Infographics: China's Debt 'Nuclear' Bomb

The Visual Capitalist has a nifty infographic on China's debt bomb:

NO ONE KNOWS IF ITS A HAND GRENADE OR A NUCLEAR EXPLOSION

The ramp up in Chinese debt accumulation has been a leading concern of investors for years. The average total debt of emerging market economies is 175% of GDP, and skyrocketing corporate non-financial debt has launched China far beyond that number.

The real question is: by how far?

The answer is disconcerting, because nobody really knows.

If the Chinese debt bomb is detonated, the impact on markets is anybody’s guess. Kyle Bass says the losses would be 5x that of the subprime mortgage crisis, while Moody’s says the bomb will be safely disarmed by authorities far before it goes off.

In today’s chart, we look at various estimates to the size of China’s debt bomb, its payload, and what might spark the fuse.

CHINA’S DEBT BOMB: THE PAYLOAD

Mckinsey came out with a widely-publicized estimate of China’s debt at the beginning of 2015. Using figures up to Q2 2014, they estimated that total Chinese debt was 282% of GDP, an increase from 158% in 2007.

Since then, various trusted organizations have come up with follow-up estimates.

On the low end, Goldman Sachs came out with an estimate in January 2016 of 216% total debt-to-GDP for 2015. (A few months later, they put out a separate report saying that total debt-to-GDP was estimated to be closer to 270% for 2016.)

On the high end, Macquarie analyst Viktor Shvets said that China’s debt was $35 trillion, or “nearly 350%” of GDP.

The truth is that it’s anybody’s guess. China’s official estimates are fairly useless, and the country has a massive and quickly evolving shadow banking sector that complicates these projections significantly.

EXPLOSIVE MATERIALS

Total debt is made up of various components, including government, corporate, banking, and household debts.

In the case of China, it is corporate debt that is particularly explosive. According to Mckinsey, the country’s corporate sector already has a higher debt-to-GDP than the United States, Canada, South Korea, or Germany, even while still being considered an “emerging market”.

S&P Global Ratings now figures that Chinese corporate debt is in the 160% range, up from 98% in 2008. The current number in the United States is a less ominous 70%.

China’s central bank is just as concerned as anyone else. Here’s what the Governor of the People’s Bank of China, Zhou Xiaochuan, had to say about a month ago:

Lending as a share of GDP, especially corporate lending as a share of GDP, is too high.

Xiaochuan also noted that a high leverage ratio is more prone to macroeconomic risk.

DEFUSING THE BOMB

If there’s something that can ignite the fuse of China’s debt bomb, it’s non-performing loans (NPLs).

An NPL is a sum of money borrowed upon which the debtor has not made scheduled payments. They are essentially loans that are either close to defaulting, or already in default territory.

China has an official estimate for this number, and it is a benign 1.7% of debt. Unfortunately, independent researchers peg it much higher.

Bullish analysts have the number pegged in the high single-digits, while bearish analysts put the range anywhere between 15% and 21%. Even the IMF says that loans “potentially at risk” would be equal to 15.5% of total commercial lending.

If there’s a place to start defusing the bomb, this is it.

My comment: 

Debt represents a symptom of an underlying disease. The question is what is the disease, or what has debt been used for? In China’s case, debt had been used to finance gigantic non productive, speculative investments in various sectors as industrial, infrastructure and property. This means that China’s debt explosion funded rampant excess capacity. And excess capacity represents another secondary symptom. Hence, China’s debt financed overcapacity can be construed as a massive misallocation of resources or malinvestments.

And much of the malinvestments emerged out of the Chinese government’s attempt to shield her economy from the Great Recession, mostly through financial repression via inflationism and government directed investments, the $586 stimulus, mostly channeled through the local government. And local governments circumvented rules on direct investments to use the private sector to deliver the political economic goodies which had been financed by the debt. Thus the corporate debt explosion.

While it has been speculated that debt may be controlled or “disarmed” by the government, debt is not just a number. As noted above, debt has been entwined to China’s severely maladjusted economy. This means that when the pool of real savings in the economy has been severely undermined or has been depleted from malinvestments, then the Chinese economy is headed for an economic slump. 

The Chinese government can act to delay the bust, as they have been doing today, but this comes at the cost of a deeper, and most likely violent market clearing process, which should lead to a coming depression.

