Keynesian Central Banking Is An Economic Scourge: More Evidence From Japan

Submitted by Alhambra Partners' Jeffrey Snider via Contra Corner blog,

The Bank of Japan has already been pressured by events to reduce its economic expectations for 2014. At the end of 2013 there was enough cautious optimism that Japanese officials went ahead with their dubious proposal to try to appear fiscally responsible. The tax increase was expected to create a mild contraction in GDP before the economy then accelerated mildly but broadly with inflation. That optimism actually gained strength after the first quarter was estimated far “better” than anticipated, temporarily restraining calls for even more QQE from the Bank of Japan.

The first quarter was actually a case of the inverse interpretation eluding the orthodox mind and his regressions. If the Japanese were so compelled to front-load so much spending and activity over a relatively minor tax increase that could only be viewed, with common sense and intuition free of the statistical prison, dubiously and ominously. A healthy economy would certainly see some of that process, but not enough to create such massive swings. It was the size of the interference that suggested a course far, far off track.

Results in the second quarter had thus been much worse than expected, but still there remained blissful designs for the third. The latest projections for Q3 are hopeful in their scale, suggesting somewhere between 2% and 3% for GDP.

Part of that optimism has been derived from the “success” in generating “positive” price changes inside Japan. Academic economics is absolutely convinced that Japan’s problems stem from stubborn “deflation” that has entrenched itself into the very psychology of the Japanese people. Under that paradigm, a shock of “inflation” should have worked as Japanese agents (people, investors and businesses) are forced by nominal disturbance to re-orient their expectations. That is the foundation of modern monetarism, a mildly stunted psychology.

Yet again, however, the mainstream interpretation is far too infatuated with mathematics and has far too little experience with realistic complexity. That quarter century of “deflation” was not itself the problem, it was a symptom of structural flaws that gained great currency (pun intended) during the halcyon days of the Bank of Japan’s 1980’s “power” and prestige. Not only has the idea of “money supply” itself undergone a radical change in the past thirty years, creating new pathways and channels for psychological impulses and outlets, instability in any form is still instability.

Creating, indeed cajoling and even forcing, positive price directions on any economic system is a radical tool of redistribution. Creating nominal profits from currency debasement is, however, nothing like creating real profits from expanding wealth. There is at least some recognition of the costs of redistribution inside the orthodox construction, but it is always calculated (only qualitatively funny enough) as being less than the intended positive effects. So the Bank of Japan (and its central bank fellow travelers) admits to creating winners and losers, but does so in unabashed intent because the net “stirring of the pot” supposedly forces systemic forward momentum.

Even where losers abound, their station is believed improved over the long run by a healthy economy – supposedly you have to break a few eggs to gain socialized economic advance. That was a specific view espoused time and time again by Ben Bernanke during his justifications for all the QE’s. He “shared the pain” of fixed income retirees as he actively suppressed nominal and real returns to the maximum, but, as he always rejoined, higher rates of returns would only appear and stay when the economy was on the durable growth path (and he was very much right about that, though I’m sure he is not enjoying the current bond market proving that fact in the opposite case).

In Japan, the trick was wages and exports. Redistribution meant greater costs to households and Japanese exporters and businesses, but that would, again, be offset by the positive forces of wage gains and devalued yen cheapening Japan Inc. We know too well just how wrong the orthodox expectations were in terms of exports and Japan Inc, which has been accelerated into Japan Offshore Inc.

On the wage front, even nominal wages refused to budge – until more recently. In the past few months it appears as if there might stay an actual plus sign in front of scheduled earnings, the main source of income for Japanese households. Last month’s (June) first estimate was positive, as had occurred several times before, but was only revised lower, as expected, to zero. That was a major achievement in itself, breaking a two-year string of declines. Wages in July have also come in slightly positive, though it is unclear yet if it is enough to withstand the quirky downward revisions to come.

But in any event, the trend of nominal wages is in the direction that economists want and expect.

ABOOK Aug 2014 Japan HH Nominal Scheduled

The implications of all this, however, are far less rosy than the sudden plethora of plus signs would seem to suggest (though the latest figures only run through June; given the disaster in spending shown below it might yet be premature to extrapolate about July). Again, redistribution counts more than one facet of consideration, and the state of wages in nominal terms doesn’t always mean what you are told.

Despite that increasing yen flow to households, they are not actually doing any more work. I suppose that conforms to the plan and idea for inflation, as the intentions stray little from the nominal side, but that is the problem. The real world goes far beyond nominal changes, and more often than not in the “wrong” direction due fully to that currency flow reorganization.

ABOOK Aug 2014 Japan HH Hours Worked

The exchange of labor for wages is the predicate position for creating wealth, but the Bank of Japan and all orthodox economics cares little for wealth in the pursuit of generic activity. Had wealth been expanding alongside prices (costs), wages would likely move in tandem and there would at least be some kind of hope for weathering the redistribution storm that has been unleashed over there.

ABOOK Aug 2014 Japan HH Real Wages

Instead, there is no real reason for wages to rise other than nominal inertia, but that is far too insufficient to equalize where debasement has already had its full force. That is the great problem with all of this, that redistribution in whatever form, be it currency debasement directly, asset inflation or whatever, can only penetrate so far on its own. Unfortunately, the areas and segments of the economy most susceptible to this corruption are usually negative factors. So in the generic sense, orthodox practitioners intend to create a healthy economic trend out of an engineered preponderance of negative factors.

