Jerome Von Havenstein: Inflation Or Bust

In truth, he didn’t have much of a choice. The limits of fiscal and monetary prudence had been crossed when the Goldmark was replaced with the Papermark. Reversing course now would have brought an immediate economic collapse and societal discord.

Von Havenstein, faced with the choice of post-war depression or inflation, chose what he thought would be the easier softer way. He considered inflation the lesser of two evils. Plus it would lighten Germany’s war debt.

Jerome von Havenstein: Inflation Or Bust

Initially, the ill effects of the Reichsbank’s money supply inflation seemed to be limited. As real, inflation-adjusted wages declined, unemployment actually fell to record lows. But, alas, a real McCoy crack-up boom was underway.

As the value of the Papermark continued to decline wage earners were continually shredded. To combat the increasing destruction to wage earners the German government introduced mandatory wage indexing. Upon this government intervention, unemployment immediately soared…running from record lows to record highs within just two years.

At the same time, the decline in Papermark’s purchasing power and external value accelerated until the currency, for all practical purposes, ceased to function as a viable medium of exchange.

Indeed, printing money can be stressful. But printing extreme amounts of money can be downright terminal.

By the time von Havenstein died in late-November 1923 of myocardial infarction, the central bank of Germany had printed over 500 quintillion marks. Moderate inflation transformed to hyperinflation. One U.S. dollar was worth 4.2 trillion marks by December 1923.

Moreover, the destruction of the mark brought the destruction of society…and the rise of national socialism. The medium-term political repercussions of this economic catastrophe soon engulfed the whole world.

Jerome Powell, like Rudolf von Havenstein, knows exactly what he’s doing. In fact, he’s told the world what he’s doing.  It’s inflation or bust.

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