Wednesday, October 16, 2013

Hyper-Inflation in Germany in the 1920's and Similarities to the United States in the 2020's

As the U.S. Senate and House vote to raise the national debt ceiling to 18 trillion dollars and to continue with government deficit spending to the tune of nearly 1 trillion dollars a year, it would be wise for every American to pause and ask the question, "Has national fiscal irresponsibility of this size occurred before in this world?"  Answer: Yes, it has.

Germany's government irresponsibly printed fiat Germany currency (the mark) in the 1910's and 1920's to pay for government deficits and debt, subsidize the German people, and pay for the cost of war. Prior to runaway inflation in 1923, the people of Germany were unconcerned by their government's deficit spending, skyrocketing debt, and fiat currency policies.  Why the apathy among the German people? The prices for their commodities, services and consumer products were relatively stable. People only become anxious when their pocketbook is affected. The shift from relatively stable prices to runaway inflation in Germany was slow and gradual until all of the sudden, in 1923, inflation hit the German economy like a "bat out of hell." That's when the German people panicked.

There are many similarities between Germany in the 1920's and the United States today. The American economy has enjoyed relatively low inflation for the past twenty years. However, don't let that fool you. Inflation is coming. It's not a matter of if, but when. There is no scientific method to measure when the American public will begin to awaken to the cancer of inflationary pressures, but when Joe Q. Public begins to shift his expectation from price stability to price inflation, watch out. When mom goes and buys milk on Monday because she expects its price to rise by Tuesday, the hammer has fallen.

The shift from consumer confidence to panic over corrosive inflation can occur slowly or quickly depending on the public's trust in government, the speed of effective communication, and cultural awareness of inflation's dark history.  Let's learn from Germany's experience in the 1920's. In Germany, the transition from price stability to consumer panic over price inflation took six years (1917-1923). When public expectation tipped decisively from confidence to panic, Germany's economy entered a very dangerous zone.

A German in the midst of the inflationary panic of 1923 would think like this: “The value of my money is disappearing before my very eyes. I must go and buy anything, I don't care what it is, so long as I can get rid of my money and possess something other than money!"

The frantic rush to get rid of money at all costs and to buy anything else is called  “a flight into real values.” As the public's demand for money falls to almost nothing, prices skyrocket. The speed of this shift from price stability to hyper-inflation is staggering. Again, the shift usually starts slowly (six years in Germany's case), but the inflationary movement accelerates until it becomes an economic sonic boom.

In your great-grandfather's day, before Germany and the United States untied their currencies to silver and gold, a person could walk into any bank, hand over a $10 silver bank certificate, and be given $10 worth of silver (or its equivalency in gold). Germany changed that practice in 1914 and took the German mark off the gold standard and began printing massive amounts of paper currency in the late 1910's to pay for their World War I debts, cover the interest on bonds sold to other nations, and fund costs of subsidies for the German people like healthcare (sound familiar?). The United States created the Federal Reserve in 1913, but the United States moved much slower than Germany in taking the dollar off the gold standard, finally doing so in 1971. As always happens, when a central bank prints fiat money to fund debt, prices for consumer goods and commodities inflate.  America began to see inflation in the 1970's, but except for the late 1970's, America's inflation (like Germany in the late 1910's and early 1920's) was modest. However, when the inflationary hammer falls, it falls fast.

Germany's Reischbank was the central bank of Germany in the early 1900's and the bank equivalent to the Federal Reserve System in America today. The Reischbank was the sole source of Germany's paper money just as the Federal Reserve is the sole source of America's currency today. One hundred years ago Germany began printing massive amounts of money to pay their debts (wars, government subsidies, etc...), just as America today is printing massive amounts of fiat currency today to pay for government debts.

When the German public perception shifted to inflationary pricing in 1923, business and companies were forced to pay their workers twice a day. German mothers would stand at the factory gate to receive their husband's pay and then rush with wheelbarrows full of million mark notes to buy bread or any other commodity. The German people began to forsake the German mark for foreign currencies and to barter for precious commodities. The German mark collapsed in value.