In short, the obverse side of an inflationism fueled artificial boom is an inevitable crash.

As the great Austrian economist Ludwig von Mises once warned:

Credit expansion cannot increase the supply of real goods. It merely brings about a rearrangement. It diverts capital investment away from the course prescribed by the state of economic wealth and market conditions. It causes production to pursue paths which it would not follow unless the economy were to acquire an increase in material goods. As a result, the upswing lacks a solid base. It is not real prosperity. It is illusory prosperity. It did not develop from an increase in economic wealth. Rather, it arose because the credit expansion created the illusion of such an increase. Sooner or later it must become apparent that this economic situation is built on sand.

Sooner or later, credit expansion, through the creation of additional fiduciary media, must come to a standstill. Even if the banks wanted to, they could not carry on this policy indefinitely, not even if they were being forced to do so by the strongest pressure from outside. The continuing increase in the quantity of fiduciary media leads to continual price increases. Inflation can continue only so long as the opinion persists that it will stop in the foreseeable future. However, once the conviction gains a foothold that the inflation will not come to a halt, then a panic breaks out. In evaluating money and commodities, the public takes anticipated price increases into account in advance. As a consequence, prices race erratically upward out of all bounds. People turn away from using money which is compromised by the increase in fiduciary media. They "flee" to foreign money, metal bars, "real values," barter. In short, the currency breaks down.

Courtesy of: Visual Capitalist

Infographics: Domo Arigato, Mr. Roboto: The Booming Robot Industry

One of the sunshine industries of the information/digital/third wave age would be robotics. The Visual Capitalist has an effusive overview of the industry:

Domo Arigato, Mr. Roboto

ROBOT MARKET GROWING AT 15%, WITH 1.3 MILLION NEW INDUSTRIAL ROBOT INSTALLATIONS BY 2018

The market for industrial robot installations has been on a skyward trend since 2009, and it is not expected to slow down any time soon. According to the World Robotics 2015 report, the market for industrial robots was approximated at $32 billion in 2014, and in the coming years it is expected to continue to grow at a compound annual growth rate (CAGR) of at least 15%.

That means between 2015 and 2018, it’s anticipated that 1.3 million industrial robots will be installed worldwide. This will bring the stock of operational robots up to just over 2.3 million, mostly working in the automotive and electronics sectors.

For how long can the global robot population continue to grow?

ROBOT DENSITY

Perhaps the most interesting way to peek into the future of industrial robot installations is to look at potential sales in China.

Currently, the world’s most populous nation has a density of robots that is about half of the world average, equal to just 36 robots for every 10,000 manufacturing workers in China.

However, this is changing fast. It’s been the largest market for robots since 2013, and in 2014 the country bought 57,100 robots – the highest quantity ever recorded in a year. By 2018, one in every three robots in operation around the world will be in China.

What will happen if China’s density approaches that of other robot industrial centers?

Highly automated countries such as Germany, Japan, and South Korea all have robot densities that are multiples higher. South Korea, for example, has 478 industrial robots for every 10,000 workers – a ratio that is 13x higher than China’s.

With this kind of potential for growth, it’s clear that this is only the start of the robot story.

The spread of robots would entail not only of investments aspects but of political-economic ones as well. For instance expect the rise of neo-Luddism.

Courtesy of: Visual Capitalist

Infographics: Canada's Hissing Housing Bubble

The Visual Capitalist on Canada's hissing housing bubble:

“Markets can remain irrational longer than you can remain solvent.” – John Maynard Keynes

The last time we gave a good run down of Canada’s housing market was in May 2015, when we noted that The Economist gave it the dubious title of the most overvalued housing market in the world. Since then, in just 10 months, prices in Vancouver and Toronto have soared to marks that are 14.1% and 8.7% higher respectively.

Frothy prices, million-dollar shacks, and buying frenzies have prompted world-class short-sellers to come out of the woodwork. For a speculator such as Marc Cohodes, who advises hedge funds on Wall Street that want to bet against the Canadian housing market, this type of classic bubble behavior is music to his ears.

“The cross currents are beyond crazy in Vancouver — it’s a mix of money laundering, speculation, low interest rates,” says Cohodes, who was once profiled as Wall Street’s highest-profile short-seller by the New York Times. “A house is something you live in, but in Vancouver you guys are trading them like the penny stocks on Howe Street.”

