The Weimar Hyperinflation: Time to get out the wheelbarrows?

TIME TO GET OUT THE WHEELBARROWS? ANOTHER LOOK AT THE WEIMAR HYPERINFLATION




"It was horrible. Horrible! Like lightning it struck. No one was prepared. The shelves in the grocery stores were empty.You could buy nothing with your paper money.
Some worried commentators are predicting a massive hyperinflation of the sort suffered by Weimar Germany in 1923, when a wheelbarrow full of paper money could barely buy a loaf of bread.

HISTORY REPEATS ITSELF -- OR DOES IT?
In his well-researched article, Hutchinson notes that Weimar Germany had been suffering from inflation ever since World War I; but it was in the two year period between 1921 and 1923 that the true "Weimar hyperinflation" occurred. By the time it had ended in November 1923, the mark was worth only one-trillionth of what it had been worth back in 1914. Hutchinson goes on:

"The current policy mix reflects those of Germany during the period between 1919 and 1923. The Weimar government was unwilling to raise taxes to fund post-war reconstruction and war-reparations payments, and so it ran large budget deficits. It kept interest rates far below inflation, expanding money supply rapidly and raising 50% of government spending through seigniorage (printing money and living off the profits from issuing it). . . .

Schacht Let the Cat out of the Bag

Short selling is a technique used by investors to try to profit from an asset's falling price. It involves borrowing the asset and selling it, with the understanding that the asset must later be bought back and returned to the original owner. The speculator is gambling that the price will have dropped in the meantime and he can pocket the difference. Short selling of the German mark was made possible because private banks made massive amounts of currency available for borrowing, marks that were created on demand and lent to investors, returning a profitable interest to the banks.

The Lesson of History; Not always what they Seem

The dramatic difference in the results of Germany's two money-printing experiments was a direct result of the uses to which the money was put. Price inflation results when "demand" (money) increases more than "supply" (goods and services), driving prices up; and in the experiment of the 1930s, new money was created for the purpose of funding productivity, so supply and demand increased together and prices remained stable.



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[edit on 21/5/2009 by Mirthful Me]

[edit on 21-5-2009 by wonderworld]

I’m hoping the worst case scenario will be a Great Depression; rather than Hyperinflation. At least in a Depression our 1000.00 in the bank will still buy 1000 loaves of cheap bread. With hyperinflation that same 1000 could result in one loaf. We could easily see 20-25% annual inflation . This would cause hyperinflation in 2 or 3 years. If things get nasty it could come sooner.

It would signal the start of another collapse.

Were going to the one world currency whether we like it not.

reply to post by _selectThis_


Yes and I think the collapse is occurring, as we speak. I cant beilieve the EU may get downgraded. S&P gave them a death sentence today. I wonder if their stocks are taking a dive, as well. This is some scary stuff.

High inflation is coming firstly because the East will recover faster than the West. This means that demand on industrial resources will go up; before we have fully recovered. We are already seeing this with the price of oil. (Always put some wealth in oil futures whenever oil is cheaper than it was)

Our situation could become quite unprecedented in modern Western history, as historically the West both sunk and recovered first) (not sunk then recovered last).

Inflation will also happen because Western governments have been forced to borrow large amounts of money from the world of finance yet cannot easily pay it back.
So (through “quantative easing”) they are already issuing surplus currency in order too meet debt repayment (this is unsustainable) as over time the real value of our currencies will reduce, so far this has only been (modestly) prevented by simultaneous falls in other world currencies, so banks are starving of financial disaster as engineers struggle without enough options or materials.

So why not put your money in property? The stuff is cheap but generally stabilising. It will fall more in value, but pays very good rental returns (around 8-10% if you look too the right places e.g. auctions).
Property could (and would certainly fall a lot more in another disaster) but historically (as long as governments have allowed both rent and land registries) it has never becomes as worthless as paper money, and financial products have become in times of financial stress.
Also if things continue to recover property prices will be one of the biggest "medium term" winners.

Just don’t borrow money with the assumption interest payments must remain cheap indefinitely. High inflation could easily have a dependant borrower-investor go bankrupt. After all property is only so cheap at the moment because most of the (hot) stuff on the market is from investors-individuals those who’ve gone bankrupt.
Investing wealth is certainly safer as you can’t have it pulled from under you’re feet like excessive debts can.

reply to post by Liberal1984


I like how you said High Inflation, rather than Hyperinflation. We aren’t immune that’s for sure.. We are also now borrowing from the poorer countries.