The results are entirely predictable outside of regressions. Household spending collapsed as intuition suggested during that very “hopeful” first quarter, but worse than that it hasn’t stopped.

ABOOK Aug 2014 Japan HH Spending

Adjusting for prices, as best any official inflation measure can, household spending in July was worse than April and almost as bad as May! Even in purely nominal terms, to see spending decline so much without a polar vortex (cheap shot, but deserved) or additional tax changes is a very serious blow not just to future expectations but to credibility. And that is the biggest problem here, in that the Bank of Japan is not an outlier central bank running unique programs directly targeted at only Japan. They are reading the same textbook as all the others and crafting “solutions” based on it, just as the rest are.

ABOOK Aug 2014 Japan HH Spending Food

ABOOK Aug 2014 Japan HH Spending Fuel etc


If Japan’s results and programs here hold any true difference, it is only that they are further down the same road than the rest of us. As Japanification continues in the US and Europe, we are gaining good observations about what lays ahead until the political will to use that same textbook time and time again is exhausted, or, more likely, removed.

ABOOK Aug 2014 Japan HH Template

via Zero Hedge Tyler Durden

Jennifer Rubin’s Idea of a Zinger

Here’s Washington Post neocon Jennifer Rubin
with her
idea of a zinger

Rubin could take out a man with just one punch, but she never did like to talk about it all that much.

Sometimes it is hard to tell [Barack] Obama and [Rand]
Paul apart. Consider this: “History teaches us of the dangers of
overreaching, and spreading ourselves too thin, and trying to go it
alone without international support, or rushing into military
adventures without thinking through the consequences.” Obama or
Rand Paul?

In case you’re curious, the answer is
. The more interesting question: Who exactly finds this
collection of boilerplate foreign-policy truisms offensive? Bush
himself could have delivered those lines in 2003 while attempting
to argue that the Iraq War would avoid those traps. Is Rubin
for overreaching, spreading ourselves too thin, and
rushing into military adventures without thinking through the
consequences? (Well, yes; she is. But I didn’t realize she was
aware of it.)

from Hit & Run

Putin Calls For “Immediate Talks” Over Eastern Ukraine “Statehood”

Vladimir Putin, who has repeatedly said that he does not favor the break-up of Ukraine – but only greater autonomy for the East, appears to have changed course rather dramatically today. In a speech broadcast on Russian TV, the Russian leader stated “we need to immediately begin substantive talks… on questions of the political organisation of society and statehood for southeastern Ukraine.” As The Washington Post reports, use of the word “statehood” reflects a major shift in Kremlin policy towards ‘Novorossiya‘ – it would be a direct challenge not only to Kiev but also to Western European nations and the United States, which have been trying to force Moscow to back down. While not directly addressing the latest round of sanctions chatter, Putin concluded, perhaps ominously, “they should have known that Russia cannot stand aside when people are being shot almost at point-blank.”



As AFP reports,

President Vladimir Putin today dramatically raised the stakes in the Ukraine conflict by calling for the first time for statehood to be considered for the restive east of the former Soviet state.


“We need to immediately begin substantive talks… on questions of the political organisation of society and statehood for southeastern Ukraine with the goal of protecting the lawful interests of the people who live there,” Putin was quoted as saying by Russian news agencies on a TV show broadcast in the far east of the country.


Russia has previously only called for greater rights under a decentralised federal system to be accorded to the eastern regions of Ukraine, where predominantly Russian-speakers live.

And as The Washington Post reports,

Putin spoke of the need to end hostilities before winter and criticized European leaders for supporting Ukraine, in remarks made during a television interview first broadcast in Russia’s Far East and reported from Vladivostok by Russian news agencies. The interview was to be broadcast in Moscow seven hours later.

Putin has said repeatedly that he does not favor the breakup of Ukraine — though Russia seized Crimea from Ukraine in March — but only greater autonomy for the east. The word “statehood” suggests more than that, and if it reflects a major shift in Kremlin policy, it would be a direct challenge not only to Kev but also to Western European nations and the United States, which have been trying to force Moscow to back down.



“These are the inclusive talks that should determine the relationship with the eastern regions, that is, negotiations inside Ukraine on the internal Ukrainian order with respect for the interests of the country’s eastern regions, the interests of Novorossiya,” Peskov told reporters, according to Russian state-owned news agency Itar-Tass.

*  *  *

Doesn’t sound very de-esacalation-y to us… but we are sure stocks will rally on the hopes of front-running the post-escalation de-escalation buying panic.

via Zero Hedge Tyler Durden

Labor Day Confidential: The Misguided Logic Behind Minimum-Wage Hikes

On Monday, Los
Angeles Mayor Eric Garcetti 
announce a proposal
 to jack his city’s minimum wage
from $9.00 all the way up to $13.25 over three years. That puts him
ahead of President Obama, who has 
called for
 the federal minimum wage from $7.25 to

That’s the opening of a new Time column by me.

