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Romulus Report: Inflation and the Fall of Rome

Romans during the Decadence, by Thomas Couture (1847)
Special to WorldTribune, July 3, 2022

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by Romulus at Backpack Trader
 

Everyone prefers the easy path, even those who know better. We would rather take a pill than focus on diet and exercise. It is faster to microwave something than it is to take the time and slow cook in the oven.

And it is easier to borrow a bunch of money to maintain a lifestyle than it is to adjust and work hard for the future.

These choices have consequences, though. Someday I may write a historical treatise on money, but for now I want to visit my favorite period, ancient Rome, and why it fell. A chief cause is close at hand in our own day — inflation.

There are a few reasons why Rome grew so large and lasted as long as it did. Brutality, engineering advancements, early versions of democracy are some of these reasons. A major contribution, however, was the fiscal discipline that was such a big part of the Republic.
 

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A common perception of ancient Rome is the Colosseum, marble arches and giant amphitheaters. Most of these works, however, came in the days of the empire. Roman culture was different before Caesar and Augustus upended 500 years of a way of life.

Rome was founded by Romulus in 700 bc as a monarchy. Nearly 200 years later, a republic was formed that created customs and traditions that forged the strongest governing institution in the world.

Prudence and discipline were much more highly valued than the trappings of wealth. Senator’s wives wore simple, homespun dresses and conquering generals were awarded grass crowns to remind them of the fragility of success. Wealthy citizens often wore jewelry made from iron instead of the gold they could afford.

It was a hard society, built for war.

Rome fought and won many wars, and as the boundaries of the Republic expanded, so too did the government coffers and wealth of Roman citizens. Greed and avarice crept into everyday life along with an appreciation of the finer things. Senators and generals took the practice of buying votes to a new level with weeks-long celebrations, parades and gladiator games. Caesar perfected this craft and he bought the support of the common people, which actually helped keep him alive far longer than many senators wanted him around.

After Caesar's assassination, his grand-nephew Octavius fought a 15-year long civil war that ended when Marc Antony killed himself in Egypt. Octavian then re-named himself Augustus and created the Roman Empire. This is when life in Rome really began to change.

Augustus was known as a disciplined ruler, and he held onto many of the old traditions of the Republic. He oversaw an incredible building period in Rome with an old saying that “Augustus found a city of wood and left it a city of marble.” These building programs cost money, but the empire was bringing in gold from every corner and they could afford it. Augustus’ reign has been called the beginning of the Pax Romana, peace and prosperity throughout the entire empire.

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People immigrated to Rome to find work and get rich. They were paid in silver coins called denarii and they weighed approximately 4.5 grams. A worker was paid 1 coin a day, which was enough to maintain a middle-class lifestyle.

Over the next few hundred years the silver and gold mines dried up and the empire needed more money to pay for the palaces and baths of the emperors. With little land left to conquer or money to steal, they came up with a brilliant solution. Debase the currency! They began adding copper and tin to the silver in the denarii and presto! Instant riches. Workers were still given the same number of coins for a day’s wage, but the coins had less value.

This is the ancient equivalent of printing money out of thin air. Sound familiar?

Choices have consequences. The main consequence of debasing the currency was rampant inflation. Inflation became so severe that many historians claim it to be the root cause for the fall of the empire. Constantly chasing a lifestyle that couldn’t be maintained without huge increases in productivity.

The modern world faces the same issue today. The only reason the US dollar has been going up against the other major currencies is because those other nations have been running the printing presses just like we have. Currency traders merely view the dollar as the "better" of a bad bunch.

The entire world is experiencing high inflation, though. Americans are losing their purchasing power, which is the same thing that happened in ancient Rome. And just like back then, our productivity is nowhere close to as high as it needs to be in order to maintain our quality of life.

The US federal reserve is currently in the middle of a campaign to bring down the rate of inflation through interest rate increases and a shrinking of their balance sheet (turning the printing press off and taking some of the recently created cash out of the system). They don’t have the political will to drain the system of as much cash as they really need to, though, which means markets are in for a long-term problem.

Emperor Hadrian expanded the empire to the farthest reaches of the western world and eastward as far as modern-day Iraq. He built a wall in northern England to keep out the barbarians, called Hadrian’s wall. The completion in 148 ad marked the largest, wealthiest and most influential that the empire would ever be.

It was a slow decline from there until it collapsed in 472.

Inflation.

They give us bread and circuses, but we need a work ethic and hunger. The easy way has led us to a period of slow decline and the markets will keep that in mind.

Remember:

Wealth, like Rome, cannot be built in a day. But, like Rome, it can be lost in a day. Watch for future announcements from Romulus about profitable market moves, important indicators, and major market swings.

For trading education, mentoring, or to beat the markets with Romulus' trading group, contact romulusteaches@yahoo.com.

About the author: In his real-life existence, Romulus started on Wall Street in 1994 and traded for a hedge fund for 13 years. Since 1994, he has called every major market top ahead of time and profited from them, including the break of the Dot-com bubble in 2000, the market crashes of 2008 and 2009, and the Covid crash of 2020. Since 2020 he has been working with investors and traders to actively manage their portfolios by growing wealth, not risk, as a teacher and mentor working with Backpack Trader, a stock trading educational company.
 
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