new official capacity he forbade, except in small quantities, the possession of gold and silver and extended the prohibition to jewelry. Informers were invited to share in any hoards they might report. Meanwhile at the Banque Royale in Paris there was now an even greater jam of people, these wanting not securities or notes but hard money; on one day in July 1720 so great was the crowd that fifteen people were squeezed to death. Or so it was said. Law was no longer a financial genius; exposed to the paris mob, it was now known, no sizable fragment of him would have remained. Accordingly, the Regent kept him out of sight, then got him out of France.

So... class... what have we learned today?

Are you really a millionaire if you have a million bank notes or bank-note-denominated equities?

How safe are ponzi bank note - stock schemes?

What happens to gold and silver when the government ponzi music stops?

buck4free's picture


Thanks for the excerpt. That was great.

duo's picture

there you go, cover your stash with cow shit and drive to Belgium

magpie's picture

Thanks a lot, you have identified the structure of the New Europe.

narapoiddyslexia's picture

Which road to Antwerp are we taking?

Harlequin001's picture

the one via Zurich... I hope...

Tedster's picture

Bovine Excrement, Bitches!

Sudden Debt's picture

Actually, these are still story that also run in my family.

My family consisted out of cow merchants and it was well know that they took their cows all over Europe and bought them also all over Europe so they had to do exstensive traveling.

And the story my grandfather used to tell us goes like this:

Twice a year, they went to the live stock markets in brussels looking for particular cows from certain sellers.

Those cows had their ass stuffed with wax and where actually "sealed".

And than it was their job to take "buy" those cows and ship them to Paris, London... to be "sold" to very particular sellers.

Once my grandfather took his walking cane and broke one of those seals because one of the cows couldn't move anymore because of constipation.

And according to him, when he broke the seal, gold coins mixed with the cow shit kept comming out of the ass of the cows.


It sounds a silly story, but my family made a fortune in this way by organising these transports.

So whenever you hear the saying: "MONEY STINKS" , you know where it comes from :) money actually smelled like shit back than.




cowdiddly's picture

1. The smartest millionaires of 1913 watched the Federal Reserve being formed with great interest. They sold a million paper dollars and received 50,000 ounces of gold.

2. Today’s paperbug millionaire of 2011 barely knows what the Fed is, let alone what an ounce of gold is. If he sells his million US dollars today he gets about 666 ounces, based on gold at $1500 an ounce. A very interesting number indeed.

3. I’d like you to tell me whether you would rather have 666 ounces of gold, or 50,000 ounces of gold.

A Nanny Moose's picture

At today's prices, it is doubtful I will ever own 50k oz. I would settle for 66 at this point.

shortus cynicus's picture

In the long term, paper is much better because all this unproductive crooks from gov agencies will kills anyone who is refusing voluntarily to exchange physical against paper.

So paper makes you save. Country without resources is save.

Just ask why Alexander The Great attacked the Persians? Because of some political issues, or because of huge gold amounts decorating persian temples ?


Harlequin001's picture

best to just remain poor then eh, just so that no one will attack you...

DoChenRollingBearing's picture

In 1933 they took away the gold (from US money).

In 1965 they took away the silver.

In 1982 they took away the copper.

What took Rome and England (Gresham's Law) a long time to do, they did it quick here.

nevadan's picture

For your edification....

Todays value of a nickel is....$0.062764.

Flakmeister's picture

Down a bit.... traded as high as 0.078....

narapoiddyslexia's picture

A 1942 Silver War Nickel is worth $2.00 fiat, today.

DoChenRollingBearing's picture

But you will not find any in circulation.  You will have to pay the going rate for a War Nickel at your favorite coin shop.  OK, MAYBE one in circulation.

Although a month or so ago I got a 1964 silver quarter back as change in Cozumel, Mexico (the part of town next to the cruise ships).


Also re nickels, Tyler posted something a month or so ago saying that The Mint has asked for public comment re changing our coins (presumably the metal content).  That is what they did in 1964 and 1982...

It is almost a LOCK that soon they will make the nickels out of something cheaper than the Ni/Cu alloy used now.  They will probably try to find something cheaper than the zinc slugs painted with copper for the penny too.  What's cheaper than zinc?  Stainless steel and maybe aluminum?

akak's picture

Here's my public comment on pennies and nickels:



We absolutely do NOT need these worthless, ultra-low-value coins anymore --- and they should have been phased-out years ago.  If we had kept our circulating coins and bills updated for inflation since 1930, our smallest coin today would be the quarter-dollar, and our smallest bill would be the $20.  I note that we did not need a 1/25 or 1/5 cent coin back in 1930, so why do we need their functional equivalents today?

Urban Redneck's picture

But your proposal presumes the Treasury is willing to admit to the debasement of the currency that has taken place. 

Tracerfan's picture

This country is dead.  It just doesn't know it yet.

Rhone_Ranger's picture

That's right, the blade has dropped but the eyes are still blinking!

Lets_Eat_Ben's picture

followed shortly by: nickel, zinc, manganese then...dirt and whatever is lower than dirt

Flakmeister's picture

Bickus Dickus, bitchus...

idea_hamster's picture

"quadratic" != x^4, but I get your point.

Flakmeister's picture

Yeah... should have been quartic....