What did the German government do in response? It continued to print more German marks. The printing presses were operating full force. The thinking of the Reischbank was "If our government and people need more money to pay for things because prices have gone up, we will PRINT MORE MONEY for them." Today in the United States, we don't use paper and ink to flush the economy with fiat dollars,  we use computers and mouses, but the principle remains the same. Deficit spending and fiat currency policies ultimately end in inflationary economic death.

What happened in Germany in 1923 is summarized by the outstanding book The Mystery of Banking.
"By the later months of 1923, the German mark suffered from an accelerating spiral of hyperinflation: the German government (Reichsbank) poured out ever-greater quantifies of paper money which the public got rid of as fast as possible. In July 1914, the German mark had been worth approximately 25 cents. By November 1923, the mark had depreciated so terrifyingly that it took 4.2 trillion marks to purchase one dollar (in contrast to 25.3 billion marks to the dollar only the month before). 
And yet,  despite the chaos and devastation, which wiped out the middle class, pensioners and fixed-income groups, and the emergence of a form of barter (often employing foreign currency as money), the mark continued to be used. How did Germany get out of its runaway inflation? only when the government resolved to stop monetary inflation, and to take steps dramatic enough to convince the inflation-wracked German public that it was serious about it."
In 1933 Adolph Hitler came to power in the newly formed Nazi Party. Faced with an insurmountable national debt, the country of Germany defaulted. Germany rebuilt its economy from national bankruptcy and its dictator soon took out his wrath on the rest of the civilized world during World War II.

A Lesson for the United States: When the people of a democracy figure out they can vote themselves money, and when those same democratic people get addicted to free money including government deficits, national debt, and government handouts,  then that democracy has only a few short decades left. Eventually a dictatorship will arise to take freedoms from the people "for the good of the state."

God forbid, but it seems the United States is destined to repeat the path of Germany a century ago. We Americans would do well to awake to the prospects before us and do something as a nation before its too late. Those unaware of the mistakes of the past are destined to repeat them in the future.

And, for those of us with faith in Christ Jesus, we are like Daniel during the Babylonian Empire and the beginning of the Persian Empire (609 BC to 539 BC). Our Savior is the "rock not cut with human hands" who knocks down every empire of man through the establishment of an eternal kingdom. When panic sets in for the rest of the world, we calmly respond, "Silver and gold have I none, but what I have I give to you, in the name of Jesus Christ, arise and live."


Rex Ray said...

Twenty-five years ago, we had Ronald Ragan, Johnny Cash, and Bob hope.

Now we have Obama, no cash, and no hope.

stevenstarkmusic said...

There are two big difference between the US and Weimar.

First, Weimar owed debts after WWI in currency they could not control - gold and foreign currencies. They had no control. All the US's "debt" is owed in our own currency.

And second, Weimar's production capacity was decimated when the Germans went on strike when France and Belgium took over the Ruhr, Germany's industrial area.

In order to pay their foreign debt, they just printed money, since they had no production and they could not control their debt. If the debt would have been in their own currency, the value of the debt would have plummeted as inflation rose.

Japan's current debt-to-GDP ratio is 150%. They have not experienced any inflation and their interest rates are hovering around zero.

We are much more like Japan than Weimar. We are a modern economy that owes "debt" in its own currency.

stevenstarkmusic said...

I should add that I hope we do see some inflation soon, as it will mean the economy is heating back up and unemployment is falling.

Then our debt-to-GDP ratio will fall as well.

Wade Burleson said...


That is funny! :)

Thanks for the laugh.

Wade Burleson said...


I know we are diametrically opposite in our views, but I appreciate the dialogue.

I hope you are correct in your views - I really hope so - but I do not for a moment believe you are.

By the way, the US owes debt in "OUR CURRENCY" but I'm sure you are aware China, Russia and now Germany are all arguing that other national currencies should STOP being pegged to the US dollar.

stevenstarkmusic said...


Thanks for the comment. I would just state once again that we are not like Weimar, Zimbabwe, etc.

