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90 Years Ago: The End Of German Hyperinflation

Tyler Durden's picture




 

Submitted by Thorsten Polleit of the Ludwig von Mises Institute,

On 15 November 1923 decisive steps were taken to end the nightmare of hyperinflation in the Weimar Republic: The Reichsbank, the German central bank, stopped monetizing government debt, and a new means of exchange, the Rentenmark, was issued next to the Papermark (in German: Papiermark). These measures succeeded in halting hyperinflation, but the purchasing power of the Papermark was completely ruined. To understand how and why this could happen, one has to take a look at the time shortly before the outbreak of World War I.

Since 1871, the mark had been the official money in the Deutsches Reich. With the outbreak of World War I, the gold redeemability of the Reichsmark was suspended on 4 August 1914. The gold-backed Reichsmark (or “Goldmark,” as it was referred to from 1914) became the unbacked Papermark. Initially, the Reich financed its war outlays in large part through issuing debt. Total public debt rose from 5.2bn Papermark in 1914 to 105.3bn in 1918. In 1914, the quantity of Papermark was 5.9 billion, in 1918 it stood at 32.9 billion. From August 1914 to November 1918, wholesale prices in the Reich had risen 115 percent, and the purchasing power of the Papermark had fallen by more than half. In the same period, the exchange rate of the Papermark depreciated 84 percent against the US dollar.

The new Weimar Republic faced tremendous economic and political challenges. In 1920, industrial production was 61 percent of the level seen in 1913, and in 1923 it had fallen further to 54 percent. The land losses following the Versailles Treaty had weakened the Reich’s productive capacity substantially: the Reich lost around 13 percent of its former land mass, and around 10 percent of the German population was now living outside its borders. In addition, Germany had to make reparation payments. Most important, however, the new and fledgling democratic governments wanted to cater as best as possible to the wishes of their voters. As tax revenues were insufficient to finance these outlays, the Reichsbank started running the printing press.

From April 1920 to March 1921, the ratio of tax revenues to spending amounted to just 37 percent. Thereafter, the situation improved somewhat and in June 1922, taxes relative to total spending even reached 75 percent. Then things turned ugly. Toward the end of 1922, Germany was accused of having failed to deliver its reparation payments on time. To back their claim, French and Belgian troops invaded and occupied the Ruhrgebiet, the Reich’s industrial heartland, at the beginning of January 1923. The German government under chancellor Wilhelm Kuno called upon Ruhrgebiet workers to resist any orders from the invaders, promising the Reich would keep paying their wages. The Reichsbank began printing up new money by monetizing debt to keep the government liquid for making up tax-shortfalls and paying wages, social transfers, and subsidies.

From May 1923 on, the quantity of Papermark started spinning out of control. It rose from 8.610 billion in May to 17.340 billion in April, and further to 669.703 billion in August, reaching 400 quintillion (that is 400 x 1018) in November 1923. Wholesale prices skyrocketed to astronomical levels, rising by 1.813 percent from the end of 1919 to November 1923. At the end of World War I in 1918 you could have bought 500 billion eggs for the same money you would have to spend five years later for just one egg. Through November 1923, the price of the US dollar in terms of Papermark had risen by 8.912 percent. The Papermark had actually sunken to scrap value.

With the collapse of the currency, unemployment was on the rise. Since the end of the war, unemployment had remained fairly low — given that the Weimar governments had kept the economy going by vigorous deficit spending and money printing. At the end of 1919, the unemployment rate stood at 2.9 percent, in 1920 at 4.1 percent, 1921 at 1.6 percent and 1922 at 2.8 percent. With the dying of the Papermark, though, the unemployment rate reached 19.1 percent in October, 23.4 percent in November, and 28.2 percent in December. Hyperinflation had impoverished the great majority of the German population, especially the middle class. People suffered from food shortages and cold. Political extremism was on the rise.

The central problem for sorting out the monetary mess was the Reichsbank itself. The term of its president, Rudolf E. A. Havenstein, was for life, and he was literally unstoppable: under Havenstein, the Reichsbank kept issuing ever greater amounts of Papiermark for keeping the Reich financially afloat. Then, on 15 November 1923, the Reichsbank was made to stop monetizing government debt and issuing new money. At the same time, it was decided to make one trillion Papermark (a number with twelve zeros: 1,000,000,000,000) equal to one Rentenmark. On 20 November 1923, Havenstein died, all of a sudden, through a heart attack. That same day, Hjalmar Schacht, who would become Reichsbank president in December, took action and stabilized the Papermark against the US dollar: the Reichsbank, and through foreign exchange market interventions, made 4.2 trillion Papermark equal to one US Dollar. And as one trillion Papermark was equal to one Rentenmark, the exchange rate was 4.2 Rentenmark for one US dollar. This was exactly the exchange rate that had prevailed between the Reichsmark and the US dollar before World War I. The “miracle of the Rentenmark” marked the end of hyperinflation.

How could such a monetary disaster happen in a civilized and advanced society, leading to the total destruction of the currency? Many explanations have been put forward. It has been argued that, for instance, that reparation payments, chronic balance of payment deficits, and even the depreciation of the Papermark in the foreign exchange markets had actually caused the demise of the German currency. However, these explanations are not convincing, as the German economist Hans F. Sennholz explains: “[E]very mark was printed by Germans and issued by a central bank that was governed by Germans under a government that was purely German. It was German political parties, such as the Socialists, the Catholic Centre Party, and the Democrats, forming various coalition governments that were solely responsible for the policies they conducted. Of course, admission of responsibility for any calamity cannot be expected from any political party. Indeed, the German hyperinflation was manmade, it was the result of a deliberate political decision to increase the quantity of money de facto without any limit.