Hikes in the minimum wage are routinely sold as a quick
and easy way to increase the income of the working poor, but it’s
actually a really rotten way to do that. That’s partly because so
few people earn the minimum wage (only 3 percent of all workers)
and they rarely earn it for very long (most min wage workers earn
more after a year on the job). And then there’s the simple fact
that people earning the minimum wage aren’t necessarily poor (in
fact, a sizable chunk belong to households making north of
$100,000). As economist and Reason contributor David Henderson
has noted, a study of
the effects of minimum-wage hikes between 2003 and 2007 found no
evidence that the increases “lowered state poverty

If you are interested in using government intervention to raise
the income of poor people, the most-direct way is to give them
money. That goes directly to their bottom lines and doesn’t distort
labor markets or make low-skilled employees more expensive. More
from my Time column:

University of California sociologist
Lane Kenworthy, a progressive who has called for a more generous
social safety net, argues that
virtually all increases in income for poor families in the U.S. and
other wealthy countries since the late 1970s have been a function
of “increases in net government transfers — transfers received
minus taxes paid.” That’s partly because workers in poor households
often have “psychological, cognitive, or physical conditions that
limit their earnings capability” and partly because today’s
“companies have more options for replacing workers, whether with
machines or with low-cost laborers abroad.”

To be sure, arguing that you want to increase direct aid to poor
families doesn’t give a politician the same sort of photo-op as
standing with a bunch of union leaders on Labor Day and
speechifying about the urgent need to make sure an honest day’s
work is rewarded with a living wage.

But making just such a case could have the benefit of actually
helping poor people in the here and now. Certainly a savvy
politician could sell that to voters who know the value of hard
work — and the limits of economic intervention.

Whole thing here.

Watch “What We Saw at NYC’s Fast-Food Strike,” from December

from Hit & Run

“Dawn Of Libya” Islamist Militia Group Seizes US Embassy In Tripoli, Holds Pool Party

Probably the ‘oddest’ headline of the day but in yet another show of disdain towards US military might, the Islamist militia group known as “Dawn Of Libya” has ‘secured’ an annex of the U.S. embassy in Tripoli. As Reuters reports, the United States evacuated its embassy in Tripoli on July 26, driving diplomats across the border into Tunisia; but a YouTube video showed the breach of the vacated diplomatic facility by an armed group, with fighters seen milling around a swimming pool. A rebel takeover of the compound would now deliver another symbolic blow to U.S. policy toward Libya, which Western governments fear is teetering toward becoming a failed state.



As Reuters reports,

Members of a Libyan rebel militia have entered an annex of the U.S. embassy in Tripoli but have not broken into the main compound where the United States evacuated all of its staff last month, a U.S. official said on Sunday.


It was not immediately known how close the annex, apparently made up of diplomatic residences, is to the embassy itself. Libya has been rocked by the worst factional violence since the 2011 fall of Muammar Gaddafi.


The United States evacuated its embassy in Tripoli on July 26, driving diplomats across the border into Tunisia. A rebel takeover of the compound would now deliver another symbolic blow to U.S. policy toward Libya, which Western governments fear is teetering toward becoming a failed state.


The U.S. government believes the main embassy compound is still intact and has not been taken over, the U.S. official in Washington told Reuters, speaking on condition of anonymity.

An Associated Press journalist walked through the compound Sunday after the Dawn of Libya, an umbrella group for Islamist militias, invited onlookers inside.

Windows at the compound had been broken, but it appeared most of the equipment there remained untouched.

A commander for the Dawn of Libya group said his forces had entered and been in control of the compound since last week.
*  *  *

US Embassy compound seized… time for a pool party!!!??

*  *  *

It appears we are gonna need a bigger strategy…

via Zero Hedge Tyler Durden

Ukrainian Coast Guard Attacked Near Russian Border, Some Killed

A Ukraine military spokesman has confirmed that some sailors were killed and more injured when 2 Ukraine Coast Guard cutters came under attack by artillery from onshore near the village of Bezimenne (close to the Russian Border). This is believed to be the first such incident since the conflict began.


As Bloomberg reports,

Some killed when cutters attacked near village of Bezimenne near border w/ Russia, wounded are being transported to hospitals in Mariupol, Oleksiy Metasov, aide to Ukrainian lawmaker Yehor Firsov, comments by phone from Mariupol.


The naval cutter is reported to have been attacked by artillery from the shore.



Leonid Matyukhin, Ukraine military spokesman, says doesn’t recall similar attack since conflict started.

At around the 1:00 mark, the clip shows numerous aircraft approaching the burning ships…


via Zero Hedge Tyler Durden

Busy Week Ahead, ECB Meeting Stands Out

The week ahead is packed with events and data.  The monthly cycle of purchasing managers surveys  and the US jobs report are featured. There are also central bank meetings in six high-income countries and three emerging markets.   Given the recent geopolitical development, in Ukraine, as well ISIS, will give the NATO meeting extra significance.  


At the end of the day, there will be little to learn from the PMI data and most of the central bank meetings. Yes, there may be some headline risks, but our information set will not change very much.  The euro area flash report steal most of the thunder from the final report.   Arguably, more important for the outlook will be German industrial orders and production reports.  Modest improvement is expected.  The German economy is not really contracting, though it did in Q2.  


German exports to Russia are no more than 1% of GDP.  Assume that the sanctions cut German exports to Russia by three-quarters.  Now put that in the context of last year’s growth (0.4%) and this year’s projected growth of the German economy (~1.7%).  This is not to argue, like many have done that Germany has not interest in a rigorous sanction regime.  Such arguments seem to repeat the error of those who thought the euro zone was going to break up over Greece or Cyprus.  So many investors seem to exaggerate economic influences and dismiss political motivations. 


We have argued the advent of EMU and the euro is first and foremost an economic solution to a political problem, the reunification of Germany.  Europe itself is more a political construct than a geological one.  Political interests overrode economic interests, and that is why EMU survived. Similarly, the political elite is not Philistines.  They can and are putting larger political interests ahead of narrow economic interests.  Yes, there are compromises, but an economic determinist explanation and forecast does not do the situation justice.  