We are more like Japan - a modern, productive economy with a sovereign currency and a huge glut of savings in the non-government sector (that's what the public debt is), - and yet it's sitting in the wrong hands - the hands of non-spenders.

If one is worried about the public debt, one should hope that the dollar will cease being the international currency standard and savings vehicle that it is. For, as mentioned, the public debt is the amount of savings in the non-government sector.

Wade Burleson said...


The moment that "huge glut of money in the wrong hands" hits the economy, it's a repetition of the 1920's in Germany. That's my point.

As long as people "hold on to cash" there is no inflation - it's when that big wad of cash is dumped for things of "real value" that the problems begin. The more the government raises the supply of money by printing fiat currency, the less value the cash has sitting in savings. We will see mild to average inflation for the next few months - it's the sonic boom that will be painful. The government will hide inflation statistics (by taking out "food" and "gasoline") in their statistics, but if you want to know how much the price of things with REAL value has gone up, go ask any mother of three small children after a trip to the grocery store.

She won't lie to you.

Christiane said...

Food banks help many single mothers of young children cope. Many Churches maintain some form of contribution to a community food bank or have a food bank of their own that serves the community. In our town, different religious organizations work together to help those in need, and that cooperation seems more productive than when Churches work 'on their own'.

If God has given us the poor so that we will learn to respond to the needs of others 'as community';
then the poor serve God by bringing together those who had grown apart from one another.
This positive effect of the poor on the whole community can be a strange and wonderful ministry in itself, altogether compatible with the paradoxes we come to expect in the Kingdom of Our Lord :)

Anonymous said...


"Appreciate the dialogue" with stevenstarkmusic all you want, but listen closely to what he says: savings in the non-government sector is "sitting in the wrong hands"? The opposite of that, which ssm is promoting, is communism.

Wade Burleson said...


If you go back and read my comments to Steven, you see I told him the same thing in a previous post. I like Steven. He's a good man. His economic policies are at best socialism, at worst, communism. He knows I am a capitalist.

Christiane said...

you might be interested in this Christian perspective, which will confirm some of your thoughts on the economy and challenge others:

Section Seven is on economics, but the whole document is best read in context for best comprehension of meanings.

Your patience with Steven and with all who hold different opinions reflects the respect that Christians should have for the dignity of all people and it is noted. God Bless You. You are a force for good among the Body of Christ.

Anonymous said...

Woe unto him who sells his neighbor short, or who uses a false balance, or who dilutes monetary value in order to obtain gain, and thereby impoverishes the saver. Woe unto him/her who moves the goal posts by offering valueless paper money in exchange for real goods and services received.

Inflation of the monetary system benefits the greed of the big borrower because he pays back his loan on the 'never-never' with weak money. Similarly, fiat money amounts to stealing from the savings of older people who have saved all their lives, only now to find that the purchasing power of their money has rapidly fallen.

Permissive adulteration, dilution or devaluation of currency is an unmitigated social and moral evil, and anyone who would support such economic policies is, to my mind, an agent of Darkness, having no care or compassion for the responsible saver. " What's yours is mine , and I'll take from you" (The thugs in the parable of the Good Samaritan ).

Shakespeare said: "Neither a lender nor a borrower be". The trouble is some of us grow old too soon and smart too late to take this good advice !


stevenstarkmusic said...

It's silly to say that what I am saying is socialism or communism. It goes to show how our national discourse has degenerated into slippery slope arguments. Anyone to the left of us must be socialist and anyone to the right must be anarchist or fascist.

The US in the 50's and 60's was not a socialist country, despite having higher income tax rates and stronger unions. They had higher income tax rates than I would advocate for now. Were we socialists then?

But anyway - if the huge glut of savings does hit the economy, we will see a huge economic boom, correct? The jobless rate will plummet. Production will rise.

And hopefully we will see some inflation. As we do, our Debt-to-GDP ratio will fall. If the economy overheats and we feel inflation is creeping too high, then there are tools to deal with it - to reduce overheated demand. Interest rate policy, taxation, etc.

Food and gas have risen, but this is due to rising global demand. Gas will continue to rise as China and India drive more cars. Dishwashing liquid, diapers, cars, etc. have not risen all that much. They can't until the US consumer can afford for them to.

stevenstarkmusic said...