What are the lessons to be learned from the German hyperinflation?

The first lesson is that even a politically independent central bank does not provide a reliable protection against the destruction of (paper) money. The Reichsbank had been made politically independent as early as 1922; actually on behalf of the allied forces, as a service rendered in return for a temporary deferment of reparation payments. Still, the Reichsbank council decided for hyperinflating the currency. Seeing that the Reich had to increasingly rely on Reichsbank credit to stay afloat, the council of the Reichsbank decided to provide unlimited amounts of money in such an “existential political crisis.” Of course, the credit appetite of the Weimar politicians turned out to be unlimited.

The second lesson is that fiat paper money won’t work. Hjalmar Schacht, in his 1953 biography, noted: “The introduction of the banknote of state paper money was only possible as the state or the central bank promised to redeem the paper money note at any one time in gold. Ensuring the possibility for redeeming in gold at any one time must be the endeavor of all issuers of paper money.” Schacht’s words harbor a central economic insight: Unbacked paper money is political money and as such it is a disruptive element in a system of free markets. The representatives of the Austrian School of economics pointed this out a long time ago.

Paper money, produced “ex nihilo” and injected into the economy through bank credit, is not only chronically inflationary, it also causes malinvestment, “boom-and-bust” cycles, and brings about a situation of over-indebtedness. Once governments and banks in particular start faltering under their debt load and, as a result, the economy is in danger of contracting, the printing up of additional money appears all too easily to be a policy of choosing the lesser evil to escape the problems that have been caused by credit-produced paper money in the first place. Looking at the world today — in which many economies have been using credit-produced paper monies for decades and where debt loads are overwhelmingly high, the current challenges are in a sense quite similar to those prevailing in the Weimar Republic more than 90 years ago. Now as then, a reform of the monetary order is badly needed; and the sooner the challenge of monetary reform is taken on, the smaller will be the costs of adjustment.

 

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Fri, 11/15/2013 - 16:38 | 4158997 yogibear
yogibear's picture

On 20xx decisive steps were taken to end the nightmare of hyperinflation in the United States: The Federal Reserve, stopped monetizing government debt, and a new means of exchange, the XXX, was issued next to the US dollar.

Some time in the near future.

Fri, 11/15/2013 - 16:44 | 4159011 FightingtheFed
FightingtheFed's picture

Willing to bet that within 2-3 years the average American will come to understand why the German Nationalists expelled the Criminal element from the country in the 30s and outlawed Sepculation.

Of the course the criminal element has learned from their past mistakes.. So now they will creat a convenient War or a Gov't shutdown to be blamed on Congress in order to protect their evil asses!

 

Fri, 11/15/2013 - 16:47 | 4159022 johnQpublic
johnQpublic's picture

so what we need is a new Hitler?

Fri, 11/15/2013 - 16:50 | 4159030 DoChenRollingBearing
DoChenRollingBearing's picture

I think it is too late to have easy reforms.  Something bad is going to happen before we get anything good.  When and what?  I don't know...

:(

Fri, 11/15/2013 - 17:04 | 4159074 Wyatt Junker
Wyatt Junker's picture

What will happen: War.

When it will happen: Probably 2017.

Fri, 11/15/2013 - 17:16 | 4159086 NoDebt
NoDebt's picture

Lesson from this:  If you have a fiat currency, don't lose a war.  (It makes the collapse much quicker.)

 

Fri, 11/15/2013 - 17:36 | 4159205 debtor of last ...
debtor of last resort's picture

The worst that can happen is the deer in the headlights. Life is a challenge, and we're spoiled.

Fri, 11/15/2013 - 17:29 | 4159099 ZerOhead
ZerOhead's picture

Schacht later wrote in 'The Magic of Money' in 1967 that it was allowing private bankers to take over control of the Reichsbank in 1922 and their ensuing currency speculation for their own profit that really got the hyperinflation ball rolling...

 

http://www.wintersonnenwende.com/scriptorium/english/archives/articles/h...

 

The great German hyper-inflation of 1922-23 is one of the most widely cited examples by those who insist that private bankers, not governments, should control the money system. What is practically unknown about that sordid affair is that it occurred under the auspices of a privately owned and controlled central bank.

Up to then the Reichsbank had a form of private ownership but with substantial public control; the President and Directors were officials of the German government, appointed by the Emperor for life. There was a sharing of the revenue of the central bank between the private shareholders and the government. But shareholders had no power to determine policy.

The Allies’ plan for the reconstruction of Germany after WW1 came to be known as the Dawes Plan, named after General Charles Gates Dawes, a Chicago banker. The foreign experts delegated by the League of Nations to guide the economic recovery of Germany wanted a more free market orientation for the German central bank.

Schacht relates how the Allies had insisted that the Reichsbank be made more independent from the government:

‘On May 26, 1922, the law establishing the independence of the Reichsbank and withdrawing from the Chancellor of the Reich any influence on the conduct of the Bank’s business was promulgated.’

This granting of total private control over the German currency became a key factor in the worst inflation of modern times.(3)

Fri, 11/15/2013 - 17:12 | 4159123 Zero Point
Zero Point's picture

WW2 wasn't called that until the US joined in.

Realistically the world (pretty much) has been at war for over a decade.

Just waiting for two more players to join before we call this one WW3.

Fri, 11/15/2013 - 18:11 | 4159312 Diogenes
Diogenes's picture

What, another one? The US is already at war and has been at war continuously since 2001. Are you still not satisfied?

Fri, 11/15/2013 - 23:53 | 4159970 TBT or not TBT
TBT or not TBT's picture

Iraq and Afghanistan were tiny nothings compared to WWII

Sat, 11/16/2013 - 07:03 | 4160237 Zero Point
Zero Point's picture

Was Germany invading Poland part of WW2 ya think?

Fri, 11/15/2013 - 17:10 | 4159104 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Paper money, produced “ex nihilo” and injected into the economy through bank credit, is not only chronically inflationary, it also causes malinvestment, “boom-and-bust” cycles, and brings about a situation of over-indebtedness.

 

Paper money is not the problem. Corrupt governments and central bankers with no respect for a country's economic situation is the problem. It was convenient to print marks and cover the bill at the average citizen's expense. 

Fri, 11/15/2013 - 17:58 | 4159265 Stuck on Zero
Stuck on Zero's picture

We're okay.  We now have central planning watchdogs to make sure that nothing bad happens in world finance ever again.  For example the IMF must have 30 different groups working on preventing problems (http://www.imf.org/external/np/exr/facts/groups.htm).  We also have the UN Financing for Development  (http://www.un.org/esa/ffd/) that has committees all over the world, we have the World Bank with hundreds of local chapters, and we have 115,000 employees in 250 different job categories working for the U.S. Treasury.  With all of that careful and sincere watchfulness how could anything go wrong?

 

Fri, 11/15/2013 - 19:33 | 4159521 Dr. Everett V. Scott
Dr. Everett V. Scott's picture

Do Chen,

This is what will happen:

http://tiny.cc/3a6l6w

http://tiny.cc/a85l6w

And finally:  http://tiny.cc/585l6w

Sat, 11/16/2013 - 05:11 | 4160207 limit_less
limit_less's picture

here is another possibility. the Germans said to the allies "were going to print the money to pay for the Versailles Treaty and if you dont like you can go f@^* yourselves."

The US owes everyone money, is the US saying to everyone, the same thing that Germany said to the allies? 

Fri, 11/15/2013 - 17:26 | 4159173 mofreedom
mofreedom's picture

Some dude named Sun Zoo said sit back, eat popcorn and let the enemy defeat itself.  He must have been fatter than my pa!

Sat, 11/16/2013 - 11:25 | 4160430 GMadScientist
GMadScientist's picture

Know your Orville Redenbacher.

Fri, 11/15/2013 - 18:09 | 4159297 Diogenes
Diogenes's picture

"so what we need is a new Hitler?"

 

Need it or not, it's what you are going to get. Don't worry, he will be practically the same as Bush and Obama.

Fri, 11/15/2013 - 18:45 | 4159401 Pure Evil
Pure Evil's picture

You can almost hear the shrill voice shrieking in the wind, repeating,

  "she damnit!.......she will be practically the same as Bush and Obama"

When does it finally get to be her turn.

Heil Hitlery

Fri, 11/15/2013 - 19:47 | 4159554 Dr. Sandi
Dr. Sandi's picture

A seasoned puppeteer can operate a marionette of any gender. A really talented one can do several at once.

Fri, 11/15/2013 - 20:47 | 4159657 Croesus
Croesus's picture

@ Diogenes: 

Hitler was a Nationalist...not an Internationalist, meaning that any Bush/Obama/Clinton/Brzezinski-incarnate would NOT be "the 2nd coming of Hitler", just 'Moar of the same'. 

Most people, regardless of race, or political ideology, are inherently Nationalistic at heart. 

As the 99% in America continue to watch and experience "The Great American Downfall", the average American will get more and more pissed-off at "management" in Washington and NYC.

What you are, in effect, seeing today...is a "Political Bubble"...a bubble inflated by "Nationalistic feelings" (the 99%), sitting atop an "Internationalistic Needle" (the .01% of 1%). 

 

 

Fri, 11/15/2013 - 22:30 | 4159861 Offthebeach
Offthebeach's picture

Ahh...whatever.
I can't wait until we invade Canada and crush its dark heart.
USA. USA. USA!

Sat, 11/16/2013 - 12:12 | 4160483 babkjl
babkjl's picture

What!?! We kicked your ass in 1812 and burned the White House! We have nearly as many guns and rifles per capita plus lots of mountains and wilderness to hide in and snipe from. How did that Vietnam adventure against peasants with simple SKS rifles go? We also watched "Red Dawn," have all your military tactics manuals, plus 1960s Vietnam booby trap manuals and guerilla warfare handbooks on our 3 TB hard drives along with a robust prepper culture just in case. It's much better that we remain good friends. You should consider inviting Queen Elizabeth II back as your Sovereign: fire your Congress and Senate, replace with a House Of Commons and Senate with Ron Paul as your Prime Minister. 

Sat, 11/16/2013 - 12:20 | 4160492 nmewn
nmewn's picture

Well, at least Canadians are no longer pretending to be an independent nation and not some territorial prize of the British Empires armies and the royal family.

Glad we finally got all that cleared up ;-)

Sat, 11/16/2013 - 10:16 | 4160344 FightingtheFed
FightingtheFed's picture

Good point for the most part but any sense of Nationalism in this country has been steam rolled over the past 25-30 years or so by the 1%'s Media..

Now they are all for support of the troops in their various Wars but not Nationalism. Of course like you say they are Globalists/Inernationalists.

 

Well I also disagree with the "most people" part as well.. By definition a Nation is a similar group of people who share values, norms, and culuture.. That 9/10 includes race and ideology. Remember 95% of blacks vote D? 80-85 latinos vote D? They obviously don't share the same values and norms as the Republican party. Hence not Nationalistic.

Fri, 11/15/2013 - 16:50 | 4159034 dracos_ghost
dracos_ghost's picture

"History may not repeat itself, but it does rhyme" -- Mark Twain

I think it will take at least a decade for Americans to realize there is a Germany never mind any history attached to it.

Fri, 11/15/2013 - 18:11 | 4159305 Miztli Raiser
Miztli Raiser's picture

Someone asked once to Hitler how did he achieved the currency stability and the economic miracle in Germany from 1933-1937.

Hitler answered: Economic renaissance and currency stability are achieved when the financial speculators are sent to the concentration camp.

That said, Hitler overcome the world crisis in times of peace by issuing money free of debt, expelling jewish bankers from the monetary space and by the honest work of German People.

Too much for frankling delano rossevelt that  sent the American People to war in order to overcome the 1929 crisis.. By the way, caused by jewish bankers.

There it goes.. This is fight club!!

By the way.. The concentration camps were camps of labour.. Not death camps, as the mythology of jewsh bankers has spreaded. The tale of the holocaust is laughable for those who dare to make a little bit of investigation. 

Fri, 11/15/2013 - 19:48 | 4159557 Dr. Sandi
Dr. Sandi's picture

Do we set up separate concentration camps for the majority of slimeball bankers who are gentiles, or do they get a free pass?

Mon, 11/18/2013 - 09:29 | 4164684 Colonel Klink
Colonel Klink's picture

Nope, throw them into the same ones.  Majority of the slimeball bankers aren't gentiles.

Fri, 11/15/2013 - 23:15 | 4159924 BigJim
BigJim's picture

The Nazi 'economic miracle' is like all miracles... it's bullshit:

http://reason.com/archives/1999/08/01/nazi-economics

Sat, 11/16/2013 - 11:28 | 4160438 GMadScientist
GMadScientist's picture

Then you won't mind if you send you to a labor camp...say in N Korea?

Fri, 11/15/2013 - 18:53 | 4159425 mathdock
mathdock's picture

Edit to read "...Federal Reserve, stopped from monetizing..."  ...in other words, an act imposed upon the otherwise unwilling Fed.  But it's a spot on rhyme of the Weimar situation.

Fri, 11/15/2013 - 21:51 | 4159771 shitco.in
shitco.in's picture

xxx = bitcoin

 

Fri, 11/15/2013 - 16:41 | 4159002 kralizec
kralizec's picture

So, the Fed hasn't reached Peak Insanity yet?  I bet fuckin' Yellen can help that along!

Gaaaggggghhhhhhh!!!!!

Fri, 11/15/2013 - 16:44 | 4159006 JLee2027
JLee2027's picture

Ah delete

Fri, 11/15/2013 - 16:45 | 4159013 prains
prains's picture

When do we get our 2015 Debt Jubilee Hats?

Fri, 11/15/2013 - 16:52 | 4159038 Dre4dwolf
Dre4dwolf's picture

Probably assigned to you upon entering the labor camps.

Fri, 11/15/2013 - 17:06 | 4159087 somecallmetimmah
somecallmetimmah's picture

Hellcare will set you free

Fri, 11/15/2013 - 22:37 | 4159874 Offthebeach
Offthebeach's picture

You're in the labor camp now.
New model, free( ish ) range.
You even get camp script, not as much, but a little something.
Better treatments can be bought by those King Rats that better exploit camp interns and kick up profits.

Fri, 11/15/2013 - 17:02 | 4159069 JLee2027
JLee2027's picture

Jim Sinclair was saying on Greg Hunter that mortgages would be converted to the new currency, there would be no free ride. Following that train of thought, if mortages convert, so will credit cards, student loans, etc. So the national debt will be defaulted, but my mortgage will continue? I don't think so. I also question this, as I don't think the banks will live to see the new money as the derivatives financial bomb goes off. Or if they do somehow survive, they'll be burned to the ground by angry mobs.

So I think he's wrong. The only way to recover from this debacle is to free ourselves from debt. Completely...clean sweep.

Fri, 11/15/2013 - 17:20 | 4159145 Harbanger
Harbanger's picture

I don't think he said they will default on the national debt, the USD will be revalued down.  Converting mortgages to the new USD is one part of the capital control scheme.  Could be why banks are converting equity lines of credit into mortages now.

Fri, 11/15/2013 - 19:30 | 4159513 JLee2027
JLee2027's picture

No, he didn't say that. But what is the point of hyperinflation if all the debts just "convert" ? Some will be erased, and I'm betting the dogs in Washingtion will want to restart the spending binge by clearing the national debt. 

Of course given the outcry over ObamaCare, the screaming over hyperinflation will be 1000x louder. They'll give in and wipe it all out. Or face pitchforks.

Fri, 11/15/2013 - 17:42 | 4159228 Not My Real Name
Not My Real Name's picture

The excellent book, "When Money Dies", by Adam Fergusson, chronicles the Weimar hyperinflation.

According to Fergusson, the mortgage lenders got completely screwed because many many people ended up paying off their loans with the rapidly depreciating fiat. Although things got out of hand long before, mortgages were not revalued (by decree) until February 14, 1924. Even then any mortgages that hadn't been retired by homeowners were only revalued at 15% of their original value in gold. Even then, most people still made out at the expense of the lenders.

Fergusson also noted, "A further law of July 1925 introduced a retrospective element to cover extinct mortgages which had been held in good faith since at least five years before, and raised the rate of revaluation to 25%"

 

Fri, 11/15/2013 - 19:34 | 4159523 JLee2027
JLee2027's picture

Super post, thanks for that.

The German banks survived so they could do that by decree. Our banks won't survive in my opinion and such a law would not pass Congress. A financial Stone Age is coming is my best guess.

Fri, 11/15/2013 - 19:47 | 4159556 Prisoners_dilemna
Prisoners_dilemna's picture

or a bright Bitcoin future!

Fri, 11/15/2013 - 19:54 | 4159570 JLee2027
JLee2027's picture

I believe digital money is intrinsically limited and flawed. Unless it's in your pocket or under your bed, you don't have it. Now think 2015 here. A worldwide, historic, banking collapse caused by excesses in derivatives and debt (both forms of digital money) has happened. Bitcoin? No. Digital money won't be trusted for generations, if ever again.

Fri, 11/15/2013 - 18:12 | 4159321 Diogenes
Diogenes's picture

The debts the banks owe will be wiped out, the debts the people owe to the banks will be translated into the new currency.

Fri, 11/15/2013 - 19:56 | 4159577 JLee2027
JLee2027's picture

That's what the elites want to happen, yes. But when bankers are hanging from trees, riots are in progress over "My EBT won't buy a postage stamp" and food shortages have broken out, then what they want will make no difference. They'll be lucky to survive.

Fri, 11/15/2013 - 20:21 | 4159622 layman_please
Fri, 11/15/2013 - 17:09 | 4159101 waterwitch
waterwitch's picture

Once the Chinese have finished making them for us.

Fri, 11/15/2013 - 17:54 | 4159254 RichardENixon
RichardENixon's picture

Those come in a twin pack with the Dow 30,000,000 hats.

Fri, 11/15/2013 - 16:49 | 4159025 Kreditanstalt
Kreditanstalt's picture

"...the Reich had to increasingly rely on Reichsbank credit to stay afloat..."

Read as: "The Federal Government had to rely increasingly on Fed-created credit to stay afloat..."

Hmmmm.  Sounds familiar...

Fri, 11/15/2013 - 16:51 | 4159036 Dre4dwolf
Dre4dwolf's picture

A man pushes his waggon full of money to the bakery, and walks inside to buy bread, upon going to pay for the bread, he notices that someone has dumped all the money on the floor and stollen his waggon.

 

 

Fri, 11/15/2013 - 17:07 | 4159090 Wyatt Junker
Wyatt Junker's picture

Nice, but today there is no inflation since the govt. who calcs CPI tells us that we actually have deflation since wheelbarrows are made better than the old German wooden ones, now much plusher with pneumatic wheels, ball bearings and solid weld points.

Much like the reason we don't have inflation now since iPads are smaller and faster than the ones that used to sit on top of desks.

Sat, 11/16/2013 - 01:56 | 4160122 edotabin
edotabin's picture

yeah, besides we can gps/ lojack it now :-)

Mon, 11/18/2013 - 11:07 | 4165075 TheReplacement
TheReplacement's picture

There is no inflation because they aren't counting housing, food, and fuel in the equation any longer.  Ground beef is up 300% in 10 years where I live.  Fuel is up 200-300% in the same time frame. 

WTF are you smoking?

Fri, 11/15/2013 - 17:13 | 4159118 NoDebt
NoDebt's picture

Reminded me of an old story....  

Every day after work a man is seen pushing a wheel barrow full of sawdust out the door to the parking lot.  Everyone assumes he is stealing sawdust so they don't make a big deal out of it.  But he isn't stealing sawdust.  He is stealing wheel barrows.

If I could tell you that guy was a banker, I would.  But no banker would ever perform such manual labor.  He's the one who hired that guy to do it for him. 

Fri, 11/15/2013 - 16:52 | 4159040 optimator
optimator's picture

 Hjalmar Horace Greely Schacht's full history has yet to be written.

Those that sent their money to the U.S. for conversion to dollars did very well.

Those that were in gold and gold coin also.

And the farmers vs. those in the city.

Fri, 11/15/2013 - 23:19 | 4159931 BigJim
BigJim's picture

Wasn't Schacht one of the co-founders of the BIS?

Sat, 11/16/2013 - 12:09 | 4160478 GMadScientist
GMadScientist's picture

Pretty much everyone who didn't try the "Poppies" except the "Flying Monkeys".

Fri, 11/15/2013 - 16:54 | 4159043 besnook
besnook's picture

nice lesson.

the point is the trillion dollar coin made a magical appearance from behind someone's ear and fixed everything. that is the logical outcome of what greenspan doesn't understand about banking risk profiles. self interest leads to self destruction with a 100% record in the fiat currency business.

trillion dollar coin or quadrillion yen coin? which one will be first?

Fri, 11/15/2013 - 19:52 | 4159566 Dr. Sandi
Dr. Sandi's picture

I'm waiting for the day that the minting of the trillion dollar miracle coin has to be contracted out to China because there's no equipment, material or expertise left in the United Snakes to actually make the damned things.

Fri, 11/15/2013 - 16:55 | 4159047 ebworthen
ebworthen's picture

Reforms?

"Ain't gonna happen."

The Ponzi is too far down the rails and there are too many delusional PhD's and Elites making a killing to stop it.

The FED will not be restrained or ended, and profligate government in bed with crony capitalism will drive this train at full steam to the broken bridge over the canyon of reality before it.

Fri, 11/15/2013 - 16:58 | 4159053 gaoptimize
gaoptimize's picture

Does anyone know if conventional fixed-rate mortgages existed in Weimar germany in 1914, 1918, or 1923?  I have this dream that I'll be able to pay my fixed-rate mortgage off with some physical assetts I have, so at least my family will not be homeless in the hyper-inflation.  Is that reallistic?

Fri, 11/15/2013 - 17:02 | 4159068 somecallmetimmah
somecallmetimmah's picture

That'll probably work.  But guess what your new property tax rate will be...

Fri, 11/15/2013 - 17:09 | 4159102 Wyatt Junker
Wyatt Junker's picture

Yes, but property taxes are a primary mafia vig to the teacher's unions.  A little goes to the firemen assholes as well who think they are 9/11 superheroes still. 

I think by that time, we won't have asshole teachers or asshole firemen so what will they say the tax is for? 

Obama?

Fri, 11/15/2013 - 19:53 | 4159568 Dr. Sandi
Dr. Sandi's picture

Annual Homeland Security Tax 10% of assessed value of house and land.

Sat, 11/16/2013 - 10:57 | 4160383 TBT or not TBT
TBT or not TBT's picture

Hunger Games Tax

Fri, 11/15/2013 - 17:22 | 4159155 Poor Grogman
Poor Grogman's picture

Why do you think the PTB have encouraged all the middle class into debt to begin with?

Answer. The debt held by the voters allows the fed to keep printing, without having to worry too much about pitchforks and torches.

Question. Do you think they would deliberately destroy such a convenient system of wealth transfer?

The Banksters have learnt well from Weimar, consumerism and middle class debt is THE new wonder add on, that makes fiat currency more socially acceptable to the serfs.

Fri, 11/15/2013 - 17:34 | 4159197 Harbanger
Harbanger's picture

You'll probably have to sell your pm's and pay it off before they re-evaluate and convert your mortgage.

Fri, 11/15/2013 - 17:00 | 4159060 somecallmetimmah
somecallmetimmah's picture

You will experience an extended period of rising prices attended by increasing partisanship (if you can imagine that possible).  The your government will take drastic action to deal with a tidal wave of debt payments, as global confidence swoons.  Unimaginable 'bond purchases' will be executed to raise impossible revenue.

Dollars will no longer be worth their weight in paper.  The 'Great Reset' will be upon us.  And for regular citizens, a crash course in barter economics.  There is no 'going back'.

Fri, 11/15/2013 - 17:04 | 4159075 squid427
squid427's picture

hayek's road to serfdom is like a current news paper for what is happening right now. things will get so effin bad the sheeple will beg for a leader who can stop the pain and you end up with a tyrant

Fri, 11/15/2013 - 17:05 | 4159079 ...out of space
...out of space's picture

google german hyperinflation gold chart

Fri, 11/15/2013 - 17:06 | 4159083 redux2redux
redux2redux's picture

"It's like déjà vu all over again."

-- Yogi Berra

Fri, 11/15/2013 - 19:54 | 4159572 Dr. Sandi
Dr. Sandi's picture

Yogi for President.

Boo-Boo for VP.

Fri, 11/15/2013 - 17:05 | 4159084 RaceToTheBottom
RaceToTheBottom's picture

Moar war

Fri, 11/15/2013 - 17:08 | 4159097 daemon
daemon's picture

" On 20 November 1923, Havenstein died, all of a sudden, through a heart attack. "

Inspirational . Do you think that could happen to Yellen, by any chance ?

Fri, 11/15/2013 - 17:33 | 4159190 No Euros please...
No Euros please we're British's picture

Heart attack? I guess that's more sophisticated than falling from a high balcony, or getting shot in the back of the head. Those guys at the Fed could learn something here.

Fri, 11/15/2013 - 17:09 | 4159098 rosiescenario
rosiescenario's picture

German bonds were used for wallpaper by many, both here and abroad.

Fri, 11/15/2013 - 17:12 | 4159121 DOGGONE
Fri, 11/15/2013 - 17:16 | 4159136 market le pew
market le pew's picture

The problem is that nothing will change until the "great unwashed" wake up and realize that their social security cheques will not cover their daily calorie intake any more. And when that happens the Banana Republic of America will be and act no different than the 3rd Reich did.

Fri, 11/15/2013 - 17:19 | 4159137 Icewater Enema
Icewater Enema's picture

As a kid I was a geek and collected stamps. I inherited a collection from an uncle who was overseas during WWII. It included a 5 million mark stamp that was cancelled. Some poor bastard had to use 5 million marks to send a letter, back before credit cards and electronic transfers. I guess it's easy if the notes you print have enough zeros.

Fri, 11/15/2013 - 17:18 | 4159141 squid427
squid427's picture

article at king world news talks about an art auction in geneva breaking records bringing in over 860 million dollars. article posits that mainly chinese investors are ditching thier dollars for anything that will hold value.

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/11/15_Chilling_Warning_Coming_From_China_%26_The_Elites.html

Fri, 11/15/2013 - 17:24 | 4159167 0b1knob
0b1knob's picture

One aspect of German hyperinflation not mentioned is the role of hard currency import tarrifs.    The treaty ending WWI obligated the German government to collect high tarrifs on all imports with the tarrifs paid in hard currencies (USD or British pounds).   Part of this was used to pay reparations, the rest financed the German government.   Government access to hard currency allowed the government to grow and thrive during the entire crisis.    There was even a perverse incentive to destroy domestic production and shift everything to imports.  There was a very similar situation in Zimbabwe where the government collected most of its revenues in hard currencies from mining royalties and payments for from South Africa for hydroelectric power.

The government will always insulate itself from the effects of hyperinflation in some manner before it starts.   Beware if the US starts to do the same.

Fri, 11/15/2013 - 17:30 | 4159182 daemon
daemon's picture

"Government access to hard currency allowed the government to grow and thrive during the entire crisis.    There was even a perverse incentive to destroy domestic production and shift everything to imports."

Interesting . Where did you read that ?

 

Fri, 11/15/2013 - 17:35 | 4159208 No Euros please...
No Euros please we're British's picture

So when they start accepting bitcoin?

Sat, 11/16/2013 - 02:07 | 4160129 edotabin
edotabin's picture

There is a good chance you are being sracastic and I sincerely hope so.

As intriguing and fascinating as bitcoin is, that will simply never, ever, ever happen. They might start accepting SDRs or any other form of payment the government has some influence over or wants to promote. Unless .gov, JP Morgue, Vampire Squid or some other "insider entity" takes over bitcoin then it just ain't happening.

 

Sat, 11/16/2013 - 12:11 | 4160482 GMadScientist
GMadScientist's picture

First-rate post! Facts and Gresham's Law.

Fri, 11/15/2013 - 17:24 | 4159169 market le pew
market le pew's picture

And the Banana Republic of America will do the same as every powerful Nation in decline does: Blame everybody else except yourself.

Fri, 11/15/2013 - 17:32 | 4159187 Herdee
Herdee's picture

The Germans claimed that their currency was backed by "the good faith in government and the entire resources of the country".Put your good faith in politicians and stop worrying.(ha,ha)The sick part of all of it wa that Nazi Germany confiscated everyone's gold and then it ended up in the Bank of England in order to support the war from the British side as well.Sometimes fact is stranger than fiction.Today,it's heading to China,and it ain't ever comin' back either.

Fri, 11/15/2013 - 19:56 | 4159578 Dr. Sandi
Dr. Sandi's picture

The reality is that in WWII, the British and the Germans were both fighting for the same side.

They just didn't know it.

Fri, 11/15/2013 - 17:34 | 4159200 JamesBond
JamesBond's picture

boom and bust cycles have nothting to do with fiat currencies  

they are a normal consequence of 'free market' principles

embrace them to make money on the way up and on the way down.

 

 

jb

Fri, 11/15/2013 - 17:44 | 4159231 gaoptimize
gaoptimize's picture

I had to vote you down on the first part of your sentence.  It may not be the fiat, but it has something to do with fiat credit creation (boom) and default (bust).

Sat, 11/16/2013 - 14:38 | 4160241 daemon
daemon's picture

 

JamesBond: " boom and bust cycles have nothting to do with fiat currencies  

they are a normal consequence of 'free market' principles "

gaoptimize: "... it has something to do with fiat credit creation (boom) and default (bust). "

I would say yes to both .

Whatever the monetary system is, the human species is a gregarious one . So when something seems to work well, inevitably, in a free market, a lot of people will follow --> boom, and after that of course,  ensues the "boom" of defaults --> bust .

Fiat credit creation, per se, is not really the base mechanism of "boom and bust cycles" creation, the base mechanism is gregariousness (mirror neurons) .

 Fiat credit creation is just the most powerful amplifier you can think of . It allows you to stay far longer in self-delusion and amplify by orders of magnitude, your natural predisposition, and the size of the boom, ... and then, that of the bust .

Fri, 11/15/2013 - 18:00 | 4159270 pashley1411
pashley1411's picture

Hinted at but not mentioned, money printing/inflation was a means for government bureaucrats to avoid the draconian payroll and benefit cuts that came from the end of the war, demobilization (both military and civilian), and war reparations.  

The middle class and retirees had to be cooked over an economic open flame for quite some time before the bureaucracy finally bit the bullet and scaled back their numbers and wages.   You could call it an extended war of the government against all.

Fri, 11/15/2013 - 18:07 | 4159294 adr
adr's picture

So the problem was a tiny banking clan that printed money to hide their losses and make them obscenely wealthy by destroying the purchasing power of the population?

I think some of the bankers were thrown in not so very nice prisons. Of course they were put there by other not so very nice bankers that used the ones that got thrown in prison as patsies.

Didn't one George Soros help the Nazis send quite a few people to prison camps?

Fri, 11/15/2013 - 19:58 | 4159582 Dr. Sandi
Dr. Sandi's picture

Yeah, Soros and his entire middle school class were firing up the cookers at Bergen Belsen.

Fri, 11/15/2013 - 18:58 | 4159413 AUD
AUD's picture

Of course, the credit appetite of the Weimar politicians turned out to be unlimited.

Of course, money, even if it is paper, is the one & only thing you cannot have enough of. And that doesn't just go for politicians. Which means it was not "the result of a deliberate political decision to increase the quantity of money de facto without any limit" that caused hyperinflation.

It was the fact that Germany lost the war, yet had hundreds of billions in unpayable war debt. The majority of the 'assets' of the German banking system were junk.

This article also ignores the blockade & sanctions of Germany after WW1. No payments between German & foreign banks meant the Mark lost a large part of its bid in Pounds & $. The British pound was junk, but Britannia ruled the waves.

Fri, 11/15/2013 - 19:04 | 4159448 Kirk2NCC1701
Kirk2NCC1701's picture

Sounds like they could've built a whole house out of fiat currency, for very little real money.  Just like this Irishman did in 2012:

http://www.huffingtonpost.com/2012/01/25/billion-euro-home_n_1230261.html

or at http://www.youtube.com/watch?feature=player_embedded&v=beK0O25O9aY

Fri, 11/15/2013 - 19:00 | 4159450 Trimmed Hedge
Trimmed Hedge's picture

The man in the photo looks wealthy with all that cash!

Fri, 11/15/2013 - 20:18 | 4159619 GreatUncle
GreatUncle's picture

We need to get past the 100 year WW1 anniversary next year before we should really think about the Weimar Repbublic. important dates next year and is it in the stars that the repetition is exactly 100 years on.

Germany and Russia declare war 1st August 1914

Fri, 11/15/2013 - 21:38 | 4159745 Schacht Mat
Schacht Mat's picture

Although the Rentenmark and Reichmark split into a domestic currency and a foreign currency backed by a low percentage mortgage on all land in the realm was in fact a confidence trick, it did stop the hyperinflation cold, especially when he burned the currency speculators with an unfavourable revaluation - he basically bankrupted the greedy ones (ie: pretty much all of them) in one fell swoop.  Nothing like culling the vulture herd to get the message across.  Schacht; in a rare mix of banker, moralist and showman, (the moralist part is the exceeding rare element in this mix) stopped the hyperinflation in under half a week, and then proceeded to build a strong structured and disciplined base for the currency faster than the mortgage based underwriting was realized to be a tranparent trick (how could you really collect on 3% of all the land in Germany - sounds good, but not realizable). 

Do we have a Schacht type today - NO - and we won't - anyone who tries to throw the private Washington bankers (known as wankers) New York bankers (known as yonkers) and Boston bankers (known as bonkers) out will find TPTB's foundational motto "mors tua, vita mea" enacted upon them with extreme prejudice.  The only reason Hjalmar survived was because Hitler needed him, or more precisely, needed a strong German economy; but it took a psychopatic dictator to protect Schacht, and even Hitler had to make a deal with the industrialists (and their bankers) to manage to keep them at bay.  Of course, the net result was catastrophe for most of the "civilized" world, but Schacht prevailed.

Fast forward to today - could some clever Central Banker (apparently an extinct breed) create a new international currency for the US and then back it with all of the defaulted properties in the US (they are being centralized as we speak by many hedge funds and other players - maybe that is for a reason ...) which could have some value for countries with large segments of rather wealthy citizens who may be interested in branching out abroad (Far East anyone ...).  Lots of details to sort out, but the reality is that this would do nothing unless it was backed by a strict regime of fiscal and monetary responsibility, and that is beyond the ability of anyone other than a dictator (and even that might be a stretch in today's world), and dictators often seem to have further plans that typically do not enhance the lifespan of their subject population (or, for that matter, of those people living within the borders of lands that they are interested in).

So where does that leave us - well, either we have a dictator who saves the currency and then destroys the country, or we have a currency that destroys the country and thus breeds a dictator to "lead us" out of the mess, and will most likely do that through natural resource acquisition enabled by his one remaining asset - namely a well equiped army.  Not a pretty picture either way, but as Milton Friedman once said, when asked if economics can be summed up in one statement, "yes, and that statement is 'there is no free lunch'"

Truly Schacht Mat

 

 

Fri, 11/15/2013 - 22:54 | 4159897 Offthebeach
Offthebeach's picture

EBT! EBT! EBT!

Fri, 11/15/2013 - 22:34 | 4159870 TheMayor
TheMayor's picture

Ross Perot was right.

The only question now is how long can the current farce continue until the riots begin?

And the government wonders why people and business are hoarding money, they know politicians like Obama signal the end.

If you stockpile water, food, guns and ammo then you may have a chance.

Fri, 11/15/2013 - 22:51 | 4159893 ILLILLILLI
ILLILLILLI's picture

Over the loudspeaker onboard the USS Bernank...

"All hands, this is the Captain. We're taking on water, so you all need to start drilling holes in the hull to let the water out. If you notice the water rising, drill more holes, faster. That is all..."

Sat, 11/16/2013 - 05:59 | 4160218 frank H
frank H's picture

Love it!

Fri, 11/15/2013 - 23:28 | 4159941 brettd
brettd's picture

Must curb thinking about "money" and "wealth" and ask ourselves,

"what resources do I have?"

Sat, 11/16/2013 - 00:04 | 4159986 OaleBneffe
OaleBneffe's picture

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Sat, 11/16/2013 - 13:56 | 4160617 Mi Naem
Mi Naem's picture

So, your real name is "Ted Kaczynski"? 

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OaleBneffe's picture

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Sat, 11/16/2013 - 01:43 | 4160110 Seeking Aphids
Seeking Aphids's picture

There is a difference between currency/money and wealth....every culture needs symbols of wealth that are distinct from currency/money. If we did not have gold we would need to invent something else to fill this need. This is why gold has a function and why it is important.

Sat, 11/16/2013 - 14:56 | 4160708 moneybots
moneybots's picture
The End Of German hyperinflation

 

was German hyper-deflation

Sat, 11/16/2013 - 15:01 | 4160721 moneybots
moneybots's picture

"The term of its president, Rudolf E. A. Havenstein, was for life, and he was literally unstoppable"

 

Greenspan/Bernanke/Yellen = same.  A monetary dove by any other name is still a dove.

Sat, 11/16/2013 - 17:56 | 4161081 luckystrike6
luckystrike6's picture

Hey, nazi apologist. 7 of my grandfather's brothers and sisters were killed in that thing you think didn't happen. If you've got a sense of grievance that Hitler's economic policies didn't work out, maybe you should blame him; after all, he had the most powerful military in Europe and an economic miracle on his hands according to you. It was clearly his to screw up.

And now instead of blaming some race of people for your problems, Jews who run the banks or Mexicans who cut your lawn, why don't you get off your lard ass and find a job.

Sat, 11/16/2013 - 20:24 | 4161382 Marco
Marco's picture

"Many explanations have been put forward. It has been argued that, for instance, that reparation payments, chronic balance of payment deficits, and even the depreciation of the Papermark in the foreign exchange markets had actually caused the demise of the German currency. However, these explanations are not convincing, as the German economist Hans F. Sennholz explains: “[E]very mark was printed by Germans and issued by a central bank that was governed by Germans under a government that was purely German."

How the fuck is that a counter argument? Every bar of gold bought by those purely German printed marks went to purely non Germans ... they rightly thought that if they stopped reparations they would be invaded (history proved them right). So they did the rational thing, they kicked the can and prayed for a miracle.

Sat, 11/16/2013 - 20:44 | 4161429 Vin
Vin's picture

Any chance that Havenstein was either Jewish or worked for the Rothschilds?

Sun, 11/17/2013 - 00:52 | 4161835 squexx
squexx's picture

Easy to answer, the Satanic Tribe, then as today. It's too bad they weren't destroyed back then!

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