Hyperinflation in Weimar - could happen again?

"It 'was horrible. Horrible! Like a thunderbolt struck him. No one was prepared. The store shelves were empty. He could not buy the paper money."

- Harvard University Law Professor Friedrich Kessler, hyperinflation in the Weimar Republic (1993 interviews)

Some commentators are worried provide a solid measure of hyperinflation by Weimar Germany in 1923, has suffered as a wheelbarrow full of money, buy a loaf of bread. An April 29San Francisco Examiner editorial warned:

"With an unprecedented deficit approaching $ 2000000000000 's, [President 2010] budget proposal is a foolproof recipe for hyperinflation. So, every senator and representative who will vote this monster 3.6 trillion U.S. dollars budget spending spree, which well could turn against America 's next Weimar Republic. "

In an investment newsletter called Money Morning, April 9 Martin Hutchinson stressed worryingParallels between the current monetary policy of the government and in Weimar Germany, when 50% of public expenditure is financed by seigniorage - just print money. However, there is something mysterious in its data. It indicates that the British Government is already financing more of its budget through seigniorage as Weimar Germany at the height of its massive hyperinflation done, but the pound is still in his hand said, in circumstances caused the complete destruction, the GermanMark. Something else must take responsibility for the collapse of the brand, beyond the simple printing of banknotes must meet the government's budget, but what? And we are threatened by the same risk today? Let's take a closer look at the data.

History repeats itself - or is it?

In his article, well documented, Hutchinson notes that Germany was the inflation of the Weimar Republic after World War I, but suffered in the two years 1921-1923, the real "Weimar hyper-inflation"occurred. Until it had ended in November 1923, the mark was worth only a billionth of what was worth back in 1914. Hutchinson continued:

"The combination of policies and 'visible from Germany during the period 1919-1923. The Weimar government was unwilling to raise taxes to finance reconstruction after the war, and war reparations, which ran large budget deficits. It kept interest rates well below inflation, money supply expansion and increase of 50%Public expenditure by seigniorage (printing money to live and use the profits that issued it). . . .

"The parallel is truly terrifying is that the United States, Britain and Japan now have to finance their budget deficits made by the seignorage. In the U.S., the Fed buys $ 300 billion of U.S. Treasury bonds (T-bond ) to a period of six months at a rate of 600 billion dollars a year, 15% of the expenditure of the federal government for $ 4,000,000,000,000. In Britain, the Bank of England (BOE) 75 Buybillion pounds of gilts [the British equivalent of U.S. government bonds more than three months]. That is 300 billion pounds a year, 65% of UK public spending of 454 billion pounds. So while the U.S. is approaching the German politics of Weimar (50% of spending), rather quickly, the United Kingdom has already obsolete! "

And this is confusing, if the data obtained. If Britain is already meeting a greater share of its budget deficit by seigniorage than in Germany, at the height of its factHyper inflation, now because the pound is worth about as foreign exchange markets, as it was nine years ago, in circumstances, said the brand led one trillionth of its previous value during the same period, and most of it in just two years ? Meanwhile, the U.S. dollar actually become stronger than other currencies because the policy has been launched last year easing massive "quantities" (euphemism for today seigniorage). The central banks rather than governments nowPressure, but the effect on the money supply should be the same as in the government printing money systems of the past. The debt purchased by central banks has never really gone, but pays just over rolled from year to year, and as soon as the new currency of the money remains there, diluting the value of money. So why not our currencies have collapsed already a billionth of its previous value, as has happened in Weimar Germany? In fact, if there is a simple matter of supplyand demand, a government should print a trillion times its previous offer money to their currency by a factor of a trillion, and the German government not to drop is to be done for free. Something else must be running in the Weimar Republic, but what?