I am a capitalist as well. However, unregulated capitalism will lead to economic feudalism - all the money in few hands. This seems an unimpeachable truth.

We mitigate these effects through a degree of inflation, regulations and through a progressive tax policy.

However, even as a capitalist, I believe in a mix of socialism as well - for instance, the military.

Can you imagine a military owned by private entities, protecting whoever could pay them? That sounds like the mob. Or local fire departments back in the middle ages. Thanks goodness for a public military, not to mention local protective services.

But capitalism can divide investment efficiently and develop technologies quickly, which is great.

So the truth is that we need aspect of both.

I realize "balance" is not the sexy thing to advocate for in our media-fueled polarized world, but it is what we are actually seeking.

Wade Burleson said...


I apologize, for I did not intend to offend by using socialism or communism to define your ECONOMIC viewpoints.

I will be more careful.

I define economies that revolve around a BIG CENTRAL government and a BIG CENTRAL BANK as socialistic or communistic. I define free markets, free banking, and free enterprise as capitalism.

Again, I apologize and will refrain from using those two terms to describe your economic views in the future.


stevenstarkmusic said...


Thanks, Wade. I wasn't offended, I was just frustrated that we are so quick to throw around somewhat extreme labels. I am not sure it helps the discourse. A person who thinks a 35% top marginal tax rate is more appropriate than a 25% top rate is probably not that different in his/her overall opinions of the best economic/political system. BUt these days, it's the difference between socialist and capitalist! :)

But what defines someone, or a government/society ,as capitalist or socialist is a matter of degrees. THat's true. Any system is a balance between central planning and "free" markets. But I do think it is inaccurate to characterize my views as socialist.

Anonymous said...

I have a short comment:

Re the idea "God has given us the poor" I question the statement.

It would seem, should I freely make the choice to randomly engage in the sexual act while unmarried, conceive and bear children, fail to get an education and thus fail any meaningful chance at employment that would support me and my children, I would not be someone "God has given us."

Rather, it would seem that I am a person in rebellion against God's law suffering His consequences.

And as to inflation by printing fiat money? Super way to kill off us old folks, huh? First reduce our SS checks and Medicare rather than government pork and aid to rebellious/won't work younger folks, then steal our savings with fiat money inflation.

I totally agree with Pastor Wade that the wheels are about to fall off the wagon.

And personally, I believe every one of our debt burdened problems comes from at some point as a society rebelling against clearly stated laws of God.

For example, many of these woes come from a lack of workers. Had my generation not chosen to abort babies and teach the following generations to do so, there would be plenty of workers to fully fund SS and pay our debts, assuming we had also taught those folks to expect to be PRODUCTIVE in addition to REPRODUCTIVE.

But when the seniors are gone, along with their savings, and there aren't enough workers to pay the benefits to those who refuse to work, the house of cards will topple.


Christiane said...


I don't think I share your opinions of 'the poor'.

We can blame many sources for economic woes, but I tell you that when I worked in the inner city, I could never look at a child whose feet hurt, and not want to do something about it. And I did. All the teachers and counselors did.

For sorrow, there were the pairs of shoes, the coats, the sweaters, the lunches, the mountain of school supplies.
And then, for joy, the cupcakes at holiday times and ice cream birthday treats, and candy celebrations of good grades.

Those children, my children:
I didn't care how they got born, I just felt for them as if they were my own, and they knew it.
What WAS I supposed to feel for them? Contempt? For the reasons you mentioned? True, some people can't feel contempt for the poor very well, and I know those people sleep better at night, and they have the gift of peace down in their souls.

All we have, all that exists, comes to us from God. All is grace.
And if we share what He has blessed us with, then surely we are twice-blessed in His Eyes.

Christ's peace to you.

stevenstarkmusic said...


Thanks for your comments. If Christianity doesn't advocate for the poor, then I think it has lost its soul.

The early Christians referred to themselves as "the poor".

Anonymous said...

