The Nightmare of Deficit spending, devaluation and Hyperinflatation

50,000,000 Mark Note 1923

Recently I have been reading a number of post from various sites indicating that many young people who are now gravitating toward the left  will be difficult for conservatives to retrieve  in the foreseeable future. I strongly disagree. Ideologies on the left and on the right are often over-ridden by onrushing events. Events will always trumpet ideology. History is full of great changes in public opinion.  First the events in Germany during the 1920's and early 1930's. As a result of WWI Germany found itself in a severely weakened position. Germany was left with a destroyed economy and huge war reparations. This lead to hyperinflation and eventually, the demise of the Weimar Republic.

"A medal commemorating Germany's 1923 hyperinflation. The engraving reads: "On November 1923 1 pound of bread cost 3 billion, 1 pound of meat: 36 billion, 1 glass of beer: 4 billion."During the first half of 1922 the mark stabilized at about 320 Marks per Dollar accompanied by international reparations conferences including one in June 1922 organized by U.S. investment banker J. P. Morgan, Jr.[3] When these meetings produced no workable solution, the inflation changed to hyperinflation and the Mark fell to 8000 Marks per Dollar by December 1922. The cost of living index was 41 in June 1922 and 685 in December, an increase of more than 16 times. In January 1923 French and Belgian troops occupied the industrial region of Germany in the Ruhr valley to ensure that the reparations were paid in goods, such as coal from the Ruhr and other industrial zones of Germany, because the Mark was practically worthless. Although reparations accounted for about one third of the German deficit from 1920 to 1923,[4] the government found reparations a convenient scapegoat. Other scapegoats included bankers and speculators (particularly foreign), both of which groups had, in fact, exacerbated the hyperinflation through the normal course of their profit-seeking. The inflation reached its peak by November 1923, but ended when a new currency (the Rentenmark) was introduced. The government stated that this new currency had a fixed value, secured by real estate, and this was accepted.

Although the inflation ended with the introduction of the Rentenmark and the Weimar Republic continued for a decade afterwards, hyperinflation is widely believed to have contributed to the Nazi takeover of Germany. Adolf Hitler himself in his book, Mein Kampf, makes many references to the German debt and the negative consequences that brought about the "necessity" of National Socialism. The inflation also raised doubts about the competence of liberal institutions, especially amongst a middle class who had held cash savings and bonds. It also produced resentment of Germany's bankers and speculators, many of them Jewish, whom the government and press blamed for the inflation." The previous two paragraphs taken from Wikipedia .

The other example I will mention in the U.S. involvement in WWII. Prior to Pearl Harbor, President Roosevelt had favored the U.S. getting into the war in Europe, but the American public would not support this move. Roosevelt's reasoning on this was swayed by his support for Great Britain, but another factor was Germany's invasion of Russia in June 1941 negating the non-aggression treaty the two countries had entered into in 1939. Russia was viewed by many in the American progressive movement at that time as a great social experiment which the left in this country supported and Roosevelt was eager to assist Russia in the conflict against Germany. But as earlier mentioned the American people did not want to become involved in the war in Europe. Then came Pearl Harbor and minds were quickly changed.

 

As I said before, events not ideologies shape the opinions of the masses. Those on the extremes of the political spectrum will seldom change, but the vast middle will ebb and flow depending on the onrushing events.
by Ron Russell

When Money Dies is the classic history of what happens when a nation’s currency depreciates beyond recovery. In 1923, with its currency effectively worthless (the exchange rate in December of that year was one dollar to 4,200,000,000,000 marks), the German republic was all but reduced to a barter economy. Expensive cigars, artworks, and jewels were routinely exchanged for staples such as bread; a cinema ticket could be bought for a lump of coal; and a bottle of paraffin for a silk shirt. People watched helplessly as their life savings disappeared and their loved ones starved. Germany’s finances descended into chaos, with severe social unrest in its wake. Money may no longer be physically printed and distributed in the voluminous quantities of 1923. However, “quantitative easing,” that modern euphemism for surreptitious deficit financing in an electronic era, can no less become an assault on monetary discipline. Whatever the reason for a country’s deficit—necessity or profligacy, unwillingness to tax or blindness to expenditure—it is beguiling to suppose that if the day of reckoning is postponed economic recovery will come in time to prevent higher unemployment or deeper recession. What if it does not? Germany in 1923 provides a vivid, compelling, sobering moral tale.

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RON RUSSELL

Hyperinflation and the destruction of the middle class

A hundred years ago, many theorists believed—just as they did at the beginning of our twenty-first century—that the world had reached a state of economic perfection, a never before seen human interdependence that would lead to universal growth and prosperity. Then, as now, the German mark was one of the most trusted currencies in the world. Yet the early years of the Weimar Republic in Germany witnessed the most calamitous meltdown of a developed economy in modern times. The Downfall of Money will tell anew the dramatic story of the hyperinflation that saw the mark—worth 4.2 to the dollar in 1914—plunge until it traded at over 4 trillion to 1 by the autumn of 1923. The story of the Weimar Republic’s financial crisis clearly resonates today, when the world is again anxious about what money is, what it means, and how we can judge if its value is true. It is a trajectory of events uncomfortably relevant for our own uncertain world. Frederick Taylor—one of the leading historians of Germany writing today— explores the causes of the crisis and what the collapse meant to ordinary people and traces its connection to the dark decades that followed. Drawing on a wide range of sources and accessibly presenting vast amounts of research, The Downfall of Money is a timely and chilling exploration of a haunting episode in history.

FOR THOSE WHO DON'T KNOW WHAT HYPERINFLATION IS (PEOPLE SUCH AS THOSE STUDENTS AT OUR GREAT UNIVERSITIES), LET ME EXPLAIN IT THIS WAY:  HYPERINFLATION IS WHEN YOU TAKE YOUR MONEY TO THE STORE IN A GROCERY SACK AND BRING YOUR GROCERIES HOME IN YOUR WALLET. 

DIDN'T FIND WHAT YOU WERE LOOKING FOR, THEN PLEASE VISIT MY HOME PAGE AND USE THE AMAZON SEARCH WIDGET AT BOTTOM OF PAGE. THANKS FOR SHOPPING AT AMAZON AND A SPECIAL THANKS FOR VISITING MY LITTLE SITE.
RON RUSSELL