The PMI data is likely to confirm that the UK economy has lost some economic momentum that was recorded earlier this year.  It continues to operate a high level, but the moderation seen in July likely extended into August.  


The US employment data will also most likely confirm what we already know, and if it does not it will likely shrugged off as a fluke.  There is no reason not to look for the 200+ monthly increases in non-farm payrolls to extend the streak to seven consecutive months.  Nearly all the inputs that have been reported that economists use to shape their forecasts improved.  


Fed officials are looking at the general trend and here is what they see.  The acceleration of improvement can be seen in the averages.  The more recent averages are above the long-term term averages.  The three-month average is 245k.  The six-month average is at 244k.  The 12-month average is at 214k, and the 24-month average stands at 203k.  


The other of the labor market are less volatile, but the forward guidance has raised their significance over  the unemployment rate, which is likely to have ticked down to 6.0%-6.1% from 6.2% in July. Average weekly earnings may have ticked up, but the underlying trend remains flat.  A small increase would lift the year-over-year rate to 2.1%.  The three- and six-month averages are at 2.0%, and the 12-month is at 2.1%.  The 24-month average is 2.0%.  


Nor will Chinese PMI data likely change investors’ views of the world’s second largest economy. The economic data shows an economy that continues to expand 7.0%-7.5%, while being in some kind of economic and political transition, though the destination is not immediately obvious.   The PMI data will not shed much light on the immediate economic challenges will are emanating from the circulation of capital and real estate market.  


The softer Chinese demand for iron ore is thought to be the key factor driving down prices.   The Australian dollar has been resilient, largely in a broad trading range.  This underscores our understanding that the ultimate driving force of currencies from open high-income economies is the market for capital more so than the market for goods.  Australia’s AAA rating and high yield appeals to both private and public asset managers.   


Most of the central bank meetings will not amount to much either.  The central banks of Brazil, Mexico and Poland, are expected to leave rates unchanged at 11%, 3% and 2.5% respectively.  Among the major central, banks, the BOE is not expected to say anything at the conclusion of the MPC meeting.  The Bank of Canada meeting will also likely be a non-event.   The Reserve Bank of Australia has indicated a stable rate, and there is little reason to expect a change.   


The Bank of Japan is surely disappointed with the recent economic readings that showed that the pullback in household consumption deepened in July and the half-hearted gain in industrial output.  However, Governor Kuroda is likely to give it an optimistic spin on it, though the debate is likely to intensify below the surface.  


The Riksbank surprised the market at its last meeting with a 50 bp rate cut that was delivered over the objections of the Governor and his deputy.  A follow-up rate cut is possible, but it seems unlikely.  Sweden’s central bank may alter its expected repo rate path, which is a type of forward guidance that also has not proved particularly reliable.  


The ECB meeting is the most significant event.   Draghi all but pre-committed the ECB to action by acknowledging the disturbing decline in inflation expectations.  In the past, he said that this would trigger an official response.  The key issue is what action will be announced.  There has been much speculation that the ECB will announce an ABS purchase program.   We think the risk of this is very low for both practical and political reasons.  They might be moving quickly toward an ABS purchases, but there was much ground to cover, including regulatory issues, that have yet to be addressed, it seems.


It also appears to be risking putting the cart ahead of the horse if an ABS purchase program is announced, before the TLTRO is launched, and before the results of the asset quality review.   Indeed, it is through this process, that officials will have a greater understanding of the capacity and limits of bank balance sheets.  


We would attribute a greater chance of some small rate cuts, and possibly pushing the deposit rate into deeper negative territory.  We attribute an even greater probability to the ECB providing more details about what Draghi called the “modalities” of the TLTRO.  While reassuring investors that the ECB will do more if there is no substantial improvement, it may content itself with emphasizing and/or tweaking some of the rules regarding the access to the TLTRO facility, with an eye toward ensuring strong participation in the launch later in the month.  This may include spelling out the ability for smaller banks that don’t have access to ECB facilities to participate (through other banks).  Draghi may also explain how in the second of two phases of the TLTRO, banks that are still deleveraging can still participate.  


If our assessment is right, we suspect many investors may be disappointed.  Given the extreme market positioning, we are concerned that many shorts are in weak hands.  A squeeze higher would provide medium and longer term investors with an opportunity to adjust exposures directly or through hedging.  


Geopolitics continues to be a concern for investors.  The Ukraine situation has escalated as Russian forces have entered the east.  In addressing the militants, Putin referred to “Novorossiya”, or New Russia, which seemed to confirm his intent on removing another piece of Ukraine, whether in the form of a new state or to be part of Russia, as was the case with Crimea is immediately clear. 


We have argued that diplomacy is about nuances and that these nuances matter. Some observers dismiss the references, for example, of incursion instead of invasion as pusillanimous in the extreme.  Yet, there may be a significant consequence.  If it is a declared war, Ukraine would most likely not qualify for IMF assistance, which it desperately needs.  Over the weekend, the IMF agreed on disbursing another $1.4 bln of the $!7 bln aid package.  


There is a subtext of the events to consider as well.  After the collapse of the Soviet Union, NATO was brought to Russia’s doorstep.  The EU was also expanded into what a key part of Russia’s elite, and not just Putin, had seen as its sphere of influence.  Russia did not have the political will or resources to resist.  In Georgia and Moldova, Russia pushed back.   In Ukraine, it is making a clear stand.   Just like Russia has not struck at a NATO member, the US and Europe are not prepared to sacrifice their young people to take secure territory in Russia’s near abroad.  It took what it could on the cheap, and expresses its displeasure with Russia’s behavior where it cannot take.  


