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(This item originally appeared at Forbes.com on August 29, 2025.) Governments sometimes get themselves into trouble with too much debt. Early economist Adam Smith devoted the last chapter of his famous Wealth of Nations (1776) to the topic of sovereign default. “The progress of the enormous debts which at present oppress, and will in the long-run probably ruin, all the great nations of Europe, has been pretty uniform,” Smith wrote. “The practice of funding [financing deficits with debt] has gradually enfeebled every state which has adopted it.” More recently, the economists Carmen Reinhart and Ken Rogoff compiled information about many episodes of sovereign default since the time of Adam Smith, and some from before him as well, in This Time Is Different: Eight Centuries of Financial Folly (2009). Their basic conclusion was that, taking statistical averages, governments tended to get themselves into trouble when debt/GDP exceeded 90%. This was followed by varieties of sovereign default, typically involving either a failure to make debt payments and a restructuring of debt terms, or a bout of currency depreciation to inflate away debts denominated in domestic currencies.  Using a similar, statistical approach, Ray Dalio, founder of the macro hedge fund Bridgewater Associates, recently released How Countries Go Broke: The Big Cycle (2025). This also compiles many historical examples into a sort of average tendency, culminating again in default and devaluation. What we can conclude, from these two statistical historical studies, is that most governments do not escape their debt situations, and drift rather hopelessly into predictable outcomes. Their progress has been “pretty uniform,” as Smith termed it. But what these kinds of statistical studies don’t indicate are the exceptions – those countries with big debt loads, of more than 90% of GDP, that don’t default, don’t devalue their currencies, bring the debts down to manageable levels, and enjoy decades

Wikipedia has updated its information about the history of the French franc, with good numbers back to its founding in 781. Wikipedia on the French franc The livre tournois was adopted in 1266. The “franc” dates from 1795 as part of the French Revolution, but it basically had the same value as the pre-Revolution livre. This value of the franc continued until 1914. And so we see that the silver value of franc declined from 408 grams — just about a pound, from which the name livre is derived — down to 4.5 grams before all the ruckus of the 20th century. For comparison, here is the British pound, which was based on the livre of France established a few years earlier. Both names are based on the Roman libra, or pound. So we see that the original British pound had about 350 grams of silver, compared to 409 grams in France. The original Roman coinage was the as, made of bronze (alloy of copper and tin). The original as of the third century BC in Rome was … one pound. The actual weight of this “pound” was: Here are the Roman units of weight, independent of coinage: Here the libra was 329 grams. Here is some information on the “pound” since then. Thus the British pound of 800AD was based on the Tower pound, which was quite close to the original Roman libra, and had 12 ounces. Today’s avoirdupois pound and London pound are based on 16 ounces. These “libra” and “pounds” of various sorts are themselves based on the mina, a measure from ancient Mesopotamia. This mina was about 500 grams. Here we see an early mina of 570 grams, and also a standardized measure of 2x 248g or 496 grams. These “mina” also became a standardized weight

Here is some updated data, from a big dataset at the Bank of England with statistics going back to 1209. Click for BOE “millennium of macroeconomic data” This is a “Retail Price Index” (mostly just commodity prices before 1800 I am sure), and a “Consumer Price Index,” from 1209 to 1913. We can compared to the silver value of the British pound during that time. There is a big response to “prices” to the devaluations and debasements of Henry VIII. However, we don’t see the effects of the prior debasements. The dataset might be adjusted for these somehow. There is also information on the “price of gold” in British pounds from 1257. Using that data as an adjustment, we get an RPI index in gold from 1257 to 1913, which looks like this: The RPI for the 19th century is somewhat above the 18th. I think this represents an expansion of the “RPI” beyond simple commodity prices after 1800 or so. The big rise around 1800 is related to the Napoleonic Wars in Europe, which also involved Britain. There is also a smaller rise around 1650, related to the Civil War in Britain. Our other dataset, from Jastram, also shows this rise in agricultural commodity prices after 1500: However, there is no such rise in metals prices, making me think that this had something to do with agricultural commodities in Britain (it happens over the course of a century), not the “real value of gold.” Also we see that the low values around 1500 were actually a decline from the values around 1300. The RPI values around 1700 were higher than the values around 1300 — about 20 on the chart, compared to 15 — but I suggest that +33% over the course of four centuries is maybe not that

(This item originally appeared at Forbes.com on July 8, 2025.) Ray Dalio, one of the most successful macro hedge fund managers of our era, released a new book this year, How Countries Go Broke. This is an interesting topic, but an even more interesting topic is: What countries should do after they go broke. It might be important someday. For a country like the United States, with debt denominated in a local currency, “going broke” normally means that continued deficit spending can’t be financed by the bond market. Governments could, at this moment, reduce spending dramatically and basically balance their budgets. Ha ha ha! Of course this never happens. What they do instead is: print the money; or, one way or another, have the central bank buy the bonds or at least support the bond market somehow. Actually there is not so much of a clear delineation here. The US dollar has already been losing quite a lot of value vs. its old benchmark, gold. The Federal Reserve hasn’t been “printing money” to any degree, but the effect is similar – the existing debt is inflated away. This has already been happening. This money-printing is fun at first, but soon becomes unpleasant. Basically, it is hyperinflation, to a greater or lesser degree. Eventually, this becomes intolerable. Then, a government is truly “broke.” Then what? It is good to have a playbook for that day, because it will be a time when you have to act quickly and decisively. It is not a time to debate various hypotheses and proposals. Both Germany and Japan found themselves in this condition in 1949. It was already well after the end of the war. Both countries were under US military occupation. But the focus was shifting toward preventing local communist movements (happens when the economy

