QUESTION:  you wrote the Socrates site on 3/23/2016 “Once the “confidence” in government cracks for the BULK OF THE SILENT MAJORITY who do not listen to money supply and conspiracy theories, then we move into game over. That is when we will see assets rise as confidence shifts from a corrupt government for the majority will no longer trust then and they will turn to the private sector.” Mr. Armstrong can you please name the private assets that will appreciate? and if there are similarities with 1929, where we are now in 2016? Thank you for all your efforts to teach us the world economy.

DS

ANSWER: There is absolutely no correlation with 1929 from the USA perspective. The people who see that nonsense do not know the facts or the history. The 1931 Sovereign Debt Crisis was omitted from the history books. John Kenneth Galbraith blamed corporations in his book the Great Crash which ignored the government defaults and blamed corporate America. There was no “helicopter money” for it was exactly the opposite – massive DEFLATION. There was a shortage of money to the point that hundreds of cities began to issue their own “Depression Scrip”.

All of these forecasts keep projecting hyperinflation are based solely upon a misguided notion of what caused the German hyperinflation. The USA suffered massive DEFLATION because of a contraction in money supply, not inflation. So what we face is not a 1929 scenario and the analysis put out there on that event is commingled with the German hyperinflation creating a hybrid of something which has NEVER taken place in history even once.

Everything hinges upon the “confidence” of the silent majority. They are starting to rumble. That is the key to the future. We are watching this beginning and that is Trump, precisely in line with out model calling for political chaos to emerge in 2016.

It might surprise many, nonetheless, governments have routinely spent more than they take in from taxes. In ancient times, governments simply minted more coins to fund their operations, they did not generally borrow. Some Greeks borrowed from the temples to fund wars and did default. However, typically, tax revenues amounted to only about 80% of expenditure. Records have survived as well as dies from which coins were struck. Pictured here, you will see an actual Roman die from the Republican period which has survived. Each die was hand carved so we can distinguish between dies and as such, the fact that the average number of coins produced before a die breaks is about 15,000. Here is a coin struck from this issue that this die represents. Since we can catalogue the number of known dies, we then can reasonably estimate the annual production of money in the Roman Republic as well as the Imperial era.

The above chart demonstrates the annual production of coinage during the Roman Republic 155-66BC. We can differentiate periods of contraction (deflation) from inflation. We can see that some periods were clearly deflationary and there emerged a shortage of money at times. The Roman Emperor Tiberius, who followed Augustus in 14AD, was notoriously frugal. We find private coinage appearing as tokens to make up the difference for such periods of deflation.

The private token issues during the period of Tiberius (14-37AD) are reminescent of the Great Depression when hundreds of cities issued Depression Scrip. We also find private token coinage produced during the American Civil War. They even issued Postage Currency whereby stamps were exchanged as money.

If we then can ascertain the annual production of coinage with a reasonable degree of accuracy, adding up those annual production figures will give us a look at the total money supply. We are then able the also reasonably ascertain that the Roman government collected only about 80% of its total expenditure from taxes. The rest was not borrowed, but simply produced.

Consequently, this provides the understanding as to why there would even be the practice of debasement. The fact that tax revenues fell short of expenses explains that about 20% of the annual budget was covered by new mine production. Rarely has there ever been a “balanced” budget based exclusively on tax revenue.

This further explains why coins of someone like Gordian I (238AD) who reigned only thirty-six days have survived and bring today about $3,000 instead of hundreds of thousands.

Then there is the coinage of Didius Julianus, his wife and daughter who ruled only for 66 days in 193AD.  The corruption had reached such levels that it was clear that the decline and fall of the Roman Empire began at this junction in time. The Praetorian Guard actually accepted bids for the position of Emperor. There were two rival bidders who presented themselves – Titus Flavius Sulpicianus (father-in-law of Pertinax) and Marcus Didius Julianus. Didius’ bid was 25,000 sestertii per man, which was the high bid and he was duly declared Emperor. This is why there was so much coinage which has survived for someone who was in office just 66 days.

Today, to cover the short-fall, governments borrow each year with no intention of paying anything back. The Romans did not borrow, they increased the money supply to cover the short-fall in expenditure. This was the common practice and it did not cause runaway inflation. That came during the 3rd century following the capture of Valerian I by the Persians who turned him into a royal slave and when he died, they stuffed him as a trophy. This resulted in the collapse in the money supply as people hoarded and feared the invasion of barbarians. This is when the wall was built around Rome by Aurelian (270-275AD).

Should we stop the borrowing and just increase the money supply as a finite percent of GDP? This makes sense when at time up to 70% of the accumulated national debt has been simply interest expenditures.