Mr. Cohodes has recently said that Canadian real estate has reached “peak insanity”, and it’s part of the reason that investors around the world are trying to find a way to bet against the market.

Home Capital Group, one of Canada’s largest financial institutions, is now the most-shorted stock on Canadian exchanges. The same alternative mortgage lender recently also came under scrutiny for suspending 45 of its brokers for falsifying borrower income.

DOMINOS FALLING

Just as falling oil prices helped to drag the Canadian dollar down, the “lower for longer” price environment for crude has had a similar effect on house prices in the Prairies. Homes in Fort McMurray, the epicenter of the Canadian oil sands, have crashed an average of $117,000 in just a year.

Meanwhile, price tags in the once-strong housing market of Calgary have declined from their peak in October 2014 by -5.4%. The city, which is a financial center for Canadian energy, is bracing for a particular tough year ahead as well. Houses are spending more time on the market, and sales volume and prices continue to fall.

But it’s not just Canada’s oilpatch that is starting to see the writing on the wall. Toronto, which has helped to buoy the rest of the country’s housing growth for years, has also started to cool down.

According to the Teranet – National Bank House Price Index, prices have risen just 0.3% since October in Canada’s largest real estate market. With the prospect of rising interest rates in the future, it’s not expected to heat back up, either. In fact, TD Bank expects that Toronto will have a “moderate” decline in 2017.

AND THEN THERE WAS ONE…

For investors bullish on near-term gains in Canada’s housing sector, there is one last hope that resides on the West Coast.

Vancouver’ housing market sailed again in February, shooting up a record 3.2% in just one month. This is the best month for the market since August 2006. It was so good, in fact, that it single-handedly propped up Canada’s national index for housing.

Canada’s market as a whole saw gains of 0.6% in the month, but it would have dropped to a lacklustre -1.1% without the inclusion of Vancouver in the 11-city index.

The only problem?

The city, which has been a primary beneficiary of rampant foreign buying, is continually cited as the market most ripe for a deep correction, as it continues to defy all common sense.

While Keynes is right in that markets can remain irrational for longer than one can stay solvent, it seems that Canadian housing has turned a corner: regional markets in other parts of the country have stumbled, and the last remaining pillar is Vancouver.

It may continue to buck the trend for now, but it is a wobbly pillar at best.

It's not just Canada, like stocks, debt financed housing bubbles as consequence from ZIRP, QE and NIRP have almost been everywhere.

Courtesy of: Visual Capitalist

Infographics: Deaths of Roman Emperors vs. Coinage Debasement (Inflationism)

The Visual Capitalist showcases on the death of Roman emperors with that of inflationism. 

The Money Project is an ongoing collaboration between Visual Capitalist and Texas Precious Metals that seeks to use intuitive visualizations to explore the origins, nature, and use of money.

Correlation does not necessarily imply causation.

In other words, just because two sets of data may follow a similar pattern, it does not mean there is any direct causal relationship.

However, as we were assembling our previous research on Currency and the Collapse of the Roman Empire, we noticed something that was too uncanny to skip past: during the 113-year stretch of time from 192 to 305 AD, an astonishing amount of Roman emperors (84%) were either brutally murdered or assassinated.

This, of course, was a particularly troubled period for the Romans. During the Crisis of the Third Century (235 to 284 AD) specifically, the combined pressures of invasion, civil war, plague, and economic depression threatened to bring down the Empire.

Coincidentally, during this same time frame, the silver denarius went from having 2.7 grams silver to being “silver” in name only. Base metals such as bronze and copper were added to the silver coins to debase the currency, and by the year 300 AD, a silver denarius (or its equivalent) had only a trace of silver left.

Notes on the Data

Data on Roman Emperor deaths is from this resource, and the debasement of silver coinage was previously covered by Armstrong Economics.

Roman Emperor deaths or abdications included in the visualization are ones that occurred between the birth of the Empire (27 BC) to the fall of the Western Roman Empire (476 AD). It’s also worth noting that, according to the source, there is a significant amount of emperors who had fates that are unclear or died under mysterious circumstances, and therefore the list may not be entirely accurate.

This has not just been correlation. The main untoward effects of inflationism is the destruction of society. And the destruction of society entails not only economic hardships but such decay spreads to the socio-political spectrum as well. So political unrest, revolts and wars are consequences of inflationism. Of course, since inflationism is political, funding wars or military campaigns could be a reason why governments indulge on this.