(This item originally appeared at Forbes.com on June 18, 2025.) The Federal Reserve, as most of us know, was established in 1913. What did the US monetary system look like before then? Of course there were gold and silver coins. But, mostly people used paper banknotes, issued by private commercial banks. In 1913, 7,404 private banks issued their own banknotes – all of them convertible to gold coin on demand. To this was added the United States Treasury itself, whose Treasury Gold Certificates (a form of banknote) was the most popular among the myriad options available in those days. Today, the idea of issuing private banknotes is not very popular. People would rather have a digital solution of some kind – such as Kinesis, Lode, Glint, or the United Precious Metals Association, which today provide digital gold transaction platforms. These seem very innovative, but actually they are not much different than the private banknote systems of 130 years ago. The most popular digital platforms today are not based on gold, but on dollars. Among these are the “crypto stablecoins,” with USD Tether (USDT) and USDC the most popular. Tether’s “money supply” or “coins outstanding” has risen from about $2 billion in 2019 to over $150 billion today. For a number of years, the primary use of these USD stablecoins was as a trading platform on crypto exchanges. This allowed traders to bypass the regular USD banking system. But, more recently, they have become increasingly popular as a method of payment for regular trade, or purchasing of goods and services. Now Walmart, Amazon and other big operators are actively setting up their own USD stablecoin systems. Among other advantages, this is expected to save these retailers billions in transaction fees. This process was recently smoothed by the passage of the GENIUS Act

The general process of a gold standard, or any fixed-value system, is that the money supply contracts when the value of the currency is below the parity, and the money supply expands when the value of the currency is above the parity. The most basic, and most common, means to achieve this is conversion at the parity. If you offer to either buy or sell gold at $35/oz., then when the currency is above the parity, at $34/oz. (the dollar is worth 1/34th oz. of gold, which is more than 1/35th), then everyone with gold to sell, sells it to the currency manager, who has a bid at $35 when everyone else is at $34. The currency manager buys this gold and creates new money to pay for it, increasing the base money supply. When the currency is at $36/oz. (1/36th is less than 1/35th), and the currency manager offers to sell at $35, then everyone who wants to buy gold buys it from the currency manager at $35, instead of paying $36. The currency manager sells this gold, receives $35 in payment, and makes this base money disappear. The base money supply contracts. This is also how stablecoins like Tether work, and also, things like money market funds, or bank deposit accounts — all of which maintain a value fixed to dollars. June 30, 2019: A Rosetta Stone of “Stablethings” Although this is what happens in the day-to-day, the result is that base money supply can expand quite a lot, because the currency is reliable and thus people want to hold it. Thus Less Money = More Money. In other words, being willing to support the currency by converting it at the parity price, which reduces base money supply, then leads to increased demand, which then leads to increased

(This item originally appeared at Forbes.com on May 31, 2025.) Although the Federal Reserve and other major central banks, even the Bank of Japan, are not today buying bonds or increasing the base money supply significantly, many people suspect that more overt financing of governments via the money-creation process may lie not too far ahead – what, in the past, often took the form of literally printing paper banknotes; although today, the process is likely to be more digital in character. One such person is Lawrence Lepard, author of The Big Print (2025). Just in recent weeks, Japan’s government bond market has had a price breakdown of the sort not seen since, perhaps, the late 1970s. People have been predicting disaster there literally for decades; but perhaps now the time is upon us. Even the US Treasury market, although one of the better credits in the developed world, has had a notable trend toward weakness. Bond buyers can see that today’s historically huge deficits – the Congressional Budget Office predicts 6%+ of GDP deficits basically forever – do not seem to have any upcoming resolution. Despite the heroic recent efforts of the Department of Government Efficiency, Congress has not yet found the will to cut its spending in any meaningful way, preferring instead minor tweaks. But, decades of minor tweaking, in lieu of significant reforms, are what brought us to this point in the first place. Lawrence Lepard is well qualified as a guide to this era. His history, first in the Venture Capital world in the 1980s, and later as a fund manager, has given him a front-row seat to the whole historical process. Most people don’t have the time to follow these things very closely, or the expertise to judge them. About the best they can do is read certain

We were recently talking about M2, and how it is basically a measure of the banking system. April 27, 2025: Understanding Money Mechanics #6: Blame M2 We would expect the banking system to, more or less, follow the progress of Nominal GDP as a whole. And indeed this is what we see. We looked at the recent example of Greece: Greece had some serious economic difficulties during this time. However, it didn’t have much of anything to do with the money. Greece shared the euro currency, with Germany, France and the other members of the Eurozone. The other euro users didn’t really have much problem, so we can see that this was not a monetary problem with the euro. It was a problem, basically, of bad economic policy. All of this focus on “M2,” which is basically just a correlate of Nominal GDP (with “third generation” Monetarists now just focusing on NGDP directly, or NGDP Targeting), adds up to an excuse to apply some kind of monetary “stimulus,” in response to non-monetary problems caused by other factors. This we saw during this time in Greece, as many economists wanted to “stimulate” the Greek economy through some kind of “easy money” solution. To facilitate this, they wanted Greece to leave the eurozone and basically introduce a domestic floating currency, whose value would promptly fall. Usually, these arguments are not for devaluation explicitly. They focus on other matters, such as “M2.” However, significant currency depreciation is the expected result; and indeed, these methods wouldn’t work without it. If they could work without it, you could just do it without leaving the euro (or, Gold Standard in the 1930s). From this recent Greece example, we can then extend to the Great Depression period, when exactly the same arguments were made for exactly the