The printing of money does not add up with the GDP. You’re right it is not sustainable.

I agree now is a good time to buy a house but many are hoping for deflation to lower them further. I’ve had a rental house before but continually had bad, unpaying squatters and costs of maintenance. I decided it wasn’t worth the hassle. Not to say I’ll never delve in again. I’m one of the waiting ones. Consumers simply aren’t spending.

I don’t even worry about stagflation anymore. Obama said he is raising interest rate. Why didn’t that set off an Alarm? Your right the money we borrowed last year will cost more to pay back than we originally borrowed. Making the value of our dollars worth less.

I didn’t invest in oil futures, when prices were very low. I stayed out since 2007 and have no plans to jump back in. We have Obama and Geitner regulating Wall street and hedge funds. I agree hedge funds should be regulated but was confused on how Obama can regulate Wall Street.

I didn’t buy gold futures either but have it covered. Iran and other Arab Confederacies need oil to remain at 70 bucks a barrel to keep their economy going. I was glad to see it slide down today but wont stay down with all the Middle East conflicts going on.

reply to post by wonderworld


very interesting post

could very well be a prime example of history repeating itself

s/f

Heh...OP beat me to it; was just headed over here to post the same exact thread.

My take on it: We are currently in a mild episode of consumer deflation driven by the massive destruction of paper wealth over the last year. Yes, hard as it is to believe, more wealth has been destroyed than created, despite the Treasury and Fed throwing trillions and trillions ("everything but the kitchen sink") at the problem. Stocks are down, housing is down, most people have lost money in one way or another. This leads to falling prices, "going out of business sales," slashed paychecks...all deflationary rather than inflationary.

However, eventually all the credit creation and the running of the printing presses twenny-four-seven will start to kick in...the economy will lurch, sickeningly, from mild deflation to severe inflation. On the way, we will pass through a brief "sweet spot" where it seems like everything is OK again, prices will be on the rise, and you can bet the mainstream media will go into a frenzy of rapture and joy, trumpeting loudly how all is finally back on track.

This "sweet spot" won't last long, however, and will be followed by horriffic inflation as the government prints money to resolve its massive obligations and the US dollar abroad plunges in value.

Originally posted by wonderworld
I agree now is a good time to buy a house but many are hoping for deflation to lower them further.

Anyone who is able to buy thier first home should do it right now.

Once inflation takes hold (There's no if's about it) everything will become more expensive while a fixed payment mortgage will become cheaper. It's probably not a bad idea to spend money on things that will be more exspensive in the future. Provided that your cashflow situation is good and you're able to keep some cash in the bank to cover unexexpected exspenses.

Wages for skilled workers will also go up. The economy is starting to recover, but it is a slow return.

Business will start to hire and expand within a year?

I think hyper-inflation might be in check for now, but the threat is always there.

I think we are headed for a one world currency anyways. I don't think there is much anyone can do other than prepare.


[edit on 21-5-2009 by In nothing we trust]

reply to post by warrenb


Nice to see you. Yes it makes me think about stocking up on more food.

reply to post by silent thunder


I think we are in the eye of the storm. The other side wont look too good.

I got a Tweet from Suze Orman about Obama raising interest rates.

reply to post by In nothing we trust


I think many should hit the surviavl threads. One thing I bought cheap was 300 gallons of gas. It must be treated with Pri-G or Pri-D for Diesal. It will store for many years. I quart will treat 600 gallons, for 28.00. Well worth the investment.

Originally posted by wonderworld
reply to post by In nothing we trust

 

I think many should hit the surviavl threads. One thing I bought cheap was 300 gallons of gas. It must be treated with Pri-G or Pri-D for Diesal. It will store for many years. I quart will treat 600 gallons, for 28.00. Well worth the investment.

Not a bad idea.

I think I will start looking at the survival forum.

As an answer to the OP, I don't think it's anywhere near time to get out the wheelbarrows just yet. Deflation has been the halmark of this crisis to date and I don't see that abating just yet. Like one of the previous posters said, so far most if not all of the raw printing has simply gone "poof" mostly to shore up insolvent financial institutions. So far the raw amount printed hasn't even kept pace with the destruction of available credit in the system. Until it equals and then outpaces that I am in the deflationista camp. Before I get jumped on by the resident golbugs let me add that I believe gold is an asset that will hold up well in deflation or hyper-inflation.