People should not be so confident as to think that the Dollar is immutable, come what may. The same was said about the banks before the universal crash of markets in 2008 and the recession that followed. The banks are NOT too big to fail, nor will the Dollar ever be that strong. China has all the potential to soon overtake the USA economy and military power, making it possible to pull the rug from under the feet of any bankrupt state that defaults on its legitimate debts. Keep on printing valueless paper money and you will have another Zimbabwe situation looming on the horizon, where the world will not accept the worthless dollars.

Prudence,restraint and financial integrity are essential qualities required now.

Thanks for your timely warning.


stevenstarkmusic said...

If we are seeking responsibility in our actions, we should consider the high unemployment rate. Long-term joblessness is a huge burden on families, tearing many of them apart. Kids who are food insecure are put at an extreme disadvantage in their development.

This is where our concern should lie. I realize that folks think that less public spending would be responsible, but I contend that the opposite is true. When someone is sick, it is irresponsible to bleed the patient.

The US began a huge economic boom in 1982. Unfortunately it was fueled by a massive increase in private debt - credit cards, home equity loans, etc.

When the house of cards came crashing down in 2008, the government stepped up with deficit spending. Thank goodness. There is an inverse relationship between public debt and private debt. The two cannot de-leverage (pay their debts) at once, or massive joblessness would result. Since 2008, the private sector has paid off large amounts of debt.

Therefore, if one is saying that the government should stop deficit spending now, you are in effect saying that the private sector needs to start deficit spending again - running up those credit cards and HELOC's again. Or one is saying that we should enter a phase of extreme unemployment, deflation and general human misery on a grander scale.

This is unwise. It's essential to remember that all spending is someone else's income. We have a word for when everyone is saving too much - recession.

The wise course is to deficit spend publicly- whether through more spending or cutting taxes (particularly the regressive payroll tax) until we achieve better employment numbers. Then, as the economy continues to heat up, interest rates will rise, a bit of inflation will kick in, and the debt-to-GDP ratio will sink back down again.

These are our choices right now - private debt, public debt or a much, much deeper recession. I am not including the trade deficit in the equation as that is unlikely to change much anytime soon.

The responsible course is the second of the three.

stevenstarkmusic said...

In fact, total debt in the United States - all debt in the private sector plus debt in the public sector - is significantly lower now than it was in 2008.

It's important to consider the entire debt picture, and the US has de-leveraged in the aggregate since 2008.

Anonymous said...

Dr. Lee's sermon title :"Pay Day, some day", can also be applied to the person who runs up debts on his credit card without having the means to repay them. He uses one credit card to repay another, and borrows from Peter to pay Paul.

Such a person is characterised by irresponsibility, illusion, waste, ostentation ( the last of the big spenders ). He engages in unethical manipulation, with empty promises, to get his grand-mother to part with her life's savings so that he can continue to pursue an extravagant life-style. No austerity for him .....he is going to spend his way out of his misery. What a poor deluded young man.( He must be in need of a good wife !)

But he is not alone in this matter because he has learned all his tricks from his dear old Uncle Sam. The latter is known to be an expert pick-pocket, cleverly defrauding the public by imposing debasing monetary inflation, onerous regulations and grossly unfair progressive tax on them.

He has got away with it up to now, but someday Pay Day will surely come , if he does not stop robbing his Grandmother's savings .

We fear that Uncle Sam might soon find himself in a position of having to sell the family silver to China or to India. It is said that Russia is prepared to buy back Alaska at a knock-down price, should foreclosure occur.

The lesson is : Austerity Now, or face the stark music soon. Indeed, 'Pay Day, Someday' !


Anonymous said...

you cannot call yourself a Capitalist and not understand that your whole system relies on fiat money as well. The whole progress of society since the industrial revolution has been made over credit and the ability of the quantity of money to "float" as to follow economic growth.
The difference between a Capitalist (or Liberal in the economic sense) and Socialist, is not on how the money is created but on how the money is distributed (Liberals think it should stay in rich people's hand no matter what, Socialists think society should provide help so that poor people do not become poorer and poorer while rich people do not become richer and richer).