More sanctions are likely that seek to further isolate Russia.  These could include access to syndicated bank loans and restrictions on the sale of high-tech gas equipment. UK Prime Minister Cameron suggested limiting Russia’s access to SWIFT payment system.  Russia has indicated that its retaliation could include cars, aerospace, and shipbuilding.  


While developments in Syria, Iraq and Iran are still of much concern, events in Hong Kong warn of a potentially new flash point.  The stage is set for a more intense confrontation between China and Hong Kong and between the Hong Kong economic and political elite and the pro-democracy movement.  


Ahead of the Hong Kong election in 2017, Chinese officials indicated that there will not be public nominations for the chief executive.  There will only be 2-3 candidates, and they will need to be approved by a majority of the 1200-person nominating committee.  The next step is for it to be affirmed by the Hong Kong legislature. A blocking minority of 27 members (of the 70 member legislature) is likely.  If it is rejected, the nominating committee will appoint the next chief executive for Hong Kong.  


Hong Kong has been the recipient of hot money flows.  Some appears to be coming from Russian sources.  Some appear to be an effort to play the Chinese stock market, which, thus far in Q3, is among the world’s best performers.  The Shanghai Composite is up 8.2% since the end of June, and the Hang Seng is up 6.7%. The Hong Kong Enterprise Index, which tracks mainland companies, is up 6%. The capital flows have exerted upward pressure on the Hong Kong dollar and triggered intervention by the Hong Kong Monetary Authority.  The risk of social unrest may discourage new inflows. 

via Zero Hedge Marc To Market

Currency Reform In Ancient Rome

Submitted by Peter Earle via The Adam Smith Institute

Currency Reform In Ancient Rome

In the Western world, modern civilizations are often thought of in comparison to those of the ancient world. The Roman Empire is typically the first considered, and arguably the most natural reference point owing to its many achievements, complexity and durability. It stands in history, widely considered the high water mark of the ancient world; one against which contemporary political, economic and social questions can be posed. Much of the world is still living with the consequences of Roman policy choices in a very real sense, in matters ranging from the location of cities to commercial and legal practices to customs.

The global economic downturn of 2008, in particular its monetary facet, readily invites comparison between the troubles of the modern world and those of the Roman Empire; just as Western currencies have declined precipitously in value since their commodity backing was removed in stages starting roughly a century ago, Roman currencies were also troubled, and present a cautionary tale.

The Roman coin in use through most of the empire was the denarius, which demonstrated a persistent decline in value, starting from the time of transition from Republic to Empire, and continuing until its decimation during the Crisis of the Third Century AD. Although efforts by Diocletian taken after the monetary collapse are commonly associated with Roman economic reform, there were other efforts by earlier, lesser known emperors that suddenly and unexpectedly improved the silver content and value of the denarius. Firsthand accounts and archeological findings provide sufficient detail to allow examination of these short, if noteworthy, periods of voluntary restorative policies – and their architects.

While popular interest typically fixes on such well known emperors as Julius Caesar, Nero, and Augustus, I seek to direct attention toward four lesser known emperors who undertook the improvement of the denarius.  These initiatives essentially constitute rare, temporary episodes of qualitative tightening, in contrast to the more common – and, in recent history, ubiquitous – policy of quantitative easing. The reformers were Domitian, Pertinax, Macrinus, and Severus Alexander. A necessarily concise summary of each one’s initiatives follows, with a brief review of the circumstances surrounding their administration and decisions.

Domitian (September 81 AD – September 96 AD)

The first noteworthy Roman currency reformer was Domitian, son of Vespasian and brother of Titus. He ascended in 81 AD, inheriting the problems associated with his forbear’s costly projects. Vespasian had undertaken large scale construction projects he thought necessary to repair the damage to many structures during the civil wars that raged throughout the late Republic.  In addition, he paid lofty financial incentives to regime-supporting historical writers and awarded pensions of up to 1,000 gold coins annually to a coterie of court intellectuals. Titus, his son and successor, was known for the initiation of lavish and elaborate games as well as for recompensing individuals struck by unexpected natural disasters, including the eruption of the volcano Vesuvius, the Great Fire of Rome, and those affected by the outbreak of war in Britannia. Together, Titus and Vespasian committed vast resources to the construction of the Coliseum; and, consequently, during the 12 years of their emperorship, the silver content of the denarius was reduced from roughly 94% to 90% purity.

Despite that precedent, “Domitian was apparently very sensitive to the importance of capital and the benefits of stability derived from a credible and dependable money supply.”[1] Thus early in his reign, in a “dramatic and entirely unexpected” move that coincided with the end of hostilities in Britain and Chatti (Germany), he fired the Empire’s financial secretary. Historians speculate that this was either because the secretary considered Domitian’s plans to improve the currency quality “unwise” or because he’d allowed such “slackness to permeate the mint” in the first place.[2] Shortly thereafter, “in 82 – 84 AD Domitian improved the silver standard, and older coins averaging 88 to 92 percent silver were reminted into purer denarii (98 percent fine)”.[3]

However, Domitian’s currency improvement effort was short-lived due to renewed foreign warfare. Between 85 and 89, fighting in Africa, Dacia (Eastern Europe), and Chatti again broke out, such that the “purer coins had scarcely entered the marketplace when [he], in mid-85, pressed for money to pay war bills, again changed the standard, reducing it to 93 percent fine”.[4]

Domitian’s reign eventually devolved into tyranny and massive building projects echoing those of his brother and father, and culminated in a wealth confiscation edict so brutal that “it [became] fatal at th[e] time … to own a spacious house or an attractive property”.[5] In 96 AD, he was assassinated.

