Hyperinflation Or Stagflation Can Occur With Rapid Speed

Life is full of facts we don't know or have simply forgotten. In a comment, a writer recently encouraged the curious to search "hyperinflation during the Weimar Republic." Some of the details I discovered were surprising.

Germany had come out of the first World War with most of its industrial power intact, yet inflation suddenly destroyed the currency. This dovetails with some of my thoughts on currency trading today. It confirmed that inflation can stem from a growing lack of faith in a currency, or all currencies, rather than just a lack of available goods.

As inflation takes root, the goods available for sale often contracts as sellers retreat from the market awaiting higher prices, which, in turn, creates a self-feeding loop.

History shows the German currency was relatively stable at about 60 Marks per US Dollar during the first half of 1921. By November 1921, it had dropped to approximately 330 Marks per US Dollar. The demands in May 1921 for reparations in gold or foreign currency to be paid in annual installments of 2 billion gold-marks, plus 26% of the value of Germany's exports, was crushing. The first payment was paid in June 1921.

That was the beginning of an increasingly rapid devaluation of the Mark. The total reparations demanded was 132 billion gold-marks, which were far more than the total German gold and foreign exchange. It was amazing how quickly inflation took root in Germany during the 1920's. Consider how fast it could happen now that we live in an age of instant communication that allows ideas and expectations to rapidly spread. 

In today's world, many people have developed a false belief in financial stability because of claims by central bankers they have "controlled" inflation to where the economy will grow at a managed pace.

The drop in the second half of 1921 was just the start of a dire trend. In August 1921, Germany began to buy foreign currency with Marks and this increased the decline. The lower the mark sank in international markets, the more marks were required to buy the foreign currency demanded by the Reparations Commission. 

1 2 3
View single page >> |

Disclaimer: Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in ...

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.


Leave a comment to automatically be entered into our contest to win a free Echo Show.