Two important quotes

From John Maynard Keynes (The Economic Consequence of Peace):  (emphasis added)

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

From Ludwig von Mises (Theory of Money and Credit): (bold mine)

A government always finds itself obliged to resort to inflationary measures when it cannot negotiate loans and dare not levy taxes, because it has reason to fear that it will forfeit approval of the policy it is following if it reveals too soon the financial and general economic consequences of that policy. Thus inflation becomes the most important psychological resource of any economic policy whose consequences have to be concealed; and so in this sense it can be called an instrument of unpopular, i.e. of anti-democratic, policy, since by misleading public opinion it makes possible the continued existence of a system of government that would have no hope of the consent of the people if the circumstances were clearly laid before them. That is the political function of inflation. It explains why inflation has always been an important resource of policies of war and revolution and why we also find it in the service of socialism. When governments do not think it necessary to accommodate their expenditure to their revenue and arrogate to themselves the right of making up the deficit by issuing notes, their ideology is merely a disguised absolutism.

Courtesy of: The Money Project

Infographics: Life and Times During the Great Depression

The Visual Capitalist on the life had been during the Great Depression. 

Note: The Great Depression was preceded by an economic boom fueled by a credit bubble. The boom's epoch was popularly known as the "Roaring Twenties". Of course, generally, there won't be a bust (recession, depression or crisis) without an antecedent credit driven boom. 

The Money Project is an ongoing collaboration between Visual Capitalist and Texas Precious Metals that seeks to use intuitive visualizations to explore the origins, nature, and use of money.

The economy of the United States was destroyed almost overnight.

More than 5,000 banks collapsed, and there were 12 million people out of work in America as factories, banks, and other shops closed.

Many reasons have been supplied by the different economic camps for the cause of the Great Depression, which we reviewed in the first part of this series.

Regardless of the causes, the combination of deflationary pressures and a collapsing economy created one of the most desperate and miserable eras of American history. The resulting aftermath was so bad, that almost every future Central Bank policy would be designed primarily to combat such deflation.

The Deflationary Spiral

After the stock crash, money and consumer confidence was hard to find. Instead of spending money on new things, people hoarded their cash.

Fewer dollars spent meant more drops in demand and prices, which led to defaults, bankruptcies, and layoffs.

As a result of this spiral, the prices for many food items in the U.S. fell by nearly 50% from their pre-WW1 levels.

The price of butter went from pre-crisis levels of $0.21 to $0.13 per pound in 1932. Wool had a drop from $0.24 to $0.10 per pound, and most other goods followed the same price trajectory.

The Effects

Here’s how “real value” is affected in a deflationary environment:

Money

Real value increases: cash is king and gains in real value.

Assets (stocks, real estate)

Real value decreases as prices fall.

Debt

Debtors owe more in real terms

Interest Rates

Real interest rates (nominal rates minus inflation) can rise as inflation is negative, causing unwanted tightening.

From Bad to Worse

The Great Depression lasted from 1929 to 1939, which was unprecedented in length for modern history. To this day, economists disagree on why the Depression lasted so long. Here’s some of their explanations:

The New Deal was not enough

Looking back on The Great Depression, John Maynard Keynes believed that monetary policy could only go so far. The Central Bank could not ultimately push banks to lend, and therefore demand had to be created through fiscal policy. Keynes advocated massive deficit spending to offset markets’ failure to recover.

Keynesians such as Paul Krugman believe that Franklin D. Roosevelt’s economic policies through The New Deal were too cautious.

“You can’t push on a string.” – Keynes

The New Deal made things worse

Some economists believe the New Deal had a negative net effect on the recovery.

The National Recovery Administration (NRA) is a primary subject of this criticism. Established in 1933, the goal of the NRA was to lift wages. To do this, it got industry leaders to meet and establish minimum prices and wages for workers.

Cole and Ohanian claim that this essentially created cartels that destroyed economic competition. They calculate that this, along with the aftermath of these policies, accounted for 60% of the weak recovery.

Lastly, one other charge leveled at Roosevelt by his critics is that the sprawling policies from the New Deal ultimately created uncertainty for business leaders, leading to less investment. This lengthened the recovery.