Pertinax (January 193 AD – March 193 AD)

For nearly a century after Domitian’s fall, the debasement of the denarius continued apace, and by 148 AD devaluations became ritually associated not only with the start of wars and public projects but with inaugural events and holidays as well.[6]

At the beginning of Domitian’s reign, money supply was 60% of what it had been in 40 [AD], and about 70% of this level at the end of his reign, a range maintained throughout the reigns of the Antonines, until, under Commodus, money supply reached 700-800% above [that] initial level.[7]

Commodus, whose twelve year regime saw among other things the re-introduction of Plebian Games – a pricey, nearly month-long festival of religion, art and sports – and an incredible expenditure of state funds in a massive, megalomaniacal campaign of self-indulgent iconography, was succeeded by Pertinax – a man of “propriety [and] economy” – whose 86-day rule starkly depicts the considerable risk that currency reformers undertook – and perhaps still do.

[O]n the day of his accession, he resigned over to his wife and son his whole private fortune, that they might have no pretense to solicit favors at the expense of the state. He refused to flatter the former with the title of Augusta, or to corrupt the inexperienced youth … by the rank of Caesar … g[iving] him no assured prospect of the throne[.][8]

In addition,

[h]e forbad his name to be inscribed on any part of the imperial domains, insisting that they belonged not to him, but to the public. He melted the silver statues which had been raised to Commodus … s[elling] all his concubines, horses, arms, and other instruments of pleasure. With the money thus raised, he abolished all the taxes which Commodus had imposed.[9]

On the heels of that, Pertinax “carried out an extraordinary … coinage reform that returned the denarius to the standard of Vespasian.”[10] It revalued the denarius from 74 to 87% silver by weight on new coins, several mintings of which were emblazoned with the motto “MENTI LAVDANDAE” (“noteworthy good sense”), and most significantly featured not his or another emperor’s visage but Ops, the Roman personification of wealth. In addition to this, Pertinax simultaneously embarked upon a fiscal rehabilitation program, the centerpiece of which were large budget cuts targeting the Roman military; he began by cancelling the customary bonus paid to soldiers by newly-seated emperors.

In a remarkably short of time, Pertinax gained “the love and esteem of his people.”[11] But his cuts to the military were deep and far reaching, and his urge to settle disputes with enemies rather than fight them out enraged the soldiery. “A hasty zeal to reform the corrupted state … proved fatal” for him. [12]. On the 86th day of his rule, his personal guard betrayed him and mutinied, gathering at the imperial domicile. Though other guards urged him to safety, “instead of flying, he boldly addressed them” – and fell beneath their swords.[13] Rome’s “Age of Inflation” had thus begun.

Macrinus (April 217AD – June 218AD)

Gibbons describes Caracalla, who ruled for 19 years, as “the common enemy of mankind” for the incredible number of massacres and persecutions, as well as economic destruction, which occurred during his tenure.[14] He devalued the denarii from 1.81 grams of silver to 1.66 and introduced a new coin, the antoninianus: ostensibly a “double denarius” but actually weighing 2.6 grams of silver instead of the implied 3.3 grams. Additionally, he increased tax revenue by making all freemen in the Empire citizens and commissioned the construction of a number of massive, exorbitant bathhouses. And, most unsurprisingly, he raised the pay of the military, granted them new and expanded benefits, and launched a war against the Parthian Empire.

Macrinus, a member of Caracalla’s staff, became emperor after his assassination – to which, by some accounts, he was a co-conspirator. From the start, he made clear his concern with “prioritiz[ing] public faith over the generation of a sufficient amount of cash” for the Roman state.[15] During his short reign, he made the conscious choice to raise the purity rate of silver from Caracalla’s debased 1.66 grams of silver to above the level extant when Caracalla was installed – 1.82 grams – and demonstrated an inclination toward diplomacy versus combat. When the Persians challenged the Roman army, Macrinus “tried to make peace with the Persian king” and “s[ent] back [their] prisoners of war voluntarily.”[16] Consequently, he incurred the resentment of soldiers and further enraged them by introducing a pay system which paid them according to their rank and time-in-service.

In summary,

[t]he increased silver content was clearly beneficial for the state, as it would instill more confidence among its recipients and presumably still inflation … [but] the major problem, of course, was Macrinus’ attempt at military reform … [T]he army would not stand for a curtailment of privileges, even among new recruits. So while Macrinus’ plan was … fiscal responsibility in the state, the strength of the army was too great to allow for it … [and] paved the way for Macrinus’ downfall.[17]

Dissent soon erupted within the ranks and military forces, in a coup, elevated 15-year-old Elagabalus as the new emperor; a battle ensued between Elagabalus supporters and Macrinus loyalists. Macrinus’ forces were routed, and he was captured and executed.

