The Great German Hyperinflation of one century ago

Posted On: Monday - November 27th 2023 8:05PM MST
In Topics: 
  History  Economics  Inflation  World Political Stupidity

It was a century ago this week,
when inflation hit the very peak.
Had my Reichmarks in a big old pile.
'bout enough to buy a toenail file.

So let me introduce to you
a monetary tale o'er some beers.
It's Woodie Wilson's reparations plaa-a-a-aan.

The hyperinflation that crushed the economy of Wiemar Republic Germany in the early 1920s is not something you could put an exact date on. However, the reason Peak Stupidity picked this week, it's importance for the usual Beatles take-off lyrics notwithstanding, is that it WAS right around this week - the article we'll introduce says "by December '23" - that the Reichmark hit its low of 4.2 TRILLION of them to a US dollar. Well, the regular German people would not have been able to deal in dollars, but that'd have been about the amount of currency it took to buy food for the day*)

We can split the difference between that "by December" and November 16, 1923, when (per per wiki, the new Rentenmark was introduced to replace the worthless paper Reichsmarks. The new Rentenmark was set equal to one 1 Trillion Reichmarks (12 decimal places were lopped off), so Voila!, now you could get a days food for a 4 Marks... I mean for that day, anyway, as that wasn't near the end of it all. However, ~this week in century-ago Germany was Peak Stupidity of the Monetary Policy variety.

I am very glad my recent copy of the John Birch Society's The New American arrived last month with a very good retrospective, Germany’s Hyperinflation of 1923. A helpful commenter on The Unz Review going by MEH 0910 gave me that archive link, as otherwise, it's been paywalled. For those with the extra $99 political account funding available - because one can read current issues of their magazine on-line for free anyway - JBS is a great org to support. They are Conservative with Christian aspects and also Libertarian, Constitutionalist, and anti-Globalist.

The article a nice medium-length history of this terrible period in German history, with lessons for the future, perfect for my kid's first written paper. I don't have much to write that's not in there. However, economics is a big topic key for us here, and inflation is a more special niche interest - in German that's (due to) nichts interest... groan if you must...

Let me at least point to the causes of this calamity. I noted Woodrow Wilson's WWI Versailles Treaty screwage of Germany, but that was for the song meter and only one of the causes. The reparations were onerous, but much debt existed from borrowing during the war. Per the article, Germany expected to win and pay back the debt via reparations on the French! A little big of old-fashioned Karmflation was coming down.

No matter all the debt accumulated, with Germany having not been on the gold standard, the Wiemar Gov't printed as much money as needed to INCREASE the Welfare State and keep taxes low. In those times, Germany was really close to becoming Communist, so perhaps that was the impetus to (try to) keep Germans satisfied, with the usual wanting to stay in business as a government too. This was actual printing, of course, long before computers,in the actual "money printer go brrrrr" fashion (more like bang-bang in huge machines back then). The article discusses that the money printing was limited by facilities and even fatigue of the workers in them. (Couldn't they have paid them more? Wait ...)

Well, you can't get away with fake money - tens, thousands, millions of times as much in circulation chasing the same amount of goods - for long without inflation. The more fake money in relative terms, the higher the inflation. Here are some numbers:
The cost of living in 1920 was 12 times what it had been in 1914. 

By January 1923, an American dollar (which itself had lost purchasing power as a result of the U.S. government’s own inflationary practices) could buy someone 17,000 marks (the German currency). But it would get worse — much worse. By July, that same dollar would reward the buyer with 353,000 marks, and then, just one month later, in August, it would take 4.6 million marks to obtain one American dollar. 

In September, the value of the mark had sunk even lower, and it now took nearly 99 million marks to obtain a dollar. Just a month later, in October, a person would need 25.3 billion marks to equal one dollar, followed by an astounding 2.2 trillion marks in November. Finally, by December of 1923, a person with one American dollar could have purchased 4.2 trillion marks.
So 1923 was the big year. Because standard bills became worthless quickly, larger and larger denominations were being printed. (Here in America, denominations have been going in the other direction, for, IMO, even more nefarious reasons.)

One thing the New American article doesn't mention is an important difference between "hyper-" and standard sucky-as-normal inflation. Of course the prefix "hyper" is Greek for "extra high", as in hypertension. However, I've read that a fundamental difference with hyperinflation it happens when the population has lost all faith in the currency. Maybe there is not clear divide there, and there are steady gradations, I dunno.

I'll make a few more points regarding the suffering of the population due to this financial evil. There are the stories everyone has heard about one needing a wheelbarrow full of Marks in whatever denomination that week to buy a loaf of bread. Well, then there were the increased denominations. If the printers could keep up, that solved that problem for a short while at a time. Better have kept that wheelbarrow though, just for the fact that it was a hard asset if nothing else.

Next, the devaluation of the money was so rapid that one had to spend it quickly after being paid, or one would lose significant buying power. This one is really something if true:
The rapid increase in prices led to some stories that were probably apocryphal, such as the story that if one did not eat his meal fast enough at a restaurant, the bill would be higher when he finished the meal than when he ordered it. 
I have been said to inhale my meals, to this would not be a problem for me. Bring it!

