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Art Cashin On The Most Important History Lesson Of The Last Century
Today, instead of the traditional market observations by the Chairman of the Fermentation Committee, we share with readers a critical historical lesson from Art Cashin, focusing on an event that took place 89 years ago, which as Cashin says is "one of the most devastating economic events in recorded history and an important backdrop to Europe today. It all began with the efforts of a few, well-intentioned government officials." Many will know what we are talking about already...
An Encore Presentation
Originally, on this day (-2) in 1922, the German Central Bank and the German Treasury took an inevitable step in a process which had begun with their previous effort to "jump start" a stagnant economy. Many months earlier they had decided that what was needed was easier money. Their initial efforts brought little response. So, using the governmental "more is better" theory they simply created more and more money.
But economic stagnation continued and so did the money growth. They kept making money more available. No reaction. Then, suddenly prices began to explode unbelievably (but, perversely, not business activity).
So, on this day government officials decided to bring figures in line with market realities. They devalued the mark. The new value would be 2 billion marks to a dollar. At the start of World War I the exchange rate had been a mere 4.2 marks to the dollar. In simple terms you needed 4.2 marks in order to get one dollar. Now it was 2 billion marks to get one dollar. And thirteen months from this date (late November 1923) you would need 4.2 trillion marks to get one dollar. In ten years the amount of money had increased a trillion fold.
Numbers like billions and trillions tend to numb the mind. They are too large to grasp in any “real” sense. Thirty years ago an older member of the NYSE (there were some then) gave me a graphic and memorable (at least for me) example. “Young man,” he said, “would you like a million dollars?” “I sure would, sir!”, I replied anxiously. “Then just put aside $500 every week for the next 40 years.” I have never forgotten that a million dollars is enough to pay you $500 per week for 40 years (and that’s without benefit of interest). To get a billion dollars you would have to set aside $500,000 dollars per week for 40 years. And a…..trillion that would require $500 million every week for 40 years. Even with these examples, the enormity is difficult to grasp.
Let’s take a different tack. To understand the incomprehensible scope of the German inflation maybe it’s best to start with something basic….like a loaf of bread. (To keep things simple we’ll substitute dollars and cents in place of marks and pfennigs. You’ll get the picture.) In the middle of 1914, just before the war, a one pound loaf of bread cost 13 cents. Two years later it was 19 cents. Two years more and it sold for 22 cents. By 1919 it was 26 cents. Now the fun begins.
In 1920, a loaf of bread soared to $1.20, and then in 1921 it hit $1.35. By the middle of 1922 it was $3.50. At the start of 1923 it rocketed to $700 a loaf. Five months later a loaf went for $1200. By September it was $2 million. A month later it was $670 million (wide spread rioting broke out). The next month it hit $3 billion. By mid month it was $100 billion. Then it all collapsed.
Let’s go back to “marks”. In 1913, the total currency of Germany was a grand total of 6 billion marks. In November of 1923 that loaf of bread we just talked about cost 428 billion marks. A kilo of fresh butter cost 6000 billion marks (as you will note that kilo of butter cost 1000 times more than the entire money supply of the nations just 10 years earlier).
How Could This All Happen? – In 1913 Germany had a solid, prosperous, advanced culture and population. Like much of Europe it was a monarchy (under the Kaiser). Then, following the assassination of the Archduke Franz Ferdinand in Sarajevo in 1914, the world moved toward war. Each side was convinced the other would not dare go to war. So, in a global game of chicken they stumbled into the Great War.
The German General Staff thought the war would be short and sweet and that they could finance the costs with the post war reparations that they, as victors, would exact. The war was long. The flower of their manhood was killed or injured. They lost and, thus, it was they who had to pay reparations rather than receive them.
Things did not go badly instantly. Yes, the deficit soared but much of it was borne by foreign and domestic bond buyers. As had been noted by scholars…..“The foreign and domestic public willingly purchased new debt issues when it believed that the government could run future surpluses to offset contemporaneous deficits.” In layman’s English that means foreign bond buyers said – “Hey this is a great nation and this is probably just a speed bump in the economy.” (Can you imagine such a thing happening again?)
When things began to disintegrate, no one dared to take away the punchbowl. They feared shutting off the monetary heroin would lead to riots, civil war, and, worst of all communism. So, realizing that what they were doing was destructive, they kept doing it out of fear that stopping would be even more destructive.
Currencies, Culture And Chaos – If it is difficult to grasp the enormity of the numbers in this tale of hyper-inflation, it is far more difficult to grasp how it destroyed a culture, a nation and, almost, the world.
People’s savings were suddenly worthless. Pensions were meaningless. If you had a 400 mark monthly pension, you went from comfortable to penniless in a matter of months. People demanded to be paid daily so they would not have their wages devalued by a few days passing. Ultimately, they demanded their pay twice daily just to cover changes in trolley fare. People heated their homes by burning money instead of coal. (It was more plentiful and cheaper to get.)
The middle class was destroyed. It was an age of renters, not of home ownership, so thousands became homeless. But the cultural collapse may have had other more pernicious effects.
Some sociologists note that it was still an era of arranged marriages. Families scrimped and saved for years to build a dowry so that their daughter might marry well. Suddenly, the dowry was worthless – wiped out. And with it was gone all hope of marriage. Girls who had stayed prim and proper awaiting some future Prince Charming now had no hope at all. Social morality began to collapse. The roar of the roaring twenties began to rumble.
All hope and belief in systems, governmental or otherwise, collapsed. With its culture and its economy disintegrating, Germany saw a guy named Hitler begin a ten year effort to come to power by trading on the chaos and street rioting. And then came World War II.
That soul-wrenching and disastrous experience with inflation is seared into the German psyche. It is why the populace is reluctant to endorse the bailout. It is also why all the German proposals have each country taking care of its own banks. (It gives them more control.) The French plans tend to socialize the bailout. There’s more disagreement in these plans than the headlines would indicate.
To celebrate have a jagermeister or two at the Pre Fuhrer Lounge and try to explain that for over half a century America's trauma has been depression-era unemployment while Germany's trauma has been runaway inflation. But drink fast, prices change radically after happy hour.
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Indeed.
RJ Rummel's "Death by Government" is an excellent (if nauseating) compendium of such blood-stained hands worldwide (and not just the Nazis, Bolsheviks, and fellow travelers either).
Everything I wrote in “The Real Weapon of Mass Destruction: POVERTY” is taking place, right now. The borrowed debt to keep the system running, just isn’t available. Populations are being lined up to be fleeced, harvested by their own governmentshttp://georgesblogforum.wordpress.com/2011/10/13/the-real-weapon-of-mass-destruction-poverty-update-10132011/
Right now the stocks of $ that are immobile give us a false sense of security that the money supply for hyperinflation has not already been printed. It has.
Once an event is provided that allows the puppetmasters to proceed to the Hyperinflation Phase these stocks of T-bills will be mobilized. This increase in "flowing $ stock" will devalue the dollar and by happenstance bring chaos to the world's markets.
This chaos may lead directly to war; or there may be a few years of massive destabilization of the present bubbles, prior to the destruction of the malinvestment memory (through war and deprivation) of the masses.
Seeds, guns, wits, gold, friends, luck, etc.
There must be a mechanism to provide the huge nominal sums to the consumer.
Unless UE benefits tack on a few zeros i dont see it - yet.
Europe on the other hand.
It's important to note that the Mark had competition from an external currency and that this alternative was paramount to the hyperinflation that ensued. In order for a currency to really tank, you need some other currency into which people would prefer to convert their savings. These things do not happen in a vacuum.
Today's competitors are gold and silver. They've been known to do well in the past.
"The French plans tend to socialize the bailout. There’s more disagreement in these plans than the headlines would indicate."
one wld certainly hope so!
thxz art!
Brillinate!!
and Europe is really the Fatherland in this tale. we are an extension of the Euro-empire, the fourth great empire (Spanish, French, British) the US is really the surrogate for the German empire. at one time Germans made up the largest ethnic group. it may be hispanic now, which is the extension of the Spanish emprire. a lot of Americans did not want to enter w2 because they had people back there.
the Euro-empire is defined by constant internecine warfare. we're a young empire we still have a long ways to go, but we should never forget our roots. during w2 we invited all sorts of scientists and artists from Germany, which gave us everything from nuclear power, to film noir.
and Germany is currently managing the financial Euro (fascist?) solution to their financial problems.what would Hitler have done? he would have deported the Muslims, the Jews forget that Hitler didn't like them because many of them were from the ME. (the Jews don't like those people either, or whats' going on in Palestine)
when you see America militarizing in the abscence of any real threat, think about your German roots. when you see John Boehner going to toe to toe with POTUS, think about your German roots. (what he lacks in intelligence he more than makes up for in hard headed persistence)
and while this whole thing about racial purity is pretty silly, being part of the Euro-empire is what this is all about. right now Bernanke is pouring billions of OUR tax dollars into their banks. when they get a run on the bank hike up your shorts, and take one for the empire.
ehmm...
find a map that shows all 700+ NATO bases in the world and you will see that there is no such thing as what you are describing - they are one - US led
where are the most important US airbases? Germany, UK, etc.
the most important US Navy bases? Italy, Japan, etc.
When their currency inflated Germans called their notes Jewish confetti. When Jews were stopped from speculating on the mark, due to regulatory change, they shut up shop and moved to Paris. Shortly afterwards they collapsed the Franc.
This one's a true classic!
Thanks for reposting it, Tyler.
This story starts good but is lacking big time. Currency needs a counterpart in order to devalue, something to compare it to. Story mentions 6B Marks in 1913 but not the money supply in 1923? Did it go up 1 billion times? People wouldn't bother to get paid twice weekly, they wouldn't bother to work at all if a days wages didn't buy a gumball. Hitler traded on Chaos? Okay, there you lost me...
What are you talking about? A (fiat) currency can be devalued, even a hypothetical single worldwide one, without needing reference to any other currency --- what really matters is its purchasing power, and devaluation can happen, and be observed, merely by seeing prices rise throughout the economy.
Perhaps you are too hung up on the fraudulent and all-but-useless US Dollar Index, and can only see a (fiat) currency's value in reference to that of another such currency. Such simplistic and artificial teeter-totter constructs are best left to the simpletons of CNBC and the mass media.
Hey Mr. A.
Nice to see you. There are times that I actually miss Leo's rant... we had some great entertainment. <sigh>
On another note, I'm getting ready for a complete collapse of the financial system, due within the next 6 weeks. It ain't going to be pretty.
Take care.
P
Hey Web Bot,
Good to hear from you! Yes, I too can almost say (almost!) that I miss our little repartee with Leo, mocking and tearing apart Leo's statist and Keynesian bullshit. But overall, I think ZeroHedge is better off (and more credible) without him.
Please elaborate, if you care to, about your economic prognostications --- I would be curious to hear them.
Great Article! As I see it you need three things. 1. An adequate amount of dollars in the system. Because of our credit and digital creation of dollars, that volume of dollars may aready be there. 2. LeBalance says you need a place to hide, another currency. Gold may be that currency, but he may be correct you may need another Fiat that can satisfy the volume with currency divisions less than $15,000 an ounce. And finally, we all know you need- 3. Velocity, speedy passage through society. That is starting and I am scared. Non-savers spend as fast as they get paid. Where to go and what to do? My specific question is- should you be a home owner or not? We sold our home recently, and have a chunk of cash, besides buying gold and silver which has been done. Should we buy a house, or wait to see if they fall further? A little help here please.
I guess Cashin forgot the most important part. How this debocle was stopped by Adolf Hitler once he was voted to power. By firing the director of their 'Federal Reserve Bank' and issuing new currency, Germany from 1933 to 1939 became the most prosperous nation on the planet, AGAIN. Unemployment went to almost 0. Prices were the best for consumers than they had ever been anywhere in history, ever. The country rebuilt and BUILT more than any other country in history, the autobahn, war equipment, etc, AND advances in technology came at the fastest pace in history. They developed the computer, jet engines, rotary engines, the fisher tropshe process, the PEM fuel cell, and 100,000 other inventions that are the cornerstone of modern economic prosperity, in the USA today. YES, I KNOW ALL about the atrocities and we don't need a history lesson there. Imagine what Germany could have done if they had not built equipment for war from 33-39 and built ANYTHING else instead! And btw, this was all done even though the worlds jewry declared war on Germany in 33 and tried their hardest to harm the country through economic and subversive means going forward.
good post.
But the German banking class, largely Jewry, benefited enormously and came out the Weimar days unscratched. That was one of the real reasons Hitler-led German Holocaust was all about.
USAGOLD.com has a good article on the hyperinflation....in the gilded opinion pages..and the mises.org site has a good one too...very good reads to educate your self on what worked and did not work...gold and silver worked
And have a nice day!
I've been a fool buying gold - I'm going to stockpile loaves of bread!
Now that my negative numbers are up so high, let’s add a little fire:
The obey clause of the standard contract is designed to free women from submission to men by submitting to one man once, by giving up anxiety, ignoring all the voices in her head and the voices in the heads around her, to work with her husband to form a new family, as a new hub, and then re-assemble around that hub, but she must choose the right man (voices, voices)… and time is growing short…
Men are not the enemy. Women are not the enemy. The snake is the enemy, and it’s first on the stack, of bipolar stacks. Dump the anxiety, and join in community, before the global black hole ignites at your location.
Yesterday’s errors in the rear-view mirror cannot be fixed. Fix the errors by working problems coming at you in the windshield. Work down to the binary and choose either. Mistakes are good, if you learn and don’t make them twice. In this environment, you cannot afford to make the same mistake twice. Everything is related to everything.
Pop goes the weasel.
Alex Jones just put out a MEGA, MEGA, RED ALERT that his military sources and his other sources inform him that an attack on Iran will commence within TWO WEEKS!!!
Culture - finally someone addresses this great aspect of humans. TPTB are, deliberately, destroying the culture of Sovereign Nations and most other groups.
Will they patent and copyright these cultural assets as well???
CULTURE:
a. The totality of socially transmitted behavior patterns, arts, beliefs, institutions, and all other products of human work and thought. b. These patterns, traits, and products considered as the expression of a particular period, class, community, or population: Edwardian culture; Japanese culture; the culture of poverty. via: http://www.thefreedictionary.com/culture
So, this is when women's future was really altered. Remember the flappers? The destruction of the family unit and the downfall of Principals...Hell, we all just want to survive.
Now, can we address Military Spending????
"...drink fast, prices change radically after happy hour"
And history repeats!
The REAL quesion is: Why don't we LEARN?
Sieg Heil
Schacht was German Finance Minister, and wrote following in his book "The Magic of Money":
"What drove the wartime inflation into hyperinflation was speculation by foreign investors, who would sell the mark short, betting on its decreasing value. ... Speculation in the German mark was made possible because the Reichsbank made massive amounts of currency available for borrowing, marks that were created with accounting entries on the bank's books and lent at a profitable interest. When the Reichsbank could not keep up with the voracious demand for marks, other private banks were allowed to create them out of nothing and lend them at interest as well."
Oh, it's the SPECULATOR'S fault that the German government made it possible for the banks to create money out of thin air?
Now I get it.
Almost the holiday season....can you hear the little war drummer boy??
http://english.aljazeera.net/indepth/opinion/2011/10/2011101353556836135.html
...Majid Rafizadeh is an Iranian/Syrian Fulbright teaching scholar, currently conducting research at Woodrow Wilson International Center for Scholars and columnist for Harvard International Review.
LOL! He sounds like a guy with an unbiased opinion or three.
These poetic words written in 1919 defined that time:
The darkness drops again but now I know
That twenty centuries of stony sleep
Were vexed to nightmare by a rocking cradle,
And what rough beast, its hour come round at last,
Slouches towards Bethlehem to be born?
William Butler Yeats
That 'rough beast' is still out there.
It occurs to me that Hyperflation ignites where currency become "trivialized" and where this trend then goes viral instead of being contained. You'd therefore want/expect Government to watch for sources where money is being "trivialized" and to extinguish or contain these ignition points. Yet, look at Wall Street bonuses such as Jeffery Gundlach winning his $67 million in back pay. Such bonuses have lost all meaning. It could have been $67 trillion. To Wall Street; dollars are become just meaningless figures.
Typical scam text, some pages of historical facts, then "raring twenties and freedom for woman" happy end. But here it comes:
That is pure lie.
German populace don't support bailouts, corrupt politicians do.
Let the failed banks fail.
sorry but this text is certainly not Mr.Cashin's
Where is that dick Krugman? He should be forced to read this article.