Severus Alexander (March 222AD – March 235AD)

The new Emperor Elagabalus presided until his 18th birthday, profoundly debasing the denarius and squandering monstrous sums from the public treasury. “No fouler…monster” wrote the poet Ausonius, “ever filled the imperial throne of Rome”.[18] After his assassination, his cousin Severus Alexander rose to power. And

[b]y the time that Alexander ascended the throne the question of the coinage, long acute, had become critical. Looking backwards one may see two centuries of fraud that the debasement of money had gradually but surely proceeded; in the future something little short of national bankruptcy awaited the Roman world unless measures were forthwith adopted to ward off [that] evil day.[19]

Yet in a different strategy from Domitian’s, Alexander initially reduced the silver content of the denarius from 1.41 grams to 1.30 grams, and some years later not only raised it back to the old standard, but far beyond that to 1.50 grams; a quality it had not seen in decades. He

restored the tarnished reputation of imperial money by improving the denarius and striking the first substantial numbers of brass sestertii and copper assees in a generation … they were well-engraved, struck on flans of traditional size and weight, and, as money, the equal of their more elegant ancestors.[20]

He reduced taxes and attempted through various means to end the “singular system of annihilating capital and ruining agriculture and industry [which] was so deeply rooted in the Roman administration”.[21] At the same time, though, he subsidized literature, art and science and socialized education.

When invaders from Gaul threatened the Empire, Severus Alexander attempted to buy them off rather than engage in a pitched, costly battle. This, once again, angered the legionnaires, who elevated General Maximinus as the new emperor. The military rebelled and, like Pertinax and Macrinus before him, Alexander Severus was executed.

Over the next three years, Maximinus doubled soldiers’ pay and waged nearly continual warfare. Taxes were raised, with tax-collectors empowered to commit acts of violence against delinquent or reluctant payers, as well as to summarily confiscate property for citizens in arrears.

Over the next five decades,

[e]mperors … debased the silver currency and raised taxes during what they perceived to be a temporary crisis, expecting windfalls of specie from victory, but war had changed from profitable conquest to a grim defense … The Roman world was treated to the spectacle of imperial mints annually churning out hundreds of millions of silver-clad antoninaniani by recycling coins but a few years old [which] removed older coins from circulation and destroyed public confidence in imperial moneys.[22]

Characteristic of all monetary collapses, as the denarius rapidly withered into a billon trinket Roman citizens developed odd, if essential, skills – the most noteworthy of which were extracting the thin silver coating from otherwise worthless coins and fluency in the social language of monetary failure: barter.


Comparing modern challenges and policy responses to those of remote times is an attractive but precarious enterprise: every generation, let alone culture and era, breathes a unique psychological oxygen. Nevertheless, in this case the exercise yields several potentially valuable insights.

First, what can we say about the reformers? Why did select figures, in an era admitting no formal economic theories and within which the interaction of supply and demand was attributed to superstitious causes or conspiracies, occasionally shore up their currency?

It is notable that all of the reform-minded emperors possessed germane backgrounds and experience: where the majority of Roman emperors had pre-ascension careers in politics or the military, Domitian grew up in a family known for banking; and despite the inglorious end of his incumbency (when maintaining power came to trump sense and experience) his initial

concern with finance, with a stable currency, and an awareness of reciprocity in business and trade dealings as demonstrated in instruments such as his Vine Edict, reflect his continuation of a tradition of financial sensibility, more in keeping with a business house, than with the traditions of [elites] valued by Senators and expected of Emperors.[23]

Most fascinatingly,

[w]hile still a Caesar, Domitian had published a work on coinage … which Pliny the Elder … had cited as a source.[24]

Macrinus was the first non-senatorial emperor, and had years of both financial training and experience; he served as the administrator of the massive Flaminian Road project. Later in his pre-political career, he was personally selected to manage the personal wealth of the imperial family under the emperors Caracalla and Geta. Pertinax had spent years in business as well as teaching, and his time as a merchant led him to the belief that “[e]conomy and industry … [were] the pure and genuine sources of wealth”[25]

Alexander Severus became emperor at 13. It is difficult to hypothesize as to what may have led him to enhance the denarii – and so strongly – but one may speculate that his closest advisors, his mother and grandmother, drew from years of experience in Roman booms and busts.

One also notes that each of the reformers came after particularly egregious debasers: Domitian after Vespasian and Titus; Pertinax after Commodus; Macrinus after Caracalla; and Severus Alexander after Elagabalus. It seems as if each deduced the connection between his predecessor’s profligate monetary (and, indeed, fiscal) policies and the consequent economic crisis, choosing to reverse the afflux.

Summarizing Macrinus’ efforts, but no doubt broadly applicable, is this synopsis:

The exact motivation … for coinage reform [efforts in the Roman Empire] is in general a little hazy … attempts at reforming the coinage standards could reflect the distrust that the … population had for the imperial currency … [a]nother possibility is that [the reformers] wanted to fit into a monetary tradition that was considered responsible … [or] felt a desire to distance themsel[ves] from the policies of [their] predecessor[s] … [as many] were a simple overturning of [prior emperors] destructive economic measures.[26]

In consummation, were these episodes in qualitative tightening successful? Obviously, brief respites in the systematic debasement of the denarius delayed the eventual, yet perhaps inevitable, monetary emergency. More analytically, though, one hint lies in the architectural analysis of lost, donated, and hoarded coins, in that

coins lost casually on sites are equivalent to small change lost today [in that] more were lost as their numbers mounted and purchasing value plunged due to debasements … [C]asual losses and hoards, then, can document shifts in patterns of circulation both within and beyond imperial frontiers.[27]