Aside from the printing not equaling the destroyed available credit yet, I believe one of the main reasons we are more likely to see continued deflation is that there is no mechanism to get a wage price spiral going. The last time the US faced high inflation(70's -early 80's), a much larger percentage of the workforce was unionized and had wage increases tied to inflation thereby feeding the wage-price spiral. I could easily see the Obama admin putting some type of wage controls in that would feed this, but I don't see that on the radar right now.

Another important reason I see deflation as more likely than Higher inflation (than we are used to) or hyper-inflation is who benefits most. In a deflationary environment cash and savings are king. As the deflationary spiral kicks in those in debt must repay that debt with more valuable dollars. The incentive to spend and grow is replaced by a need to save and possible pick up for pennies on the dollar the assets of those unable to service the debt in a deflationary environment.

Contrarily, in a higher-inflation/hyper-inflation, debts are repaid by devalued dollars. This benefits debtors in that they repay debts with currency that is less valuable than it was when the debt was incurred, and though that creditor gets repaid, the value of what he has been repaid is less due to the debasement of the currency.

Which of these scenarios will benefit the PTB the most I ask? The deflationary one especially when you've got a direct line to the taxpayers wallet via a bought and paid for CONgress.

reply to post by jefwane


I don’t think it’s time for the wheelbarrows either but I pulled it out of the shed, in case.

Yes gold and poor mans gold (Silver) will do well in the future. I don’t have gold futures but I think we all should have some physical gold on hand. There is a saying that Gold is like a big heavy parachute you carry about and gets in the way but comes in handy when you need it.

Stagflation and deflation would, indeed be better than Hyperinflation, although Deflation has nasty consequences, as well.

You’ve made some good points. Figure the economy lost (A guess) about 48% since September 15th 2008 and retirement pensions and 401k’s are locked up it makes me wonder if I’ll have much left to put in my wheelbarrow. I may be trading a laying hen for a loaf of bread.

reply to post by wonderworld

That logic seemed correct to me as well, but I remebered hearing differently:
From:
"The Coming Currency Collapse, And What You Can Do About It." by Jerome F. Smith

In real terms, an inflationary depression is indistiguishable from a deflationary depression. In both cases production and incomes decline in real terms; in both cases liquidity problems proliferate; in both cases widespread bankruptcies occur. The distinction between a deflationary and inflationary depression is this: in a deflationary depression-- production, incomes,and living standards generally all decline both in real terms and in nominal money terms; in an inflationary depression-- production, incomes and living standards generally also decline in real terms while at the same time all of these [categories] show increases in nominal money terms.

reply to post by FX44rice


Yes deflation is a bad word. We dont need that either. What about stagflation? I'm hoping we dont jump straight in to the frying pan.

Running the US like a Casino is crazy. Lets hope it works and prepare for Hell to break loose if it doesnt.

Rising crime is another concern of a bad economy.

I think we're going to see a slower collapse rather than an eventual SHTF mayhem scenario. I think we are collapsing now and have been since sept. IMO we're going to see what we see now continue for several years. Painful economic stress for millions of people, that will change their lifestyles dramatically. I hear everyones point of view on this too. I sub to Celente's Trends Journal for over a year and follow all the others as well, but think what Celente says is what I pretty much expect, life goes on but it might suck.

I might be wrong though hard to say? It's a mess and maybe it will just blow up mayhem, scavengers, Mad Max in 5 years or less?

I don't think there's going to be an inflation just yet. Why would they want the trillions and trillions of $$$ they just stole to become useless?

But that's just my opinion.

reply to post by FX44rice


I think they recently changed the economic outlook to extend another 4 or 5 years. Based on this info I conclued its highly possible that we are entering a Depression. This will be longer than any recession we have had. We must start counting from December 2007,,add 5 years and we are not looking at recovery until 2012. If we add 5 to 2009 we get 2014.

My hope is it wont get to hyperinflation but it only takes an annual inflation increase 0f 20% a year and we would be there in 3 years. We've had 30 banks fail and will soon see Credit Unions going under.