United States of America 2009 and Weimar Germany 1923

United States of America 2009 and Weimar Germany 1923


Before World War I, Germany was a prosperous country; a gold-backed currency, expanding industry, and a world leader in optics, chemicals, and machinery. The German Mark was exchanged four or five to the dollar. In 1923, at the peak of the German hyperinflation, the German government required 1,783 printing presses, running 24 hours a day, to print money. The exchange rate was one trillion Marks to one dollar, and a wheelbarrow full of money would not even buy you a cup of coffee. Most of the German people never saw it coming.

Germany abandoned the gold backing of its currency in 1914 and financed the war with government borrowing. After the war, the Treaty of Versailles forced Germany to make reparations payment in gold-backed Marks. Between 1914 and 1919 prices doubled. In 1922, they doubled once more.

It is clear that the Articles of the Treaty of Versailles, claiming sole German responsibility for causing World War I was unjust, thus it was a shared responsibility for the cause of World War I. The Germans were given six weeks to review and sign the treaty. French Prime Minister Clemenceau said, "We will squeeze the German lemon 'til the pip squeaks.” To convince them, U.S. warships maintained the blockade that had never been lifted at war’s end. Within six months of the armistice, that blockade had achieved a casualty list of 700,000 children, old people and women. The German people, starved and dying by the hundreds of thousands, were reeling deliriously between blank despair, frenzied revelry, and revolution.

In late 1922, the German government had tried to support the mark by purchasing it in the foreign exchange markets. However, since they continued printing new currency at a feverish rate, the attempt failed. The printing presses literally could not run out money as fast as it was depreciating. This also flooded the market with hoarded Reichsmarks, causing the rampant inflation in Germany in 1923. In almost no time, a loaf of bread cost thousands of marks to buy.

The bankers used dollars to buy jewelry, artwork, homes, businesses, farms, and factories from Germans who needed the money to buy food. Within months, the German bankers — many of them Jewish — had become multi-millionaires and the German people had been reduced to paupers. While the rest of the world experienced the Roaring Twenties, Germans were in abject poverty. Many of them starved and froze to death.

The hyper-inflation experienced in the Weimar Republic had two fundamental causes: a low savings rate, and bad monetary and fiscal policy. They also ran large trade deficits.

Starting to sound familiar?

They were able to run huge trade deficits for the same reason we can: because investors from around the globe bought German assets: currency, securities, and real estate. When foreigners begin to realize that Germany was unlikely to be able to pay all its debts, the big capital inflow came to a stop and the Mark went into a free fall. The German government and the German central bank were willing to do anything in fiscal and monetary policy to counteract economic slowdown. It kept on looking for new ways to administer repeated fiscal stimuli, like finding ingenious ways of stimulating bank lending to large businesses on ever more dubious and toxic securities. There came to be called a “Havenstein put” — in which the central bank would keep its interest rate at basically zero, so that German businesses could continue to expand.

Deja vu?

How did this all end?

The German people turned to Adolph Hitler in 1933.

Wake up people.