SCHACHT let the cat out of the bag

The light is thrown on this mystery through the later writings of Hjalmar Schacht, currency commissioner for the Weimar Republic. The facts are explored at length in The LostScience of Money by Stephen Zarlenga, who wrote in 1967 tree book "The Magic of Money, let" the cat out of the bag, writes in German, with some remarkable admissions that shatter the "accepted wisdom" of the financial community has announced the 'German hyperinflation. "What is driving inflation in time of war hyper-inflation," said Schacht, speculation by foreign investors, which would decline in market value to sell to bet that was quick.

Short selling is aTechnique used by investors groped for an exit from an activity falling profits. This is the loan and the sale of assets, with the understanding that the property must be purchased before and returned to the original owner. The speculator is gambling that the price has dropped in the meantime and he can pocket the difference. Short sales of the German mark was made possible because private banks in huge amounts of money for loans, brands that have been created, if necessary,Lent and for investors, again a beneficial interest for the banks.

Initially there was speculation from the Reichsbank (the German central bank Fed), which have recently been privatized. But when the Reichsbank no longer keep pace with the voracious demand for marks, other private banks were authorized, created from nothing and lend them if interested.

A story with irony

If tree is to believe that not only the government is not the cause ofHyperinflation, but it was the government that the situation was under control. The Reichsbank was put under strict
Regulation and prompt corrective measures have been taken to foreign speculation, by eliminating easy access to loans from the bank to eliminate money invested.

More interesting is a little-known sequel to this story. What should Germany again stood in 1930 was that commentators now leads him in 1920 is to blame - issued by moneySeigniorage from the government. Economist Henry CK Liu calls this form of financing "creditworthiness." Writing in Asia Times May 24, 2005, said the remarkable transformation in Germany:

"The Nazis came to power in Germany in 1933, a time when its economy into total collapse, was with the ruinous war reparations obligations and zero prospects for foreign investment, or credit card. But through a monetary policy independent learning and a full employment program for Public Works,Third Reich in Germany failed to turn a stolen overseas colonies that could exploit, the strongest economy in Europe within four years, even before starting the upgrade issues. "

While Hitler certainly deserves shame heaped on him later for his atrocities, was enormously popular with his own people, at least for a while. This was apparently because Germany pays saved from the center of a global depression - and did so through a plan of public workswith money from the government itself has generated. The projects were proposed for the first time for the financing, including flood control, repair of public buildings and private houses, and construction of new buildings, roads, bridges, canals and port facilities. The estimated cost of each program was set at one billion units of currency. One billion non-inflationary exchange called Treasury Certificates of work were then issued against these costs. Millions of people have been set forWorking on these projects, and workers were paid with Treasury bonds. The workers then spent the certificates for goods and services, creating new jobs for more people. These certificates are not actually free from debt, but they were like bonds, and the government paid interest on them to carriers. But the certificates as money in circulation and have been extended indefinitely, so that de facto currency, and avoid the need for international lenders to lend or to repayinternational debt. Treasury bonds trade on the exchange markets were outside the scope of currency speculators. Could not be sold short because there was nobody to sell them, so they have retained their value.

Within two years Germany had the unemployment problem had been resolved and the country was back on his feet. It 'been a solid, stable currency, no inflation, at a time when millions of people in the U.S. and other Western countries have beenstill unemployed and living on welfare. Germany was able to trade again, even if it was denied foreign credit and was faced with an economic boycott abroad. They did this with a barter trade: appliances and goods are exchanged directly with other countries, circumventing the international banks. This system of direct exchange occurred without debt and without trade deficit. Although Germany's economic experiment was short-lived, has left some lasting monuments of hisSuccesses, including the famous Autobahn, the first highway data set.

The lessons of history are not always what they seem

Germany has been wise to steer their escape crippling debt and strengthen a moribund economy, but it was not really original with the Germans. The idea that a government could obtain by printing and delivery of goods and services of the fund was initially developed by the American colonists. Attributed to Benjamin Franklinsignificant growth and wealth in the colonies, at a time when British workers suffered conditions of impoverishment of the Industrial Revolution, the colonists unique system of government-issued money. In the nineteenth century, Senator Henry Clay of the "American system" is defined by the "British system" of privately issued paper notes. After the American Revolution, was the American system in U.S. Banker-created money, but spent by the governmentThe money was during the civil war, again, as Abraham Lincoln supported his government with U.S. Notes, or "Green Backs" will be issued by the Treasury.

The dramatic difference in the results of two experiments Germany-money-release was a direct result of the uses of the money was taken. Price inflation results when "demand" (money) rises more than "supply" (goods and services), prices, and the experiment of 1930 was created new funds to financeProductivity, supply and demand together and increased the prices remained stable. Hitler said, "was issued for each brand, we need the equivalent of a brand value of work or handiwork." Hyper-inflation in the disaster of 1923, on the other hand, money was printed only pay the speculators, then demand will rise, while supply remained fixed. The result was not only inflation but hyperinflation, as speculation went wild, setting off rampant Tulip-mania and bubble-stylePanic.

This was also true of Zimbabwe, a dramatic contemporary example of runaway inflation. The crisis goes back to 2001 when the Zimbabwe less in its IMF loans, and refused the usual arrangements, including loan refinancing and make forgiveness. Apparently, the intention of the IMF, the land policy measures to punish, which rejected it, including measures of land reform, the reconquest of the country involved in the wealthy landowners. Zimbabwe's credit was ruined, andLoans could not elsewhere, the government appealed to buy so that the problem of its national currency and money in U.S. dollars on the foreign exchange market. These were then used to pay dollars to the IMF and rating new country. According to a statement by the Central Bank of Zimbabwe, hyperinflation was the speculators who manipulate the foreign exchange market, the exorbitant prices in U.S. dollars, which resulted in a drastic devaluation of the ZimbabweCurrency.

The current errors Government may, however, for the entire game, the game was on the IMF '. Instead of its national currency to fiat money in foreign banks to buy pay domestic and foreign, could the leadership of Abraham Lincoln and the settlers Americans followed and has its own currency to pay for the production of goods and services for their people. Inflation should be avoided, since the offer would have kept pace with demand, and currency would be servedthe local economy, rather than being drained by speculators.

Weimar real threat and how to avoid

The United States, then the forest with his hyper-inflation "quantitative" rules loosening? Maybe, maybe not. To the extent that the newly created money can be used for real economic development and growth, the financing of seigniorage is not likely inflated prices, because supply and demand will bring together. With quantitative easing infrastructure and financingother productive activities such as economic stimulus package President Obama would stimulate the economy, as promised, the nature of wealth production reported by Benjamin Franklin in America's early years flourishing.

However, it is something else now is a disturbing resemblance to what triggered the hyperinflation of 1923. In Germany, the Weimar Republic, the creation of money in the U.S. is now required by a privately owned central bank, the Federal Reserve, and is made largelyestablish speculative bets on the books of private banks, with nothing of value to the economy. As a gold investor James Sinclair warned in September 2007:

"[T] he real problem is a mountain trembles $ 20000000000000 on bank and credit default derivatives. Thinking looks deeply concerned about the Weimar Republic case study, because every day there are more and more like a repetition of cause and effect.. .. '

12900000000 pay $ fund rescue of AIG by channeled to Goldman Sachsfor his highly speculative credit default swap only an excellent example of this. To the extent that the money generated "quantitative easing" is charged in the black hole of derivatives from these speculative bets sucked, it could indeed on the way to Weimar, and it is worrying. We were led to believe that we are a banking giant Zombie Wall Street because without that aspirants of the credit system is not prop, but this is not true. There is another validAlternatives, and showing that may be our only alternative. We can beat Wall Street at their own game, thanks to the creation of public-sector banks, that full faith and credit of the U.S. for private gain is not speculative, but as a public service for the benefit of the United States and their people.