OK, seriously again, the biggest evil of hyperinflation is that saving any of one's money in this currency in the usual conservative fashion, in a bank or home, was, using the adjective in the article, nonsensical. How could anyone who did not already own significant REAL assets get anywhere financially? This is a Middle Class killer. The poor don't make enough to save much, and the rich have those big real assets. I don't see how any of the normal people could stand to live like this - by definition, everyone but the rich was forced to live literally paycheck-to-paycheck.

Wait, maybe they could have borrowed for a house or something. That's the last point here on the effects of currency devaluation (one good definition of inflation). Ben Franklin said "Neither a borrower or lender be." In normal times, sure thing - I like that. Thanks, Ben. In highly inflation times, it goes like this, though: "Be a borrower, but you're an idiot if you're a lender!" Were an idiot lender to "front you 100,000 Marks for 2 weeks, I promise, man, I'll pay you 20,000 more!", it could have been worth half, one tenth, hell, 1 thousandth of the value when you got it back. Anyone holding debt, as in mortgages, would be in great shape. "Hell, tell you what, Fourth Eighth Bank** of Germany mortgage officer, I feel rich today. Let me bring in my wheelbarrow to the bank and pay off my whole 200,000 Mark home loan. Or, I can come next month and bring it all in my front pocket."

Would any bank lend out mortgages though? I'd say not without equivalently-valued physical collateral. Therefore, only the big entities with lots of debt per their formerly non-conservative business models, came out ahead in the hyperinflation. Soon enough, they had title to everything. This had the effect of pissing off a lot of people, as financially conservative folks had been thoroughly ruined. There was more than that as far as suffering:
Mass starvation was a looming reality by the last months of 1923, and malnutrition was a major cause of an increase in cases of tuberculosis. By the summer of 1923, nearly two-thirds of East Prussian schoolchildren were under observation for the disease.
Whaddya know, but it was in this month that Adolph Hitler attempted a coup to create a National Socialist dictatorship, his truly presiding. This Beer Hall Putsch didn't take, Hitler went to prison for a while, he wrote a book, and he was most definitely heard from again.

I highly recommend the New American article written at the century mark from this financial stupidity in the otherwise highly functional country of Germany. It's 2023 now, so that stuff is all over, right? I mean, we can use computers and fancy FED schemes to create "assets" now, right? OK, sure, there's been steady inflation of Peak Stupidity-estimated 4-5% annually for a couple of decades, and lately that 8%, per the government. We can stop printing money at any time. It can't go hyper because the Almighty Dollar is the Reserve Currency. That status lasts forever, right?

I don't know. History may yet rhyme on this score. I have one nice wheelbarrow - with a solid tire (compressed air may become dear) - so if I have to, I can head over to the grocery with the wheelbarrow full of iPhones with barcodes showing. Welcome to Weimar America!

* Per this official US CPI page, lacking Peak Stupidity's caveats that there've been greater increases than official over the last couple of decades, that's $17 in today's currency. Yeah, that could buy food for the day - but did they have Mac & Cheese back then...?

** Well, there's an entity called the Fifth Third Bank with over 1,000 branches. What's up with THAT name?

Adam Smith
Wednesday - November 29th 2023 6:02PM MST
PS: Good evening, Achmed,

It does sound interesting and, no, I have not read it.
Many thanks to Dieter for the recommendation.

Wednesday - November 29th 2023 4:29PM MST
PS: Thank you for the addition, Mr. Smith. I am glad you are using that handles, as it will help if, no WHEN, I start putting these in one place.

It sounds like an interesting one too. Have you read it?
Peak Stupidity Book Club
Wednesday - November 29th 2023 10:10AM MST
PS: Good afternoon, Dieter and Friends!

I meant to do this yesterday, but my busy schedule of work, re-watching Young Sheldon (now on NetFlix), winterizing (because we had a low of ~23 last night) and otherwise succumbing to laziness kinda got the best of me.

So, here goes...

Covert Regime Change America's Secret Cold War
by Lindsey A. O'Rourke (4.1 MB .pdf)

Cheers! ☮️
Tuesday - November 28th 2023 8:07AM MST
PS: " ... the US might skip the hyperinflation and go straight to kinetic action." If they are smart, but don't care about war and death, they'd be better off to do it now while there is still the money around to support the weaponry.
Tuesday - November 28th 2023 8:04AM MST
PS: "Mr. Unz is not bashing the US in his diplomatic-shift essay, but - expicitly so - the US- and Israeli Neocons. -" Agreed. He's good in his writing about the Neocons. I've seen his article, and I'll read it later on.

(I like that he's finally gotten away from his somehow linking every article of his to some bashing of the anti-Kung Flu-vaxxers at the end.)
Tuesday - November 28th 2023 8:01AM MST
PS: Dieter, I didn't mean that specific article, which I may or may not read. I don't doubt Mr. Unz's facts and that he understands what's going on. He just has this glee about anything American at all that's going bad, and I don't like that about him. He doesn't seem to give a damn about the American people at all, from his ivory tower in Palo Alto.