“[The] abandonment of [Roosevelt’s] policies coincided with the strong economic recovery of the 1940s.” – Cole and Ohanian

The Federal Reserve didn’t do enough

Milton Friedman claimed that the Federal Reserve made the wrong policy decision, which extended the length of the Depression.

Between 1929 and 1933, the monetary supply dipped 27%, which decreased aggregate demand and then prices. The Fed’s failure was in not realizing what was happening and not taking corrective action.

“The contraction is…a tragic testimonial to the importance of monetary forces…[D]ifferent and feasible actions by the monetary authorities could have prevented the decline in the stock of money… [This] would have reduced the contraction’s severity and almost as certainly its duration.” – Milton Friedman (and co-author Anna Schwartz)

The Federal Reserve shouldn’t have done anything

Austrian economists believe that the Fed and government both made policy choices that slowed the recovery. For starters, most agree with Friedman that the Fed’s policy choices at the start of the Depression led to deflation.

They also point to the premature tightening that occurred in 1936 and 1937 as a policy failure. During those two years, the Fed not only hiked interest rates, but it also doubled bank-reserve requirements. These policies coincided with Roosevelt’s tax hikes, and a recession occurred within the Depression from 1937 to 1938.

Critics of these policies say that this delayed the recovery by years.

“I agree with Milton Friedman that once the Crash had occurred, the Federal Reserve System pursued a silly deflationary policy. I am not only against inflation but I am also against deflation. So, once again, a badly programmed monetary policy prolonged the depression.” – Friedrich Hayek

Personal Stories from The Great Depression

“One evening when we went down to check on the bank, there were hundreds of people out front yelling and crying and fighting and beating on the locked doors and windows. They had fires built in the street to keep warm and there were people milling around all over the downtown.” – Vane Scott, Ohio

“A friend I worked with said in the Depression he rode the rails and stopped to eat vegetables out of a garden. The owner said he would shoot him if he didn’t stop. My friend said ‘go ahead,’ as he was that hungry. ” – James Randolph, Ohio

“When neighbors couldn’t get a loan from the bank, they’d come to Dad. He sold farm machinery. He never put his money in a bank. He stored it in a strongbox in the fruit cellar, under the apples. He’d loan the neighbors what they needed and they paid him back when they could. If there was a month—especially the winter months—when they couldn’t pay, they’d slaughter a cow or a pig and give him a portion. In the summer it was vegetables: corn, peas, whatever they had growing.” – Gladys Hoffman, New York

“I thought the Depression was going to go on forever. For six or seven years, it didn’t look as though things were getting better. The people in Washington DC said they were, but ask the man on the road? He was hungry and his clothes were ragged and he didn’t have a job. He didn’t think things were picking up.” – Arvel “Sunshine” Pearson, Arkansas

Conclusion

After the 1937-38 Recession, the United States economy began to recover.

The focus of the American public would eventually shift away from the Great Depression, as events in Europe unfolded after Germany’s invasion of Poland in 1939.

For the Austrian account of the Great Depression read Murray N Rothbard's America's Great Depression

Courtesy of: The Money Project

Infographics: 5 Differences Between a Good Analyst and a Great Analyst

Submitted by Quandl's Raquel Sapnu [see Quandl's futures link here]

Let me transcribe what is written above:

1) A good analyst looks for answers, a great analyst reveals the truth

A great analyst goes beyond developing reports. She digs deeper—she doesn’t just find out what the number is, she figures out why it is that way. She ask the bigger questions that lead to actionable insights and drive strategy

2) A good analyst is detailed-oriented, a great analyst is a master of nuance

Good analysts can spot minute details and subtle patterns, but first rate analysts can also place those nuances within the bigger picture. They immerse themselves in the data, but they don’t get lost in it. Because they’re plugged into the wider strategy, they’re better knowing at what to focus on and what to set aside

3) A good analyst is analytical, a great analyst is also synthetical

If analysis is reverse engineering, synthesis is engineering. It’s the ability to build things, to combine data points, patterns, and themes into a coherent story. Good analyst can take a number and deconstruct it into its most minute components. A synthesizer can create a unifying pattern for those data points and patterns

4) A good analyst is dubious, a great analyst is an outright skeptic 

While a decent analyst guards against their own biases, a great analyst enjoys questioning their conclusions. They will seek out devil’s advocates, inviting colleagues to scrutinize any beliefs. Because no process is perfect, they don’t try to hide the flaws in their approach. Instead they try to expose them.

