The chickens were coming home to roost.
They were hard times for many people. The national debt had risen to a point that it
could not realistically be paid back. The war had cost more than expected. There
was high unemployment, products and services increased in price, and production had decreased
significantly… The government acted- providing liquidity
to banks and inflating the currency… Having left the gold standard, uncertainty
loomed and the country’s economy began to spiral out of control. Sound familiar?
This was Germany in 1920. [Video reveals German footage, not America]
The Weimar Germany hyperinflation story is by far the most famous.
Near the start of World War I, the week after Germany mobilized for war, they severed the
link between their currency and Gold. The Gold mark was now just a paper mark.
Almost 5 years of bloody war ensued and Germany spent the equivalent of roughly 40 billion
US dollars on the war. That amount now is equal to 860 Billion dollars today.
On top of the costs of the war, in 1919 the Treaty of Versailles assigned the blame to
Germany, requiring that war reparation payments be made to Britain and France.
[Eerie music] The similarities between Weimar Germany and
America today are eerie. In 1911, a National Health Insurance Scheme
was initiated by a reforming Liberal government; Sound familiar? [Shot of Obama/Pelosi Congress]
A German welfare association was founded in 1920. War victims’ benefits were added then
and in 1922 the Youth Welfare Act was passed. Regular unemployment relief assistance was
consolidated in 1923. Production had collapsed in Germany due to
the war ending as well as the workers strike during the French occupation of the Rhine.
By the same token, United States production, namely manufacturing, has fallen tremendously
in recent decades. [Fast paced spooky music]
Fast-forward 100 years in time. The U.S. Congressional Budget Office estimates
that the US will have spent $1.9 Trillion by 2017 in paying for the Iraq War alone.
This is double the amount Germany spent during World War I. The Vietnam War was only half
the cost in comparison…but right in the middle of that war, 1971, the U.S. was taken
off of the Gold standard and couldn’t afford to pay for the war without creating new money.
We all know what happened by 1980; dollars rushed into the hard assets gold and silver,
and their prices ballooned as the public panicked to retain and gain wealth.
Back to today, U.S. Official national debt has nearly tripled in the last 12 years. The
money to fund our deficits has been borrowed or printed from thin air.
During World War I, the German Money supply quadrupled; it then took just five years before
hyperinflation set in. The U.S. Money Supply, M1 & M2, have almost doubled over the course
of the Afghanistan and Iraq wars. The amount of dollars increased from roughly $5 trillion
to $10 Trillion for the M2 money supply. Germany’s budget deficit for the last year
of World War I equaled 34% of their budget. Interestingly the budget deficit for the U.S.
in 2012 was 35% of the total budget. Both Weimar Germany and America today have
maintained low interest rates. Credit was easy to attain, increasing the inflation boosted
by speculators and businessmen. Germany kept the same bank interest rate of 5% from the
start of the war through 1922; only raising it after hyperinflation was there to stay.
Inflation simmered for 3 years before surging into hyperinflation.
From December 1918 through 1921 bread had increased from half a mark to 4 marks. Perhaps
it should be said that it ONLY increased to 4 marks because in just one year, by December
1922, the price skyrocketed to 163 marks for one loaf of bread. By March 1923 it was 463
Marks and hyperinflation kicked in, tripling the price in three months. Then, in just two
months, it shot up nearly 50 times to 69,000 marks for a loaf of bread in August 1923.
By November that same year, that same bread was 201 BILLION marks.
Could America be in the start of the inflation preceding hyperinflation? Corn, as one example,
tripled in price over the last 6 years. There are many other glaring similarities between
Germany then, and the US today. The German central bank (the Reichsbank was
founded in 1876). The U.S. Federal Reserve was founded in 1913.
The German currency was decoupled from Gold in 1914; the US Dollar in 1971. In 1919 Germany’s
debt was 133% of GDP; a number the USA will reach shortly if it continues along the current
path. That’s not even including unfunded liabilities. The purchase of government bonds
by the central bank at yields lower than the rate of inflation may be the spark that causes
people to lose faith in the US dollar, moving them to dump the currency, creating the inflection
point at which more and more people dump their dollars until its perceived value finally
reaches its actual value which will soon amount to no more than the paper its printed on.
So many countries have experienced hyperinflation that it could be called a common and inevitable
occurrence to any fiat currency. Hyperinflation has occurred in: [Read Fast] Angola, Argentina,
Austria, Belarus, Bolivia, Bosnia, Brazil, Bulgaria, China, Georgia, Germany, Greece,
Hungary twice, Israel, Krajina, Mexico, Nicaragua, Peru, The Philippines, Poland twice, Romania,
Taiwan, Ukraine, United States, Yugoslavia, Zaire, and Zimbabwe…to name just a few.
You may have noticed the United States in that list. In fact, the U.S. has suffered
hyperinflation twice. You may know the expression used during the American Revolution: “not
worth a Continental.” And again during the Civil War when the Confederate notes became
worthless. The U.S. Dollar Index has fallen from 100
to 80 over the last 10 years. The only thing keeping the dollar afloat is a military bravado
that keeps countries of the world inclined to use the Dollar as a Reserve Currency. If
that changes, along with increasing deficits and diminishing public support for military
interventions, we may see German style hyperinflation in the United States of America.