I will say, that it wasn't always the case. His work in getting rid of bilingual education in 1990s California was an excellent and successful effort. However, what was the point. Within a couple of decades bilingual education might come back in vogue to help the remaining White and Chinese people learn enough Spanish in order to be able to live there.
The Alarmist
Tuesday - November 28th 2023 7:01AM MST

There are a lot of US Dollars outside US borders, and the increasing political risk of holding that exposure (one does not actually hold or own the dollars in which their wealth is tied) are waking a lot of people up. The USD index (DXY) has weakened since the Fed stopped raising rates: Even shit currencies like the Euro, which is a dead person walking, are appreciating against the USD as the Congress signals there’s plenty of Dollars for everyone but the actual American people. That plus the US’ kleptocracy clearly signals the rest of the world that it’s time to find another store of value.

As a wise man once said, America’s chickens are coming home to roost, however, the US might skip the hyperinflation and go straight to kinetic action.
Dieter Kief
Tuesday - November 28th 2023 6:48AM MST
This is the Ron Unz Neocon-BRICS_Ukraine-Article I mentioned below:
Dieter Kief
Tuesday - November 28th 2023 6:34AM MST
Morning Mod.! - The world is round - as is the sun and both their orbits - - or so I'm told, heheh - haven't seen neither them, I must admit.

Mr. Unz is not bashing the US in his diplomatic-shift essay, but - expicitly so - the US- and Israeli Neocons. - As is Mr. Sachs: He too thinks that the US & Israeli Neocons have gone haywire again. The most important reference point for Mr. Sachs here, the above mentioned seminal and scholarly book by Lindsey. A. O'Rourke: Covert Regime Change - : Oh - Mr. Sachs just explained, that he'd be no Democrat any more - and that Covid made that.

(It was the Government's lies about their involvement in the Covid-lab-experiments! - That shook well meaning Mr. Sachs through 'n trough - - 'n' - - up.)
Tuesday - November 28th 2023 5:56AM MST
PS: Good morning, or Abend now, Mr. Kief. Yes, the worldwide financial systems built on the US Dollar have been used in attempts to economically strangle other countries by the Potomac Regime. I wasn't paying big attention, but I do remember the glee of these people as they did this on a personal basis too, stealing Russian oligarchs yachts and what have you.

I wouldn't expect anything else but for the rest of the world to see that sort of thing and wonder when it'd be their turn, as you say.

As far as getting out of the Dollar, there have been various deals since the time I used to read Zerohedge regularly over 10 years back. Some maybe came to nothing, but I imagine slowly (for now) the Dollar's hold on the world is ebbing.

As for Argentina though, doesn't this guy Javier Milei want to use US $ for Argentina? I haven't written anything about him, but it's time to - posts are built up like crazy.

As for Ron Unz and his site, he publishes a handful (at least) of writers who discuss this getting away from dealing with the US, militarily and economically both. I don't blame these countries, but when it comes to Ron Unz and 50% of his writers they are simply anti-anything-American. Ron Unz is that way too, I think unconsciously.
Dieter Kief
Tuesday - November 28th 2023 12:31AM MST
PS Mod. We are playing the Circle Game (Joni Mitchell) with regard to the Dollar. The US-Dollar = 800+ military bases and the post WW II 60+ (!) times US-induced

.C.o.v.e.r.t. .R.e.g.i.m.e. .C.h.a.n.g.e. - Lindsey A. O'Rourke, Cornell University Press, 2023. My Book of the Year- highly praised by the - economist - Jeffrey Sachs.

The wordwide counter-measure by the Russia-China-led alliance is the Dollar-de-coupling attempt by the BRICS-countries - Argentina's new president Javier Milei seems to join them too, by the way.

Interesting is Jeff Sachs observation, that Russia has worldwide resonance lately not least because of the financial sanctions against it. - Remember how much euphoria there was in late 2021: That - should Russia risk a military step against Ukraine (the strongest European army then) - they would not survive the first few weeks, because the economic warfare would de-potentialize (annihilate it's strengths) - RIGHT AWAY! - Thats was the cantus firmus of the economic experts then. They all truly believed what they said!

Now Jeff Sachs argues that this was seen and understood worldwide: How the US could indeed just take Russian money in internationl structures - and that financial warfare success fired back globally.

Leaders wordwide drew a simple conclusion: OH - the US could do that to us too! - And we do not want that to be done to us! - That is what brought numerous high profile supporters globally wanting to participate in the BRICS-structure as an alternative to the Dollar.

Jeff Sachs is one of those rare intellectuals in the US who understand this new dynamic***.

*** not long ago, Russia had been diplomatically isolated. President Obama used to denigrate President Putin on globaL conferences as the loner and the universally rejected bully.

- Ron Unz wrote about the diplomativc revolution that is underway as a consequence of the Ukaine-war-fallout and the BRiCS-success: US lost allies, and to make things even worse for the US: Russia and China gained them. -

There's something funny going on he said, I can just feel it in the air (Bob-the-Bard on: Blood On The Tracks).
WHAT SAY YOU? : (PLEASE NOTE: You must type capital PS as the 1st TWO characters in your comment body - for spam avoidance - or the comment will be lost!)