5) A good analyst presents insights, a great analyst tells stories

Great analysts know how to make their findings digestible to a wide variety of audiences. They can help any part of the organization understand why the data is meaningful. They’re not just number crunchers, they have the ability to make people believe in the results. Insights are only meaningful if they inspire action. Ultimately, great analysts drive strategy

Infographics: The Middle East Arms Race

One of the reason for today's massive use of inflationism by governments have been to finance the war economy.

Yet when governments massively expand on their military capabilities, there have always been the itch to use it. In other words, the greater the direction of resources spent by the state for military capability buildup, the greater the risk of war or at least increased military 'violence' (either internal-domestic or external).

Of course, ongoing wars spur entities involved to acquire manpower and armaments to support their activities. This means that at the end day, war is fundamentally economics more than it is about politics

The Visual Capitalist has an interesting infographics on the militarization of the Middle East.

The global arms trade is huge.

While it’s hard to pin down an exact value of arms transfers, the Stockholm International Peace Research Institute estimates that the number was at least $76 billion in 2013, with the caveat that it is likely higher.

The volume of transfers have been trending upwards now for roughly 15 years now.

Volume of Arms Transfers

World Arms Trade

Courtesy of: SIPRI

But where are these arms going?

The answer is that they are increasingly going to militarize the Middle East, which has increased imports of arms by 61% in 2011-2015, compared to the previous five year period.

The Syrian Civil War now entering its sixth year, and it’s clear that conflict is stopping no time soon in the Middle East. As a result of this and the various proxy wars, complicated relationships, and a continuing threat from ISIS, neighboring countries in the region have loaded up on arms.

That’s why Saudi Arabia, Qatar, and the UAE have increased imports of arms by 275%, 279%, and 35% respectively compared to the 2006-2010 time period. Saudi Arabia is now the second largest importer of arms in the world.

Rounding out the Top 20 largest arms importers are other countries in the general region, such as the UAE, Turkey, Pakistan, Algeria, Egypt, India, and Iraq:

Largest arms importers

Courtesy of: SIPRI

How are these arms flowing to these countries?

Here’s a diagram showing the top three suppliers to each of the biggest arm importers:

Arms Flow Chart

Original graphics by: MEE and AFP

When the global recession hits, it will be interesting to see if these governments will use their accumulated arms to escalate geopolitical conflict.

Infographics: How Inflationism Led to the Collapse of the Roman Empire

Money as medium of exchange accounts for half of almost every conducted social transactions  So the abuse of money will not only have unintended economic consequences but likewise social and political ones.

The Visual Capitalist's Money Project shows how inflationism played a principal role in the collapse of the Roman Empire.

The Money Project is an ongoing collaboration between Visual Capitalist and Texas Precious Metals that seeks to use intuitive visualizations to explore the origins, nature, and use of money.

At its peak, the Roman Empire held up to 130 million people over a span of 1.5 million square miles.

Rome had conquered much of the known world. The Empire built 50,000 miles of roads, as well as many aqueducts, amphitheatres, and other works that are still in use today.

Our alphabet, calendar, languages, literature, and architecture borrow much from the Romans. Even concepts of Roman justice still stand tall, such as being “innocent until proven guilty”.

How could such a powerful empire collapse?

The Roman Economy

Trade was vital to Rome. It was trade that allowed a wide variety of goods to be imported into its borders: beef, grains, glassware, iron, lead, leather, marble, olive oil, perfumes, purple dye, silk, silver, spices, timber, tin and wine.

Trade generated vast wealth for the citizens of Rome. However, the city of Rome itself had only 1 million people, and costs kept rising as the empire became larger.

Administrative, logistical, and military costs kept adding up, and the Empire found creative new ways to pay for things.

Along with other factors, this led to hyperinflation, a fractured economy, localization of trade, heavy taxes, and a financial crisis that crippled Rome.

Roman Debasement

The major silver coin used during the first 220 years of the empire was the denarius.

This coin, between the size of a modern nickel and dime, was worth approximately a day’s wages for a skilled laborer or craftsman. During the first days of the Empire, these coins were of high purity, holding about 4.5 grams of pure silver.

However, with a finite supply of silver and gold entering the empire, Roman spending was limited by the amount of denarii that could be minted.

