Hyperinflation is Coming: The Dollar Endgame Part 4- “At World’s End”

Published Monday, September 13th, 2021 7:11am PST


Some Terms you need to know:

Hyperinflation: This is a term to describe rapid, excessive, and out-of-control general price increases in an economy. While inflation is a measure of the pace of rising prices for goods and services, hyperinflation is rapidly rising inflation, typically measuring more than 50% per month.

Money Velocity: The velocity of money is a measurement of the rate at which money is exchanged in an economy. It is the number of times that money moves from one entity to another. It also refers to how much a unit of currency is used in a given period of time. Simply put, it’s the rate at which consumers and businesses in an economy collectively spend money.

The velocity of money is usually measured as a ratio of gross domestic product (GDP) to a country’s M1 or M2 money supply.

Monetary Base: The monetary base (or M0) is the total amount of a currency that is either in general circulation in the hands of the public or in the form of commercial bank deposits held in the central bank’s reserves. This measure of the money supply is not often cited since it excludes other forms of non-currency money that are prevalent in a modern economy.

Seigniorage: Seigniorage is the difference between the value of currency/money and the cost of producing it. It is essentially the “profit” earned by the government by printing currency. The greater the seigniorage, the more money the government is incentivized to print. Since this money hits government coffers before it circulates in the general economy, it represents “stolen wealth” that is used to fund expenditures. This “profit” has to come from somewhere, so thus it is drawn from the real wages and incomes of the working class people of a country, since their wages/incomes stay constant, but inflation caused by money printing increases the real costs of living.

Currency Pair: A currency pair is the quotation of two different currencies, with the value of one currency being quoted against the other. The first listed currency of a currency pair is called the base currency, and the second currency is called the quote currency. A pair such as EUR/USD which trades at 1.25, for example, means that 1 Euro can buy 1.25 Dollars.

Gresham’s Law: Gresham’s law is a monetary principle stating that “bad money drives out good.” At the core of Gresham’s law is the concept of good money (money which is undervalued or money that is more stable in value) versus bad money (money which is overvalued or loses value rapidly). The law holds that bad money replaces good money in circulation, since people prefer to dispose of a currency that is falling in value rather than one that retains it; thus in a currency system with two competing currencies, such as Zimbabwe during it’s hyperinflation, the populace prefers to use hyperinflated dollars over US dollars since the Zimbabwean dollars will lose most of their value in just a matter of weeks.


“Imagine the world economy as an armada of ships passing through a narrow and dangerous strait leading to the sea of prosperity. Navigating the channel is treacherous- err too far to one side and your ship plunges off the waterfall of deflation; but too close to the other and it burns in the hellfire of inflation. The global fleet is tethered by chains of trade and investment so if one ship veers perilously off course it pulls the others with it.

Our only salvation is to hoist our economic sails and harness the winds of innovation and productivity. It is said that de-leveraging is a perilous journey and beneath these dark waters are many a sunken economy of lore. Print too little money and we cascade off the waterfall like the Great Depression of the 1930s… print too much and we burn like the Weimar Republic Germany in the 1920s… fail to harness the trade winds and we sink like Japan in the 1990s.

On cold nights when the moon is full you can watch these ghost ships making their journey back to hell… they appear to warn us that our resolution to avoid one fate may damn us to the other.”

The Weimar Republic

On June 28th, 1914, Austrian Archduke Franz Ferdinand and his wife Sophie were assassinated by a Bosnian Serb nationalist named Gavrilo Princep. The assassination set off a rapid chain of events, as Austria-Hungary immediately blamed the Serbian government for the attack, and a complex web of alliances and treaties dragged country after country into the carnage.

As large and powerful Russia supported Serbia, Austria asked for assurances that Germany would step in on its side against Russia and its allies, including France and possibly Great Britain. On July 28, Austria-Hungary declared war on Serbia, and the fragile peace between Europe’s great powers collapsed, beginning the devastating conflict now known as the First World War.

The first month of combat consisted of bold attacks and rapid troop movements on both fronts. In the west, Germany attacked first Belgium and then France. In the east, Russia attacked both Germany and Austria-Hungary. In the south, Austria-Hungary attacked Serbia. Following the Battle Of The Marne (September, 1914), the western front became entrenched in central France and remained that way for the rest of the war. The fronts in the east also gradually locked into place.

In terms of sheer numbers of lives lost or disrupted, the Great War was the most destructive war in history until it was overshadowed by its offspring, the Second World War. By the end, the combatants would estimate 10 million military deaths from all causes, plus 20 million more crippled or severely wounded. Estimates of civilian casualties were harder to make; they died from shells, bombs, disease, hunger, and accidents such as explosions in munitions factories; in some cases, they were executed as spies.

Although both sides launched renewed offensives in 1918 in an all-or-nothing effort to win the war, all efforts failed. The fighting between exhausted, demoralized troops continued to plod along until the Germans lost a number of individual battles and very gradually began to fall back. A deadly outbreak of Influenza, meanwhile, took heavy tolls on soldiers of both sides. Eventually, the governments of both Germany and Austria-Hungary began to lose control as both countries experienced multiple mutinies from within their military structures.

