WHEN MONEY DIES

The Approaching Inflation
For those who are concerned about the severe inflation (possibly hyperinflation) to come as the trillions of newly created dollars continue to drive down the value of the dollar, it is highly instructive to read the best account of what actually happened during Germany’s hyperinflation of the early 1920s.

Until now, this was difficult and very expensive to do.  Amazon, for example, has only one single copy of When Money Dies:  The Nightmare of the Weimar Collapse by Scottish writer and Conservative politician Adam Dugdale Fergusson.  The price is $2,500!

Now, however, that bastion of Austrian economics, the Ludwig Von Mises Institute, has the entire text – all 107 pages – of When Money Dies for free.

Unlike conventional books on economic subjects, this one paints a portrait of life in the Weimar Republic as the German mark became worth less and less, eventually resulting in the legendary "wheelbarrow" full of marks needed to buy a loaf of bread. 

It describes, often in their own words, how the lives of ordinary people were changed as this appalling inflation developed.  One example is a waiter who told Ernest Hemingway (who was in Germany in 1923):

"We haven’t had any fun since 1914. If you made any money it gets no good, and there is only to spend it.  Last year I had enough money saved up to buy a Gasthaus (small hotel with restaurant and bar) at Hernberg.  Now that money wouldn’t buy four bottles of Champagne."

Paying Off Public Debt by Depreciating the Currency
Inflation is a way that governments can pay off their debts (albeit with depreciated currency) without outright default or overt tax increases.  In Weimar Germany, the initiating factor underlying the government’s unleashing of the printing presses was the required payment to the Allies of immense war reparations. 

In the present-day U.S., government debt has grown to impossible-to-pay levels.  Yet the spending is rapidly accelerating.  The immensely costly new programs being created on an almost daily basis by the Obama Administration and the Democrats (mostly) in Congress come at a huge price, most of which (along with the continuing burden of Medicare and Social Security, etc.) can only be paid for by continually increasing the money supply into hyperinflationary territory. 

What It Is Like to Live Through Hyperinflation
When Money Dies  reads almost like a thriller; you can’t stop turning the pages as money loses its value, people’s savings are destroyed, people buy tangible goods (almost anything) rather than hold marks when they do have them, social interaction changes, and it sucks you into the action so that you, too, experience what it is like living in a hyperinflation. 

Hyperinflation is NOT Uncharted Territory
There is much that is eerily familiar about the current course of the U.S. economy – particularly the immense, endless expansion of the money supply accompanied by the falling value of the dollar and the decreasing willingness (both foreign and domestic) to hold U.S. debt instruments (IOUs) –  and the development of hyperinflation in the Weimar Republic and in Austria, Hungary, and Poland.

Of course, we all know one end result of the ensuing economic chaos in Germany: Hitler.

What Lies Ahead for the U.S.?
Last summer, the U.S. monetary base was $800 billion.  Last fall, the Federal Reserve more than doubled the U.S. monetary base to $2.1 trillion.  Last month (March), the Fed announced that they are more than redoubling the U.S. monetary base by adding an additional $2.55 trillion dollars. 

(Cf. Bloomberg: "After already more than doubling its balance sheet to $2.1 trillion, the Fed has pledged to buy $1.25 trillion of mortgage-debt and $300 billion of Treasuries, and finance a $1 trillion consumer-loan program.")

Because we have a fractional reserve banking system, the U.S. money supply is about 10 times the monetary base.  It usually takes about 18 months for newly created money to work its way through the banking system to Main Street where consumer prices are bid up.

Historically, it has taken about 20 years to quadruple the U.S. monetary base, which has resulted in slow inflation.  Back in 1968, for example, you could buy a new economy car for $1,695. 

Increasing the money supply 5.8 times (from $800 billion to $4.65 trillion) in six months does have a precedent — Weimar Germany.  Reading When Money Dies might help you to save your wealth and even your life. Note well, that retirees collecting pensions and Social Security suffered the most.

And to put this in literally graphic perspective to see how we are headed towards Weimar America, here is the Federal Reserve’s own monetary base chart:

 
 
Sandy Shaw is the scientist partner of Durk Pearson, and writes on issues of science and economics.