This made financing the pet-projects of emperors challenging. How was the newest war, thermae, palace, or circus to be paid for?

Roman officials found a way to work around this. By decreasing the purity of their coinage, they were able to make more “silver” coins with the same face value. With more coins in circulation, the government could spend more. And so, the content of silver dropped over the years.

By the time of Marcus Aurelius, the denarius was only about 75% silver. Caracalla tried a different method of debasement. He introduced the “double denarius”, which was worth 2x the denarius in face value. However, it had only the weight of 1.5 denarii. By the time of Gallienus, the coins had barely 5% silver. Each coin was a bronze core with a thin coating of silver. The shine quickly wore off to reveal the poor quality underneath.

The Consequences

The real effects of debasement took time to materialize.

Adding more coins of poorer quality into circulation did not help increase prosperity – it just transferred wealth away from the people, and it meant that more coins were needed to pay for goods and services.

At times, there was runaway inflation in the empire. For example, soldiers demanded far higher wages as the quality of coins diminished.

“Nobody should have any money but I, so that I may bestow it upon the soldiers.” – Caracalla, who raised soldiers pay by 50% near 210 AD.

By 265 AD, when there was only 0.5% silver left in a denarius, prices skyrocketed 1,000% across the Roman Empire. Only barbarian mercenaries were to be paid in gold.

The Effects

With soaring logistical and admin costs and no precious metals left to plunder from enemies, the Romans levied more and more taxes against the people to sustain the Empire.

Hyperinflation, soaring taxes, and worthless money created a trifecta that dissolved much of Rome’s trade. The economy was paralyzed.

By the end of the 3rd century, any trade that was left was mostly local, using inefficient barter methods instead of any meaningful medium of exchange.

The Collapse

During the crisis of the 3rd century (235-284 A.D), there may have been more than 50 emperors. Most of these were murdered, assassinated, or killed in battle.

The empire was in a free-for-all, and it split into three separate states.

Constant civil wars meant the Empire’s borders were vulnerable. Trade networks were disintegrated and such activities became too dangerous.

Barbarian invasions came in from every direction. Plague was rampant.

And so the Western Roman Empire would cease to exist by 476 A.D.

And people today think that doing the same stuff like the Romans did would have a different repercussion.

Courtesy of: The Money Project

Infographics: All of the World’s Stock Exchanges by Size

The Visual Capitalist presents the world's stock exchanges by size

The Money Project is an ongoing collaboration between Visual Capitalist and Texas Precious Metals that seeks to use intuitive visualizations to explore the origins, nature, and use of money.

There are 60 major stock exchanges throughout the world, and their range of sizes is quite surprising.

At the high end of the spectrum is the mighty NYSE, representing $18.5 trillion in market capitalization, or about 27% of the total market for global equities.

At the lower end? Stock exchanges on the tiny islands of Malta, Cyprus, and Bermuda all range from just $1 billion to $4 billion in value. Even added together, these three exchanges make up just 0.01% of total market capitalization.

The Trillion Dollar Club

There are 16 exchanges that are a part of the “$1 Trillion Dollar Club” with more than $1 trillion in market capitalization. This elite group, with familiar names such as the NYSE, Nasdaq, LSE, Deutsche Borse, TMX Group, and Japan Exchange Group, comprise 87% of the world’s total value of equities.

Added together, the 44 names outside of this aforementioned group combine for just $9 trillion, or 13%, of the world’s total market capitalization.

Northern Dominance

From a geographical perspective, it is the Northern Hemisphere that is dominant. North America and Europe both hold 40.6% and 19.5% respectively of the world’s markets, and the vast majority of Asia’s 33.3% lies north of the equator in places like Shenzhen, Hong Kong, Tokyo, and Shanghai.

Notable exchanges that are south of the equator include the Australian Securities Exchange, the Indonesia Stock Exchange, the Johannesburg Stock Exchange and the Brazilian BM&F Bovespa.

Notes on Data

Our information in this data visualization comes from the World Federation of Exchanges monthly report from November 2015. It is also worth noting that the London Stock Exchange (and its subsidiary Italian exchange) announced that it was leaving the WFE in 2013. Therefore, we retrieved the data on the LSE and the Borsa Italia from their website market reports, and converted the local currencies into USD.

Courtesy of: The Money Project