The war ended in the late fall of 1918, after the member countries of the Central Powers signed Armistice Agreements one by one. Germany was the last, signing its armistice on November 11, 1918. As a result of these agreements, Austria-Hungary was broken up into several smaller countries. Germany, under the Treaty Of Versailles, was severely punished with hefty economic reparations, territorial losses, and strict limits on its rights to develop militarily.

World War I was one of the great watersheds of 20th century geopolitical history. It led to the fall of four great imperial dynasties (Germany, Russia, Austria-Hungary, and Turkey), resulted in the Bolshevik Revolution in Russia, and, in its destabilization of European society, laid the groundwork for World War II and the Weimar Hyperinflation.

This destabilization was especially visible in Germany, as soon after the war ended, it was thrown into economic and social disorder. After a series of mutinies by German sailors and soldiers, Kaiser Wilhelm II lost the support of his military and the German people, and he was forced to abdicate on November 9, 1918.

The following day, a provisional government was announced made up of members of the Social Democratic Party (SDP) and the Independent Social Democratic Party of Germany (USDP), shifting power from the military. In December 1918, elections were held for a National Assembly tasked with creating a new parliamentary constitution. On February 6, 1919, the National Assembly met in the town of Weimar and formed the Weimar Coalition. They also elected SDP leader Friedrich Ebert as President of the new Weimar Republic.

As in the case of other wars, governments suspended the gold standard during World War I to increase the money supply and pay for the war. Therefore, as in the case of all post-war eras, many countries faced much higher inflation rates at the end of World War I than they had experienced beforehand.

(When Money Dies, pg. 9)

The German inflation of 1914–1923 had an inconspicuous beginning, a creeping rate of one to two percent. On the first day of the war, the German Reichsbank, like the other central banks of the belligerent powers, suspended redeemability of its notes in order to prevent a run on its gold reserves. (Similar to what Nixon would do for the US several decades later on Aug. 15th, 1971).

Furthermore, it offered assistance to the central government in financing the war effort. Since taxes are always unpopular, the German government preferred to borrow the needed amounts of money rather than raise its taxes substantially. To this end it was readily assisted by the Reichsbank, which discounted (read: purchased) most treasury obligations.

A growing percentage of government debt thus found its way into the vaults of the central bank and an equivalent amount of printing press money into people’s cash holdings. In short, the central bank was monetizing (directly printing) the growing government debt, which was being spent into the real economy.

By the end of the war prices had risen some 140 percent, from their figures at the outbreak of war. The German mark had traded around a normal range of 20 marks to the Pound during the early stages of the war, and before that was as low as 5. It ended December 1918 at 43 marks to the Pound.

The U.S. returned to the gold standard in 1919, and other European countries and Japan reinstated the gold parity a couple years later. Considering the limited gold supply of the early 1920s, the European countries and Japan decided on a partial gold standard, where reserves consisted of partly gold and partly other countries’ currencies. This standard is known as the gold exchange standard.

Germany, however, was in a much more difficult position. Devastated by the conflict, she saw her manpower collapse, her raw productive industries destroyed, and her old political establishment upended. Most destructive of all, however, was the Treaty of Versailles.

In January 1919, two months after the fighting in World War I ceased, a conference was convened at Versailles, the former country estate of the French monarchy outside Paris, to work out the terms of a peace treaty to officially end the conflict. Though representatives of nearly 30 nations attended- the peace terms essentially were written by the leaders of the United Kingdom, France and the United States, who along with Italy, formed the “Big Four” that dominated the proceedings.

The defeated countries- Germany and her allies Austria-Hungary, the Ottoman Empire, (now Turkey) and Bulgaria, weren’t even invited to participate. In the end the Allies agreed that they would punish Germany in an attempt to weaken that nation so much that it wouldn’t pose a future threat. The counter-proposals submitted by the Central Powers on the 29th were all rejected. Germany refused to sign. On 17 June the Allies gave Germany five days to decide or have the war resume. Germany’s representatives had no real choice but to accept the terms, and thus assented to the “diktat”.

The terms were harsh, by any standard- The terms of the Treaty required the new German Government to surrender approximately 10 percent of its prewar territory in Europe and all of its overseas possessions. Germany was stripped of massive amounts of land, losing 68,000 km² of territory, including Alsace and Lorraine, which had been annexed in 1870, and 8 million inhabitants. Part of western Prussia was given to Poland, which gained access to the sea through the famous “Polish Corridor”. In addition, it lost most of its ore and agricultural production. Its colonies were confiscated, and its military strength was crippled.