The number and constitution of coin hoards reveal the public propensity to forestall consumption (“saving”, in familiar parlance) or represent financial reserves hidden out of fear of future devaluations; in any event, they imply which coins were highly valued. Patterns of similar coins lost or donated, oppositely, suggest which in circulation were valued appreciably less. While both Pertinax and Macrinus ruled briefly, and their programs were quickly reversed by their successors, under both Domitian and Severus Alexander (who ruled for 15 and 13 years, respectively) the number of discovered, archeologically-dated coin hoards skyrocketed over those dated to their immediate predecessors: from 3 to 10 and 7 to 18; again, respectively. Similarly, coins of reduced quality are found with higher frequency at ritual offering sites (e.g., temples) and where losses were common (e.g., river crossing sites) than those of contemporary circulating issues with higher purity.[28]

But the most forbidding commonality is the thread of continuity running through the fates of the monetary reformers:

Emperors who improved the purity of the denarius, [notably] Pertinax in 193 [and] Macrinus in 217 … found themselves outbid for the loyalties of the army, and … went down in ignominious defeat.[29]

And so we return to the present day. Owing to the deep entrenchment of government in daily life and, consequently, the politically incendiary nature of entitlements, attempts to underpin the value of any currency with a commodity is likely to be met with considerable resistance from the diffuse and deep-seated institutions and social groups benefitting from fiat currency systems. And yet, for the first time in well over a century, the issue of what actually backs state-issued money has resurfaced as a political issue. Precious metals are seeing their greatest popular resurgence in decades, as, in tandem, interest in and usage of Bitcoin and other cryptocurrencies – precisely because of their irreproducibility and the consequent quantitative limitations – expands rapidly. This, perhaps, hints at a burgeoning shift in public awareness and sentiment, which may eventually translate to political pressure for a return to sound money, but real progress will likely be an uphill battle – with bouts of ‘sticker shock’ along the way. As historian William Warren Carlise wrote,

[a]ll through history we find that it is the reform, the return to sound money rather than the depreciation itself that first rouses popular discontent. It is only when the mass of the people learns that depreciations must be followed sooner or later by such remedies that they begin to entertain a salutary dread with regard to them.[30]

Perhaps the best conclusion that can be drawn from examining these instances is that in response to the familiar rhetorical query – “Are we going the way of the Romans?” – one can reply, truthfully: “No; they occasionally reformed their currency.”


[2] Brian W. Jones, The Emperor Domitian (London: Routledge, 1992), 76.
[3] Kenneth W. Harl, Coinage in the Roman Economy, 300 B.C. to A.D. 700 (Baltimore: The John Hopkins Press, 1996), 14.
[4] Ibid.
[5] Jones, 77.
[6] Susan P. Mattern, Rome and the Enemy: Imperial Strategy in the Principate (Los Angeles: University of California Press), 141.
[8] Edward Gibbon, Esq. The History of the Decline and Fall of the Roman Empire, Vol. I (London: W. Strahan, 1776), 101
[9] John Platts, A New Universal Biography … of Eminent Persons (London: Sherwood, Gilbert and Piper, 1826), 122.
[10] Mattern, 140 – 141.
[11] Gibbon, 102.
[12] Gibbon, 103.
[13] Platts, 122.
[14] Gibbon, 139.
[15] Andrew Scott, “Change and Discontinuity within the Severus Dynasty: The Case of Macrinus”, a dissertation submitted to the Graduate School-New Brunswick, Rutgers, The State University of New Jersey, in partial fulfillment of the requirements for the degree of Doctor of Philosophy, Graduate Program in Classics, May 2008, 133.
[16] Henry Jewell Bassett, Macrinus and Diadumenian (Menasha: George Banta Publishing Co., 1920), 33.
[17] Scott, 135.
[18] Martijn Icks, The Crimes of Elagabalus: The Life and Legacy of Rome’s Decadent Boy Emperor (London: I. B. Taurus & Co, 2011), 115.
[19] R. V. Nind Hopkins, The Life of Alexander Severus (Cambridge: University Press, 1907), 182.
[20] Harl, 128.
[21] Hopkins, 154.
[22] Harl, 132.
[24] Ibid.
[25] Gibbon, 102 – 103.
[26] Scott, 129 -133.
[27] Harl, 17 – 20.
[28] Richard Duncan-Jones, Money and Government in the Roman Empire (Cambridge: Cambridge University Press, 1994), 107.
[29] Harl, 126 – 127.
[30] William Warrand Carlile, The Evolution of Modern Money (London: Macmillan and Co.), 100.

via Zero Hedge Tyler Durden

Jesse Walker on Generational Generalizations Gone Wrong

When some parents of the 1980s and ’90s started
sending their kids to schools where uniforms were required, who
could have imagined the social consequences? Those dress codes
became a core part of that rising generation’s identity—”a defining
symbol of a much larger effort to clean up child behavior,” as one
history of the trend recalls—setting the stage for the “compulsory
uniformed service” that those same kids joined en masse after they
left college. Even outside the service corps, young people took to
wearing “‘general issue’ clothing reminiscent of the G.I.s.” With
time the generation’s conformist style came to represent a
“collective grandeur,” leading historians to see the millennials’
school and soccer uniforms “as harbingers of monumental deeds that
came later.”

What’s that? You say you don’t remember any of that happening?
Strange: Jesse Walker points out that it was predicted in detail in
Millennials Rising, a book published in the year 2000 by
the court astrologers of the social sciences, William Strauss and
Neil Howe. At that point, Strauss and Howe had spent nine years
flogging a generation-based theory of social change that had just
enough believability to hook an audience and just enough hubris to
spin such wild speculations.

View this article.

from Hit & Run