The World’s Most Famous Case Of Hyperinflation (Part 1)
The Great War ended on the 11th hour of November 11th, 1918, when the signed armistice came into effect.
Though this peace would signal the end of the war, it would also help lead to a series of further destruction: this time the destruction of wealth and savings.
The world’s most famous hyperinflation event, which took place in Germany from 1921 and 1924, was a financial calamity that led millions of people to have their savings erased.
Courtesy of: The Money Project
The Treaty of Versailles
Five years after the assassination of Archduke Franz Ferdinand, the Treaty of Versailles was signed, officially ending the state of war between Germany and the Allies.
The terms of the agreement, which were essentially forced upon Germany, made the country:
- Accept blame for the war
- Agree to pay £6.6 billion in reparations (equal to $442 billion in USD today)
- Forfeit territory in Europe as well as its colonies
- Forbid Germany to have submarines or an air force, as well as a limited army and navy
- Accept the Rhineland, a strategic area bordering France and other countries, to be fully demilitarized.
“I believe that the campaign for securing out of Germany the general costs of the war was one of the most serious acts of political unwisdom for which our statesmen have ever been responsible.”
– John Maynard Keynes, representative of the British Treasury
Keynes believed the sums being asked of Germany in reparations were many times more than it was possible for Germany to pay. He thought that this could create large amounts of instability with the global financial system.
The Catalysts
1. Germany had suspended the Mark’s convertibility into gold at the beginning of war.
This created two separate versions of the same currency:
Goldmark: The Goldmark refers to the version on the gold standard, with 2790 Mark equal to 1 kg of pure gold. This meant: 1 USD = 4 Goldmarks, £1 = 20.43 Goldmarks
Papiermark: The Papiermark refers to the version printed on paper. These were used to finance the war.
In fear that Germany would run the printing presses, the Allies specified that reparations must be paid in the Goldmarks and raw materials of equivalent value.
2. Heavy Debt
Even before reparations, Germany was already in significant debt. The country had borrowed heavily during the war with expectations that it would be won, leaving the losers repay the loans.
Adding together previous debts with the reparations, debt exceeded Germany’s GDP.
3. Inability to Pay
The burden of payments was high. The country’s economy had been damaged by the war, and the loss of Germany’s richest farmland (West Prussia) and the Saar coalfields did not help either.
Foreign speculators began to lose confidence in Germany’s ability to pay, and started betting against the Mark.
Foreign banks and businesses expected increasingly large amounts of German money in exchange for their own currency. It became very expensive for Germany to buy food and raw materials from other countries.
Germany began mass printing bank notes to buy foreign currency, which was in turn used to pay reparations.
4. Invasion of The Ruhr
After multiple defaults on payments of coal and timber, the Reparation Commission voted to occupy Germany’s most important industrial lands (The Ruhr) to enforce the payment of reparations.
French and Belgian troops invaded in January 1923 and began The Occupation of The Ruhr.
German authorities promoted the spirit of passive resistance, and told workers to “do nothing” to help the invaders. In other words, The Ruhr was in a general strike, and income from one of Germany’s most important industrial areas was gone.
On top of that, more and more banknotes had to be printed to pay striking workers.
Hyperinflation
Just two calendar years after the end of the war, the Papiermark was worth 10% of its original value. By the end of 1923, it took 1 trillion Papiermarks to buy a single Goldmark.
All cash savings had lost their value, and the prudent German middleclass savers were inexplicably punished.
Learn about the effects of German hyperinflation, how it was curtailed, and about other famous hyperinflations in Part 2 (released sometime the week of Jan 18-22, 2016).
Source: The Money Project via VisualCapitalist.com
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Yes good for you! I would add to my post that you dont need to go as big as i went to be self reliant. I was able to take advantage of the fact that my house was ridiculously over-priced by comparison and so I 'went for it' and bought a bigger parcel. I believe that soon, the situation is going to reverse. Nobody is going to trade their farmland for suburban home prices outside of crumbling cities with few employment opportunities.
5 acres is plenty, and there is a book called '5 acres and independence' written in the 1930's that is still valid today. With 1/2 acre garden me and my wife eat veggies year round. We have a 9cu ft freezer dedicated to veggies only.
As long as you remebered to terminate your S.S.N. the .gov guys can't do shit about it either. Good on ya.
Notably absent from this discussion:
Germany, an industrialized nation, had allowed its population to increase many times past the point where it could feed itself. Therefore it was a major importer of food and raw materials. Historically, all empires which cannot feed themselves from their own domains collapse. Or if like Rome they are fed by conquered nations (Egypt, Britain), then they collapse when they lose control of their subject states. Germany was able to feed itself well into the 18th century. Britain was able to feed itself until the middle of the 17th century.
INDUSTRIALIZATION LEADS TO AN UNSUSTAINABLE INCREASE IN POPULATION, which becomes economically untenable as soon as the market for the products of said industry is saturated. Once the market is saturated (everyone has an iPhone and the Chinese have copied the design), the only way to maintain the increased population is by imperial conquest, domination, and theft from less overpopulated areas. Such coercive domination can only be maintained while there is a net increase (growth) of resources flowing to the industrialized core. When growth ceases, the power to coerce diminishes, and when the coercive power diminishes, there is not enough food to feed the excessive population of the industrialized nation. Population begins rapid internal and external migration in search of adequate food (pay) and urban centers become depopulated (too many people, not enough food). Germany attempted (twice) to halt the necessary depopulation process by conquest, failing both times and blowing off (up, shooting, starving, driving out, etc.) massive numbers of population in the process.
It isn't really about gold, folks. It's not about accounting entries. It's about how many human bodies a given territory can realistically support, and ruling elites who cannot and will not accept that there are limits to their power.
Power corrupts, absolute power corrupts absolutely
Spot on.
FD in many cases you are preaching to choir on entropy, overpopulation, and the industrial economy. I read William Catton's Overshoot over a decade ago and have no issues with his summations. (only issue is I lent it out and still have never got it back) No its not only about gold but it is always about barter and yes a medium of exchange for any kind of legitimate trade/barter. Historically that has meant gold and silver as they are part of a sustainable plan.
I have lived on 11 acres for + 25 years in zone 6. Lost a decade or so before I figured out what was inevitable. Have been producing a lot of our own food for the last 10 years and know the struggles and gratifications that come from it. Planted 90 apple, pear and nectarines one year only to have Ma Nature produce 20 inches of rain over a month and drown them all. Live and learn. The English Walnuts I planted 10 years ago now are producting nuts....however at this point the squirrels strip all the nuts off before I get any. Same with the 20 tree pecan grove that was here when I moved in. My goal has been to produce year round barterable excess. For now friends and neigbors get the bennies of that although do barter with one that raises meat and egg chickens as well as ducks. My problem is urban sprawl and the creep of the burbs has now arrived almost to my doorstep. What to do? Soon to be 60 so I am getting to the point where I don't know if I am up to starting over...
Best to you
KC
"INDUSTRIALIZATION = UNSUSTAINABLE INCREASE IN POPULATION = WAR"
And what is then the solution to this "causality relationship"?
Concentration camps? Castrations? Genocide?
What you described as the problems of the industrializations - brutal colonialism, imperialism and wars - has nothing to do with the number of humans. But all and everything to do to with the fundamental laws of capitalist development.
1. The law of diminishing returns or the tendency of the rate of profit to fall in the home country of the capitalist USA/Germany/Britain.
https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit_to_fall
2. The easiest of the solution to that problem of the rate of profit falling because of the changes in the organic structure of capital is for the capitalist production to expand into non-capitalist countries/continents/areas of human economic activities not under capitalist mode as yet. And that is called Imperialism and the Imperialist wars. US has been at it for at least last 100 years.
You know when they are running stuff like this on CNBC, 'the jig is up".
http://www.cnbc.com/2016/01/15/a-recession-worse-than-2008-is-coming-com...
Another Harvard brainwashed DEMOCRAT got us into that mess 100 years ago. Look how far we've come.
Yeps. Because Democrats were the same 100 years ago. C'mon man!!
Two heads, same dragon.
Get your point, but Woodrow Wilson went to Princeton.
Wasn't he a closet racist? :)
No, he was pretty much upfront about it.
This is what happens when you don't have the money to pay for a war upfront and you lose.
You can't pillage.
A few years ago I took the time to study all of the hyperinflations in the 20th century. They all have common threads that started them.
1. They all had a decline in industrial, farm or manufacturing output that was the basis of their economy for at least 3 years prior.
2. They all had excessive debt or had made commitments to their populations which could not be financially met for at least 2 years prior.
3. They all had governments who believed they could inflate until the next administration took over (kicked the can down the road).
4. They all had conservative spending because of rising prices and stagnent wages, followed by spending every dime they had as soon as possible because prices were rising too fast.
5. They all started with small printing of fiat currency which grew exponentially after the first wave of hyperinflation. This first period of hyperinflation preceeded the catistrophic inflation by about 1 year. The first period of hyperinflation lasted about 6 months followed by a period of low inflation lasting about 6 months; > than 35% followed by <10%. Then the catistrophic inflation started when the government chose to hyperinflate rather than fail.
6. This is the position I put us in at this time. Most prices have risen about 50% in the last few years but our wages have not risen. Once the people realize they can get more for their money by spending it immediately the inflationary period will end for about six months. During that period the government will spend money foolishly and commit to expensive programs because prosperity has started again. Once the savings are spent and the taxes arn't coming in the government will print and spend an excessive amount of money to fuel the continuation of the return to prosperity. But once the money goes full circle the government's costs will increase massively and the hyperinflation will start. The period of hyperinflation typically last about 18 months and ends when the government throws in the towel.
All of the previous hyperinflations had one safety net which will not exist in the coming US hyperinflation. When Germany to Zimbabwa went through their hyperinflations they had neighboring countries who had stabile economies and currencies. The smart money moved their savings into those countries or currencies. They also bought gold, silver and collectables which could be easily transported.
I personally have a $20 gold piece which I will use to pay off my mortgage. If it took 50,000,000,000 Marks to buy a loaf of bread just think of what an ounce of gold would bring.
All hyperinflations in history, with the exception of Zimbabwe, are due to exchange rate pressures.
Zimbabwe did print money, and simultaneoulsy killed off their white farmers. Zimbabwe thus lost its productivity base and increased money simultaneously.
All this does is prove the axiom, that volume of money should flux in direct proportion to goods and services production.
Weimar's hyperinlfation was under private banking rule, not government printing. It was legal government money, that stopped the hyperinflation.
Private bank money is not volume restricted, it comes into being for various hypothecation reasons, and none of these reasons considers volume, channeling, or usury as a variable to be considered.
In other words, stupid is as stupid does.
I always get annoyed when people claim it is government money that leads to hyperinflation, when throughout history, that is most emphatically, not the case. Please stop with the big lies.
The credit money system has built in instabilities as a function of its design. All systems predicate their output:
www.sovereignmoney.eu
Below is a reprint from my comment back in April: These Germany Weimar arguments come up over and over again.
Let's not forget that it was the international GOLD system among other factors that caused WW1, and then Versailles.
This Gold or Metal as money panancea, and then to dismiss the true legal nature of money, is just more propaganda and hypnosis spreading.
Money's true nature is law.
__________________
http://www.zerohedge.com/news/2015-03-25/lessons-german-hyperinflation-1...
Tyler’s making errors again: Germany’s 1923 hyper-inflation was by a private central bank, not the government. In fact, it was government money and government intervention that set things right.
The background: Triangular flow of inter-ally debts via Versaille treaty, and Germany not being allowed to export goods in exchange for dollars. Germany desperately needed dollars, francs, and pounds to pay Versailles debts. The allies in turn would send the dollars to the U.S. Treasury for their “allied” war debts. America put their allies on a debt hook, for example the doughboys were paid mercenaries in France during WW1. In this way, America grabbed the gold from Europe in exchange for dollar debts.
Germany cannot export to get dollars … at least the Tylers got that part right. Congress didn’t want German imports, in effect setting up Germany for the hyperinflation.
On May 26, 1922, under Dawe’s plan, granted total private control over the German currency. The immense reparation payments put significant exchange pressure on the Mark.
VIRTUALLY ALL HYPERINFLATIONS IN HISTORY ARE CAUSED BY FOREIGN EXCHANGE RATE PRESSURES.
(Money should not trade for money…. All foreign goods exchange is really barter. But, humans are too stupid to learn this rule.)
The Mark was destroyed through speculation. The currency is shorted, otherwise known as a bear raid. All bear raids are started by some sort of systemic weakness, and then it gets piled-on, causing positive feedback of more shorting. This feedback makes a lot of new “private credit money per unit time.” IT WAS PRIVATE DEBT BASED CREDIT MONEY, NOT SOVEREIGN MONEY THAT CAUSED THE INFLATION.
In mid 1923 Hamburg, Bremen, and Kiel established more private banks to issue money backed by gold and FOREIGN EXCHANGE. Dollars were used to back up Mark creation, which is part of the Bear Raid action. OK . GET IT INTO YOUR HEADS PLEASE TYLERS.
In Schachts 1967 book, “The magic of money” he lets it slip what really happened. My avatar is of Schacht in case anybody wonders, so I’ve studied this topic more than the Tylers.
Schacht introduced currency controls and bilateral trading methods in order to stop the inflation. In addition he introduced a new currency, the Rentenmark.
Rentenmarks were issued starting in November 15, 1923, in limited quantity and NOT OVER ISSUED. Rentenmarks could not be used for international payments. Schacht also forced credit restrictions on the Mark. Schacht stopped all other money issuers and sent all Reichsbank holdings of debt instruments back to their source for immediate payment, despite howls of protest from the private moneylenders.
Schacht crushed the speculators, and they learned the Reichsbank was now able to end FX speculation and bear raids.
It was the privately owned and privately controlled central bank that made loans to private speculators, enabling them to bear raid the nation’s currency. Schacht and the “state” regained control of the money power away from private profiteers.
The corporate money trusts do NOT want government having its own money power. They will start wars and kill millions, and spew monetary lies, thus casting a pall of confusion over the minds of men.
http://www.sovereignmoney.eu/
And a commentor earlier who said that sovereign money was backed by nothing is confused. It is the flux energy and labor and wealth of a people that back it. Rentenmarks were sovereign money, Lincoln’s Greenbacks were sovereign money. Continentals were sovereign money. The U.S. would not exist if not for sovereign money
The novel "A Princess in Berlin" by Arthur Solmssen describes the descent from the end of the war to the rise of Hitler in brilliant detail, and is recommended reading for this period.