Under the terms of Article 231 of the Treaty, the Germans accepted full responsibility for the war and the liability to pay reparations to the Allies, in an amount to be determined by a Reparations Commission. This last provision would prove to be the most catastrophic for Germany. The reparations figure was hotly contested by all parties- it began as a $5 billion payment in 1919, then $9 billion, and then as the war costs continued to be accounted for, ballooned to $33 billion in 1921 ((all figures in $ value of debt at that time, not adjusted for inflation)). The victors elected to hoist every cost, that of healthcare of wounded French soldiers, of lost Belgian horses, of pensions for British railway workers, and more- onto the shoulders of the German State.

Famous British economist John Maynard Keynes understood that a debt of this size was essentially unpayable, and further antagonized the German people against the Allies- “I believe that the campaign for securing out of Germany the general costs of the war was one of the most serious acts of political unwisdom for which our statesmen have ever been responsible,” he wrote in 1920.

Immediately after the war, the German government embarked upon heavy expenditures for health, education, and welfare. The demands on the Treasury were extremely heavy because of demobilization expenses; the debt of the Armistice, the repair of destroyed infrastructure, and the staggering deficits of the nationalized industries, all added up to massive fiscal deficits that only continued to increase.

(When Money Dies, pg 15)

The wartime inflation of roughly 20% per year had largely been hidden from the public. Under the cloak of military secrecy, the government had been able to conceal the inflation figures, close the stock exchanges, and ban the publication of foreign exchange rates. The frequent shortages and price hikes were chalked up to wartime rationing, and thus many citizens thought that as the war ended and political agreement was finalized in Versailles, the high inflation rates would start to normalize and prices would come down. What they did not understand was that the Treasury by this time was completely underwater in debt and war obligations- they had long since resolved to make up the massive deficits purely through the power of the printing press, electing to expand the money supply rather than default on payments.

(When Money Dies, pg 32)

The cost of living since the outbreak of the war had risen by nearly 12 times (compared with 3 times in the U.S., 4 times in Britain and 7 times in France). The food for a family of four which cost 60 marks a week in April 1919, cost 198 marks by September 1920, and 230 marks by November 1920. Certain items such as lard, ham, tea, and eggs rose to between thirty and forty times the pre-war price. (pg 30). Prices continued to rise across the board.

Throughout the period of the inflation the most popular explanation of the monetary depreciation laid the blame on an unfavorable balance of payments (also known as current account deficits, as covered, in-depth in Part 1) which in turn was blamed on the payment of reparations and other burdens imposed by the Treaty of Versailles. To most German writers and politicians, the government deficits and the paper inflation were not the causes but the consequences of the external depreciation of the mark. The wide popularity of this explanation, which charged the victorious Allies with full responsibility for the German disaster, bore ominous implications for the future- as it provided Hitler with scapegoats on which he could direct the German fury.

As the inflation continued to soar above 50% in late 1920, economists began to uncover a devastating feedback loop that drove consumer behavior. As consumer’s inflation expectations rose, they went out and bought more goods, refusing to leave their cash sitting in bank accounts where it was losing half its value every year. This influx of buying served to increase prices, which confirmed the consumers’ own suspicions of inflation, revealing a hidden feedback loop that was nearly impossible to halt.

The other problem that was quickly realized was the rapidly increasing money velocity. (The velocity of money is a measurement of the rate at which money is exchanged in an economy, measured in how many times the average bill is exchanged a year). Let’s walk through this- If an economy has a total money supply of $1000, but those bills only pass between hands once a year, they can only bid for goods and services ONCE during the year. If those same dollars pass hands (ie transact) 365 times during the year, they can bid those same goods up 365 times during the year, thus increasing overall prices. Low money velocity means that people are saving their money, rather than spending it, and thus asset prices and consumer prices remain low- there is less money available to bid them up.

Money velocity is a second order derivative on top of inflation- it also represents another positive feedback loop. Velocity typically increases in times of inflation and decreases in times of deflation, thus exacerbating moves in either direction (making inflation more severe or deflation more severe).

Data for this time period is extremely scarce, so it was difficult to find good sources that could reliably estimate velocity- one economics professor showed that money velocity started at 8 in 1920, but rapidly increased to 10 in 1921, then 100, then soared above 10,000 in the final stages of the collapse in 1923. A rate this high implies the average single paper mark was changing hands 27 times a day! (The way the Fed calculates money velocity today is EXTREMELY flawed, as we will cover in the coming sections).

Most Germans were oblivious of the ruin that lay in front of them. Frau Esenmenger, a widow in Austria who documented the hyperinflation in detail, went out and used her life savings to buy 20,000 kronen worth of government bonds at the end of the war. When she returned a year later, it already had lost 75% of its value. Several years later, it wouldn’t even buy a loaf of bread. She stormed into the banking hall, asking her banker about her investment from a year prior- she documented this in her diary:

In the large banking hall a great deal of business was being done… All around me animated discussions were in progress concerning the stamping of currency, the issue of new notes, the purchase of foreign money, and so on. I went to see the bank official who advised me. “Well, wasn’t I right?, he said. “If you had purchased Swiss francs a year ago when I suggested, you would not now have lost three fourths of your fortune”. “Lost!” I exclaimed in horror. “Why, you don’t think the currency will recover again?” “Recover!” he laughed. “Just test the promise made on this note and try to get 20 silver kronen in exchange”. “Yes, but mine are government securities”, I replied- “Surely there can’t be anything safer than that?” “My dear lady- where is the State which guaranteed these securities to you? It is dead.”

(I want to caveat the below by stating that I do not think a potential hyperinflation in the U.S. would look the same as Weimar Germany. We have had 100 years of technological and social advancement, and thus it would manifest very differently today. The 1920’s German hyperinflation is a worst-case scenario, but it is vital to understand the history to analyze the similar situation which our nation faces.)

Hyperinflation Begins

As 1921 dragged on, the fiscal situation continued to worsen. The German Government faced an impossible situation: they could either choose to hike taxes to over double their current rates (which were already high due to tax hikes authorized during wartime), which would most certainly cause a political revolution in Germany and potential default; or they could continue to print their deficits, and hope that the Allies wouldn’t seize German assets or that the rising cost of living would cause food shortages and riots. They continued down the path of money printing, unaware that they were steering their country ever more rapidly into the abyss.

In March 1921, France occupied German ports, due to increasing frustration on the side of the Allies of the Germans’ inability to pay. The Rhine ports of Duisburg, Ruhrort, and Dusseldorf were seized, which further reduced the ability of exporting businesses to sell their products, driving their shares down on the exchanges. The next month, another devastating blow was dealt as the Commission finalized the determination of Germany’s War reparations. Adam Ferguson continues:

With the political situation becoming more volatile, large banks and wealthy Germans began to sell their marks on the foreign exchange. At the beginning of the negotiations, this had begun as a slight trickle, as most educated Germans believed that the Treasury officials would right the ship, balance the government budget, and be able to pull Germany out of the quagmire. But, as the situation deteriorated through 1920 and 1921, bankers, speculators, merchantmen, and wealthy industrialists all began dumping marks on the exchanges, further driving down the value of the mark and thus increasing the import prices of foreign goods for Germans. By July 1921, the German merchant banks began ordering foreign exchange traders to sell all holdings of paper marks- at any price that was bid.

Soon, the general public joined in. Anyone with any excess wealth held in marks took them to the exchanges to sell and convert to more stable currencies, further adding to the dumping of marks on the exchange and crushing its value in foreign exchange markets. Capital had begun fleeing the country en masse.

Meanwhile, inflation continued to soar. As the Treasury continued to spend, it found that the prices it was paying for goods and services (worker pay, food, oil, coal, steel, etc) kept rising, which in turn increased the amount of money the Treasury itself needed to spend just to keep the government running. This increased demand for new currency fell on the Reichsbank, who readily printed it into existence and handed it to the Treasury- thus representing ANOTHER devastating feedback loop that would lead to an exponentially increasing money supply.

(pg 46)

Furthermore, as seen above, the Tax system could not keep up. The bankers and the wealthy industrialists had already moved the bulk of their wealth overseas or into foreign currencies, and the middle class, squeezed by the ravages of inflation, had no patience for any increase in taxation. Like most industrialized nations, the government collected most taxes on a yearly basis, but with inflation growing past 100% by the winter of 1921, the annual taxes were basically a moot point. If the government charged an individual with a 100 mark tax liability, and he paid it a year later, it would only be worth approximately 16 marks or so- and the longer he deferred it, the less he would have to pay (in real terms).

Other sources of government revenue, such as railway fares, patent fees, coal taxes, and import duties, were fixed at low pre-war levels. The large and complex German bureaucracy made changing these fees extremely difficult, and even when they could adjust these fees, they could never raise them fast enough or often enough to keep up with inflation.

When the government needed taxes the most, the population began a mass program of tax evasion, due to both anger at the current incompetence of the Weimar government and the rapidly rising inflation. Thus, the government had no response but to continue to increase their request for printed notes from the Reichsbank, as all other sources of financing (taxation and borrowing) were slowly being cut off.

(Hyperinflationary Positive Feedback Loop)

European bankers soberly concluded that it was impossible for Germany to continue to pay her payments to the Entente, and sooner or later she would have to declare herself bankrupt. The state of the mark on the foreign exchanges continued to deteriorate. It had somewhat stabilized in mid-August at 310 to the pound, but had sped downwards to over 400 by mid-September, and was still going down. (pg 45).

By October 1921, the state of the budget was sombre. In terms of paper marks, the sum of the governments’ ordinary expenditure plus the reparation payments to the Allies was more than 191 Billion Marks. The revenue from the previous budget and new taxation proposals of July would only amount to 152 Billion Marks. (pg 49, paraphrased).

In November, a buying frenzy had begun. Seeing the steady decline of the mark, throngs of people rushed to stores to buy out their stocks. Cash accounts were emptied at the banks, and safety deposit boxes were stripped of all contents except gold and silver as prices began to skyrocket in terms of paper marks. Store shelves were stripped bare, and black markets of food and manufactured goods quickly developed. British Embassy Councillor Addison observed the scene:

(pg 57).

That same month, mass strikes began across the country. In Berlin for instance, Addison reported that he had to work in his office in semi-darkness due to a strike of municipal electrical workers. This strike was only broken by a promise of wage increases all around, involving an extra expenditure of $400 million marks, pushing the State budget even further underwater. He commented “the impossibility of the working classes to obtain even obvious necessities except at exorbitant prices, coupled with severe winter setting in, might lead to serious trouble.” (pg 58).

The mark, already in serious trouble, dropped to over 1,300 to the pound in late November. Food riots began taking place in Berlin.

With essential goods shortages becoming more and more frequent, people began lining up in queues hours before stores opened. Those who had the means hoarded dozens of pounds of food, saving much of it for their families and selling any extra on the black markets for exorbitant profits, as black market prices were often 30% higher than in-store.

To the anger of the beleaguered Germans, foreigners of all stripes began to pour in and purchase everything off the shelves. French citizens poured in by the thousands, as even the common working man could now afford items in the high-end boutique stores, due to the favorable exchange rates. Europeans from all around wined and dined in the most exclusive restaurants, buying out all the finest entrees and cakes. Workers could only helplessly watch from the windows as the citizens of the victorious nations now rushed in to engorge themselves on cheap German goods.

The first few months of 1922 offered no reprieve. Food prices continued to soar, and theft in stores became commonplace. By the end of March, the prices had soared another 50% compared to the previous December.

Gambling on the stock exchanges became rampant. As capital continued to lose value daily, the opening of the stock exchanges became a national pastime, with hundreds of thousands of Germans, from bellboys to cab drivers, dumping any extra funds into the exchanges in some hope of keeping up with the rapid inflation. The favorites were firms of heavy industry, of steel, coal, or iron, as well as agricultural production or clothing manufacturers- really anything that dealt in real goods. The clearing houses were days behind in settling trades as the volumes were soaring to levels never seen before.

By July 1922, Mr. Seeds, the Consul-General in Munich, wrote to say that his chauffeurs’ weekly expenditure on food alone was now more than 550% more than than a year ago. Rarer items, like butter and marmalade, could not be had for less than 8 times their price the previous year, and could only be found on the black markets, which were outlawed by the Congress.

The foreigners who had bought up entire stores full of goods now set their sights on German real estate. Prices for land were soaring in terms of marks, but even they could not keep up with the rapidly rising exchange rate- this meant that in terms of foreign currency, the price of homes was actually falling. Wealthy French, Italian, British, and Japanese businessmen began buying up swaths of real estate for literal pennies on the dollar.

The wealthy took advantage of the rapid collapse by taking out massive loans to buy assets, as the real value of the debt collapsed due to the rampant inflation. Hugo Stinnes, an industrialist and multi-millionaire, became infamous nationwide, as he built a manufacturing empire which held one-sixth of the country’s total industrial production.

He saw his debt payments for his factories inflated away as the Reichsbank’s printing presses continued to churn out marks in ever increasing quantities during 1922. He justified inflation as a means of guaranteeing full employment- It was, he maintained, the only way whereby “the life of the people could be sustained” (pg 74).

Lord D’Abernon, British Councillor to the Ambassador in Berlin, wrote in his entry for July 10, 1922:

“The whole sky is overcast and gloomy. The fall of the mark continues- today it is at 2,430, or about half the price of a month ago. Prices are rising, and will soon be double the level of June 1, wages and salaries must be adjusted. Adjusted to what?” (pg 81).

In the four weeks of July the index of wholesale prices had risen from 9,000 to 14,000, another monthly rise of over 50%. The Frankfurter Zeitung recorded that wholesale price of goods had gone up by 139 times since before the war; of leather and textiles by 219 times. An egg which had once cost 4 pfennigs now cost 7.20 marks, a 180-fold increase. A bank clerk’s annual salary, would therefore only keep his family alive for about a month.

(pg 85).

The excessive rise in the cost of living put more and more pressure on employers. Government officials were granted a 38% salary increase on August 1, and workers an additional 12 marks an hour- a further burden of 125 Billion marks on the State budget. There were no plans to meet this besides a 50% increase in railway fares and another increase in postal rates, which only provided a fraction of the needed revenue.

To say that the inflation was ravaging the middle classes was an understatement. The German Ministry of Education came out in early 1922 stating that they found the average school child two years behind in development, both physically and intellectually, due to the lack of available bread and milk, as well as the children being pulled out of school to work to provide for their families.

In wealthy neighborhoods, lower- class mothers were seen searching the garbage bins for discarded food, in hopes of finding their children something to eat. The fate of the elderly, was far worse however. Their fixed pensions and savings held in government bonds had been inflated away, so much so that some could not even afford a single apple. With no salary, they had no way of keeping up with the skyrocketing costs of living. Many began to starve and beg in the streets. (pg 87)

Meanwhile, the politicians continued to deny that the printing press was the cause of their woes. Dr. Rathenau, the Minister of Reconstruction, began to claim that a rise in the value of the mark should immediately worry the populace, as any strengthening of the mark against other currencies likely would cause increased bankruptcies across all major industries as debts become comparatively more expensive to pay. The Chancellor echoed this note:

(pg 89- milliards means billions)

It was no surprise that with real wages plummeting, bribery and corruption became rampant. Workers at the patent offices would demand large cash bribes, sometimes of 1,000 marks or more, to file patents, and government officials of all types began adding exorbitant fees which they personally collected instead of sending to the State coffers.

The only people living with any comfort were those living off the country- farmers, ranchers, and the like had the readiest access to real values, and their products, primarily food, continued to rise in price, increasing their profits. Any land debts they owed were evaporating before their eyes- a mortgage of 7 years’ standing had been 399/400ths paid off by inflation alone. The end of August 1922 marked another grisly milestone, as the mark plunged past 9,000 to the pound- more than 3 times its level just two months prior (108).

Those who owned land, houses, manufactured goods, precious metals, and raw materials were the only ones whose wealth remained intact. For all others, the mark’s plunge by this time had destroyed virtually all of their wealth.

On September 9 1922 the financial authorities announced that in the previous ten days 23 billion marks had been printed and distributed, representing 10% of the total circulation of paper in the country. The newspapers recorded, “The daily production of the Federal printing press has now risen to 2.6 Billion paper marks. In the course of this month it will be increased to 4 billion paper marks per day, at which figure it is hoped the shortage of money will definitely be overcome” (pg 111).

In October 1922, the situation continued to worsen. The mark seemed to enter a state of free fall, falling from 9,000 to 13,000 in a matter of weeks. September’s 26-mark litre of milk became October’s 50 mark litre. Butter at 50 marks a pound in April could only be had now for 480. The price of a single egg had also doubled, to 14 marks. At the end of October, the mark had slid again, to over 18,000 to the Pound.

The disparity between the rise of the cost of living and the rise in wages had now become very marked. Whereas the former had gone up by about 1,500 times, the wages of the miner- the best paid worker in Germany- had gone up by barely 200 times. With the mark in Mid-November at 27,000 to the pound, and prices following course, even the highest paid workers were unable to purchase the barest necessities of life. The others- especially those on fixed incomes, suffered accordingly (113–114).


Social and political unrest continued. Hatred of all foreigners, but especially Jews, became widespread, as the popular explanation was that the Allies and the Jews were collaborating together to manipulate the exchanges and drive the mark ever downwards. The newspapers, goaded on by government officials anxious to drive the public anger away from themselves, propagated and supported these theories.

In the third week of November, there were serious collisions between police and crowds of angry workers across Germany after they demanded a 100% wage increase and threatened to strike. In Dresden there was a fierce outbreak against the cost of living, with provision shops looted and damage estimated at 100 million marks. This was followed by a noisy display of xenophobia in front of the hotels which housed the foreigners- whose presence in the country was commonly supposed to be the cause of the rise in prices. Food riots followed in Braunschweig and in Berlin.

Mr. Seeds’ chauffeur still instinctively regarded the mark as being as good as gold, failing to realize how desperately sick it had become. His records in December reported that milk which had cost him 78 marks a litre in the first week of November cost him 202 marks a month later. Butter had risen from 800 to 2,000 marks a lb, sugar from 90 a lb to 220, eggs from 22 each to 30. Meat of any kind was practically unavailable, as sausage skyrocketed to 1,400 marks per lb.

1923- The Year of the Wheelbarrow

Even more monetary chaos was yet to come. The French, Belgian, and Italian members of the Reparation Commission, with Britain dissenting, decided on January 9th, 1923, that Germany had been in voluntary default on her coal and timber deliveries under the peace treaty. There was then no legal way from preventing Poincare (French Commissioner) from carrying out his threats of invasion. On January 11th, French and Belgium forces crossed the border and seized the Ruhr “for the purposes of securing deliveries”, beginning a formal occupation of the valley. The French Prime Minister warned that sanctions and “coercive measures” would be used if necessary.

(French soldiers entering Buer)

The Ruhr Valley represented the beating industrial heart of Germany, and accounted for the vast majority of her manufacturing power. The populace there, many of which were war veterans with undying patriotism for the fatherland, began a mass campaign of passive resistance, called “Ruhrkampf”. Hardly anyone worked; hardly anything ran. Coal mining was halted. The population there — 2 million workers, 6 million souls- had to be supported by the rest of the country.

The German economy was now called upon to subsidize an open-ended strike, and denied the most important domestic products and raw materials- coal, iron, and steel- and was also robbed of its substantial earnings from the Rhine-Ruhr exports. The Exchequer (Treasury) was itself deprived of all the normal tax revenue from a huge portion of the nations’ industry, as well as the coal tax and railway fares. All railway lines within and out of the Ruhr were shut down, as workers refused to operate them, and in some cases, blew the tracks up (122).


The significance of the loss of the Ruhr cannot be understated. With her industries no longer producing, and millions out of work, refugees from the Ruhr flooded into the rest of Germany. Goods shortages became even more severe as thousands of farms and factories in the Ruhr were left unattended. Fewer goods being produced meant that prices had to rise even more to account for the shortages.

Hemingway, visiting from France, recorded in March 1923 for the Toronto Daily Star that champagne cost 38,000 marks a bottle, and lunch 3,500 marks.

In March, April, and May of 1923 the government’s income was less than a third of its expenditure. The state of the budget continued to worsen. The Reichsbank, printing out trillions of marks a day, began to run out of ink.

The officials resolved, therefore, to only print the markings on one side of the bill to save ink. They then ordered periodicals and newspapers to cut down issuance so that their ink and paper could be appropriated for use by the printing presses. Between May 1st and may 31st the mark fell from 220,000 to 320,000 to the pound. The 1st of June was celebrated with the issuance of the first five-million mark note (pg 137).

Petty crime, the crime of desperation, was flourishing. Pilfering had of course been rife since the war, but now it began to occur on a larger, commercial scale. Metal plaques on national monuments were removed. The lead was beginning to disappear overnight from roofs. Petrol was siphoned from tanks of motor cars.

Barter was already a usual form of exchange, but now commodities such as brass and fuel were becoming the currency of ordinary purchase and payment. A cinema seat cost a lump of coal. Shirts were priced in potatoes. “The Middle Ages have come back,” a German remarked. (139).

There were stories of shoppers who found that thieves had stolen the baskets and suitcases in which they carried their money- leaving the money itself lying on the ground. Workers who had collected paychecks monthly just a few years before, now demanded daily payment- and they brought wheelbarrows with which to pick up their cash.

(pg 142- A Milliard here means a Billion)

Prices for everything exploded exponentially higher. The announcement of the exchange rates via the radio became commonplace in shops, as shopkeepers wanted to be updated every minute. Shoppers who walked in to buy cheese, for instance, found that the cost had risen from 6,000 marks to 8,000 marks per pound by the time they left the store. Tradesmen could not know how to establish prices, and often simply shut up shop. Cafes began requiring down payments on coffee as the price would double in an hour, and the owners wanted to be sure the customers could pay.

The sickening truth that was beginning to set in was that as prices rose, the demand for money itself rose. With nearly all food prices upwards of 10,000 marks per pound, the country needed billions of marks per day of new notes to satisfy these prices. They were stuck in a vicious cycle that seemed to drive them ever further into the depths of monetary destruction.

During the last days of June 1923, the mark sank from 600,000 to 800,000 to the pound, as the Reichsbank, desperate for foreign currency, was printing marks wholesale and selling them in order to purchase other currencies on the exchange. A month later, the mark would trade at 5,000,000 to the pound.

Companies began to pay workers in shoes, or leather, or anything else they could get their hands on. Many businesses began to refuse accepting marks altogether- unless they had ready means of getting rid of them immediately. The Reichsbank, running out of paper, requested all forms of paper be turned in for use by the presses.

Pay raises became daily occurrences. Those firms and cities that did not comply faced mass rioting and looting of their businesses. The demand for money continued to exponentially increase, with one company in Coblenz reporting that it needed $300 Billion marks in cash on Monday in order to stave off riots from the union workers.

The Reichsbank in early August promised to print locally a trillion marks per day- 2,500 times that which had been printed daily 8 months before. Again the government ordered price increases of 400% for railway fares, and 140,000% increases for income and corporation taxes. A few days later it was proposed to be 600,000% increase. Even if the taxes worked, it would not have reduced the budget imbalance by half (pg 165).

On August 17, Dr. Havenstein, President of the Reichsbank, stated with pride “Today we issue 20 Trillion marks of new money daily… In the next week, the bank will have increased this to 46 Trillion daily. The total money supply at present amounts to $63 Trillion- thus we will be able to issue, in a few days, 66% of the total prior circulation. Before he spoke the mark was trading at 12.5 million to the pound, within 48 hours it collapsed to 22 million to the pound.

The state of the people was desperate. Farmers, seeing the monetary chaos unleashed by the Reichsbank, withheld their produce and meat from the cities. Bakers hoarded their bread, as each passing day they waited to sell, the prices climbed even more.

This created the perverse scenario where farms were filled with food, and barns bursting with produce- but nothing at all to eat in the cities, where mass starvation began. Looting of grocery markets became commonplace, so they shut down. Tens of thousands began dying of starvation. A general state of famine was unfolding across Germany- as recorded by a British businessman:

(pg 199)

The Nazi party, unknown to most before 1922, exploded in popularity. On September 2, 1923, 100,000 demonstrators gathered for a rally at Nuremburg, where Hitler stood and launched a virulent attack upon the government, which was about to surrender Germany’s honour to France. Within a week, sometimes speaking 5 or 6 times a day, Hitler was calling for the installation of a national dictatorship.

The government, hungry for anything that still held value, ordered soldiers to raid cafes in Berlin, forcing customers at gunpoint to hand over all foreign currencies. The soldiers only collected a few thousand dollars worth of money, but the exercise demonstrated not only the futility of the policy, but the desperation of an advanced industrial nation which was unable to find bidders in a foreign market for their marks.

British Councillor to the Ambassador, Addison, recorded on September 9th, 1923 that the mark had collapsed from 300 million to the pound to 500 million just in the last 24 hours. In an act of desperation, everyone, Ministers and the Chancellor included, were hoarding all the food they could, and refused to pay taxes. The only impediment to the distribution of food was the lack of negotiable currency to pay for it.

By late September, the Reichsbank was printing 3.2 Quadrillion marks per week, an astounding amount which only purchased a measly 5.2 million Pounds. Calculating prices became near impossible, as the dizzying numbers were hard to contemplate.

(The cash needed to buy a single loaf of bread, Oct 1923)

The Government’s control of the political, let alone financial situation, was near the breaking point. On September 26th, Stresemann, the Minister of Foreign Affairs, suspended the Weimar Constitution, declared a State of Emergency, and gave executive powers to Herr Gessler, the Defense Minister. The transfer was a formality- Effectively, from then on, for five months, General von Seeckt, Commander in Chief of the Reichswehr (Weimar Army), was the supreme executive power in the land. There were whispers of a military coup in the streets.

On October 15, the marks’ rate against the pound passed 18 billion. Six days later, it was at 80 billion. At the end of the month, the total M1 money supply (bills in circulation) amounted to 2,496,822,909,038,000,000- or 2.49 Quintillion marks. The mark traded Oct 31st at 310 Billion to the pound.

As November started, a new man, Dr. Schacht was appointed as Commissioner of the Currency. The state of the National Budget was appalling. In the previous 10 days, Federal spending had exceeded revenue by 1,000 times. The financial statements of the State included on every page a reminder that all figures were in Quadrillions.

The cost of living index, taking 1914 as 1, had risen from September’s average of 15 million, to 3.6 billion in October, and reached 218 Billion on November 12, 1923.

Dr. Schacht ordered the immediate halt of the printing press on November 15. Havenstein, the President of the Reichsbank, was furious. Schacht recorded that all the unissued paper marks then in the hands of the Reichsbank, would have filled 300 ten-ton railway wagons.

The mark, already in freefall, had too much downward momentum, and thus continued it’s parabolic decline. 12 Trillion to the Pound on November 15- then 18 Trillion to the Pound just 5 days later.

Schacht announced the creation of a new currency- the Rentenmark, which was to be backed by land.

(pg 206)

By November 30, 500 million Rentenmarks went into circulation. This finally did the trick- as there was a fixed issuance of notes, and they had been backed by a scarce commodity like land, the people, exhausted from the chaos of the months before, readily switched to the Rentenmark. Prices stabilized, exchange rates normalized, and food started flowing back into the city markets. The new money was accepted, despite the fact that it was an inconvertible paper currency. It was held and not spent as rapidly.

The exchange rate from the paper mark to the old gold marks was 1,000,000,000,000 to 1- one Trillion old marks for each gold mark. The previous exchange rate before the war had been 4:1. The total old paper mark note circulation (M1 Money Supply) had ended November at 400 Quintillion.

By December, the food shortages had completely resolved, and the political situation stabilized somewhat. The Weimar Republic would exist for another decade, until 1933, when the Nazi Party, led by Hitler, took over the government and permanently suspended the constitution.


We’ve covered in depth the rapid collapse of the mark and Germany’s descent into the abyss of hyperinflation. The next sections will focus on the United States in the present day, and the dilemma the Fed faces- how to deal with the insurmountable debt levels now permeating the entire American economy and Federal Gov’t- and their ultimate dilemma; whether to destroy the Treasury (by raising rates) or destroy the Dollar (by printing it to oblivion).

As we continue through this series, I want you to reflect on the factors present in Weimar Germany in 1919 before the collapse, compared to the modern U.S. Of course Weimar is not a perfect analogue to the US, we are 100 years more advanced technologically, more socially progressive, and not under threat of military invasion. That being said, there are important similarities.


  • Massive, unpayable government debt
  • Rapidly increasing Federal deficit spending
  • Tax evasion, especially by the wealthy
  • Exponentially growing money supply
  • Rising Inflation
  • Increasing political polarization
  • Social and moral decay of the upper classes; decline of institutions
  • Increasing wealth inequality; Mass amounts of homeless veterans
  • Increasing xenophobia
  • End of debt cycle + mass bankruptcies of companies
  • Political turmoil, riots against the establishment
  • Profiteering by wealthy industrialists to buy up huge swaths of real estate
  • Banks using backchannels to move capital out of the country
  • Massive loss of industrial manufacturing (In Germany, due to War/Occupation- in the US, due to China)
  • