Could the Weimar Hyperinflation Happen Again in America?

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Old Jul 13, 2009, 6:23pm   #31
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Throughout history currency debasement has had only one outcome. Since Nixon ended the final link to the gold standard in 1971 then inflation has really taken off. For 300 years almost until the middle of the 20th century, prices of basic goods remained stable, despite various wars, recessions etc. Inflation was followed by deflation. The US has been engaged in deficit spending for decades. They have eroded the value of their currency as a matter of govt policy. That policy carries on today, because there is no other way to repay the national debt other than to inflate it away. Deflation is not an option.
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Old Jul 13, 2009, 6:29pm   #32
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Originally Posted by WallStreetHero View Post
all this money right now is with the banks when it gets to the public inflation will rise so fast your pants will fall down.
In order for the money to get to the public, as you say, it needs to be borrowed. That means demand for lending and the willingness of banks to make the loans. The public is too busy paying down debt to go out and borrow and the banks have tightened lending standards. We"re not going to get a ramp up in bank money any time soon, and that's what's needed to induce inflation.

My concern is more with a long period of stagnation because of the debt overhanging everything. In order for the gov't to pay down that debt it's either going to have to print money (I don't think they're that stupid) or it's going to have to run a surplus. If it's running a surplus that means more tax income than fiscal spending, which means a net drain of reserves out of the system, reducing the monetary base.
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Old Jul 13, 2009, 6:36pm   #33
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Originally Posted by poborsky View Post
Throughout history currency debasement has had only one outcome. Since Nixon ended the final link to the gold standard in 1971 then inflation has really taken off. For 300 years almost until the middle of the 20th century, prices of basic goods remained stable, despite various wars, recessions etc. Inflation was followed by deflation.
You're looking at the destination without considering the path. It was those high inflation, sharp deflation cycles that caused so much economic upheaval.

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The US has been engaged in deficit spending for decades. They have eroded the value of their currency as a matter of govt policy. That policy carries on today, because there is no other way to repay the national debt other than to inflate it away. Deflation is not an option.
Won't necessarily disagree with that. But don't think the US is alone in this boat. The ECB has a 2% inflation target. Not zero. They want inflation.

The question, though, is whether persistent relatively low inflation is better or worse than the extreme inflation/deflation cycles seen prior.
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Old Jul 13, 2009, 6:49pm   #34
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Originally Posted by Rhody Trader View Post
You're looking at the destination without considering the path. It was those high inflation, sharp deflation cycles that caused so much economic upheaval.
No, the path was relatively smooth compared to what is happening now.


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Originally Posted by Rhody Trader View Post
Won't necessarily disagree with that. But don't think the US is alone in this boat. The ECB has a 2% inflation target. Not zero. They want inflation.
When the US went off the gold standard, by default so did the rest of the world.
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Old Jul 13, 2009, 8:08pm   #35
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No, the path was relatively smooth compared to what is happening now.
Look again. The volatility of inflation/deflation was much greater pre 1950 than post.

Here's a 1914 to present chart.
File:US Historical Inflation.svg - Wikipedia, the free encyclopedia

And here's one back to 1774
US Inflation: Annual Percent Change (1774-2007) Visualizing Economics

A good book on the subject of historical inflation is The Great Wave.
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Old Jul 13, 2009, 8:32pm   #36
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Look again. The volatility of inflation/deflation was much greater pre 1950 than post.
Yes I agree with this, but in many cases inflation was caused because of countries borrowing and printing money during periods of war to help pay for them. Generally prices fell again later.

The depression of the 1930´s for instance came after a period of price stability or slight deflation during the1920´s. The price bubble was in stock prices.

When I spoke of the path being smooth, I was referring to the current economic situation compared to recessions/depressions in the past as I believe things will take another big downturn. Thanks for recommending the book, I will take a look.
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Old Jul 13, 2009, 8:55pm   #37
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Originally Posted by Rhody Trader View Post
In order for the money to get to the public, as you say, it needs to be borrowed. That means demand for lending and the willingness of banks to make the loans. The public is too busy paying down debt to go out and borrow and the banks have tightened lending standards. We"re not going to get a ramp up in bank money any time soon, and that's what's needed to induce inflation.

My concern is more with a long period of stagnation because of the debt overhanging everything. In order for the gov't to pay down that debt it's either going to have to print money (I don't think they're that stupid) or it's going to have to run a surplus. If it's running a surplus that means more tax income than fiscal spending, which means a net drain of reserves out of the system, reducing the monetary base.
yes and it will be lent at some stage, demand will come when banks lower their interest rates and deposits.
it doesnt matter if the public is in debt they always have been as their brainless and humans are greedy by nature and thats why they have become slaves to bankers.

the money is allready made, a fresh set of trillons and trillions of dollars have entered the us system in the last year.
Click the image to open in full size.

like i said it will take about a year or two before things settle down and banks start lending like crazy again.
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Old Jul 13, 2009, 8:56pm   #38
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I Touched $150 Trillion in Cash Yesterday
By Dr. Steve Sjuggerud
Thursday, May 7, 2009

My first trip to a Swiss bank was not at all what I expected...

I don't know about you, but I expected something out of a spy novel... You know, a beautiful young woman behind a wood-paneled counter, asking for your secret account number and whisking you down to an impenetrable vault. I expected to see guards everywhere, courteous... but packing heat.




I was a guest of a rare coin wholesaler who'd arrived in Zurich on a private jet. To get into the vault, we walked up to a counter that could have been in a Peoria bus station. The vault itself looked like a big locker room at the local gym.

"Zurich ain't what it used to be," the coin dealer told me.

"When FDR made it illegal to own gold in America in 1933, all the smart or rich people sent their gold coins to Swiss banks," he said. "For decades, I'd come over to these Swiss banks, load up with pre-1933 U.S. gold coins, and then sell them to coin dealers back in America."

This U.S. coin wholesaler introduced me to the head of the bank's coin department. "We're essentially out of U.S. coins," the banker told us. "We actually go to America to buy U.S. coins. We bring them back to Switzerland to sell, because clients think we'll have them."

The bank had been picked clean. The few coins the bank did have were not desirable. They had mint Swiss Helvetias – but these are widely available. And they had a few particularly old coins from Turkey and Colombia. Our host bought a couple of those for his own collection. I think he was just buying to be polite.

My friend Michael Checkan (of Asset Strategies International > Home Page, one of my favorite bullion dealers) has also spent the last 40 years flying back and forth from Switzerland, dealing in precious metals and foreign currencies. Michael sent me some mail this week, with three bills inside... one crisp Iraqi dinar and two extraordinary bills...

A $50 trillion note and a $100 trillion note from Zimbabwe. (That's how I touched $150 trillion yesterday!)

The truth is, these notes are worthless... In August 2008, Zimbabwe lopped 10 zeros off its currency – so an old $10 billion Zimbabwe note became worth one Zimbabwe dollar.

You'd think that would have taken care of things... a fresh start. But seven months later, in February 2009, Zimbabwe had to lop off another 12 zeros.

I tell you this because the United States is following Zimbabwe's program. The U.S. is printing money at a faster rate than ever before, and hoping it does some good. The important thing to understand is this: Just because serious Zimbabwe-style inflation hasn't happened here doesn't mean it can't happen.

Michael Checkan often passes out "souvenirs" when he speaks. He passes out now-worthless bills from countries all over the world. I probably have worthless bills from more than 100 countries right now.

I get a kick out of million-peso notes from all over South America. The 50 million deutschemark note from Weimar Germany is interesting. But the Zimbabwe bill with "$100,000,000,000,000" written on it now takes the cake.

By passing these notes out at speeches, Michael is making a point about the power and danger of a government printing press... He doesn't say much. Worthless bills from over 100 countries are evidence enough. They make his case.

That's why Michael and my coin dealer friend are interested in gold...

It's getting harder to come by. The Swiss banks are out of pre-1933 gold coins. The premiums on "raw" gold coins are at record highs. And the mint now sells out of its gold coins.

It's no surprise gold has tripled in price in the last eight years. The old saying "you can print more dollars, but you can't print more gold" seems to finally be carrying some weight in the market. Let's hope our government doesn't go as far as Zimbabwe before it learns the lesson, too.

Good investing,

Steve

P.S. If you're worried about inflation, I've prepared a report on how to go about investing in gold for the biggest, safest gains. In it, I show you what to expect, who to call, and when to buy to maximize your gains. As you'll see, we've got hundreds of percent upside from here. For more details, read on...
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Old Jul 13, 2009, 8:58pm   #39
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zimbabwe type hyperinflation
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Old Jul 13, 2009, 8:58pm   #40
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Originally Posted by poborsky View Post
Yes I agree with this, but in many cases inflation was caused because of countries borrowing and printing money during periods of war to help pay for them. Generally prices fell again later.
One could make the argument that we've got the same thing going on now vis-a-vis the Iraq conflict (scaled down, of course). That said, though, in the wars of the early 20th century and prior there was also the element of shortage which contributed to inflation. Too much money + not enough goods = rising prices. We don't really have that issue these days, at least in the major industrial economies.

Quote:
When I spoke of the path being smooth, I was referring to the current economic situation compared to recessions/depressions in the past as I believe things will take another big downturn.
So you are positing that recession follows inflation?
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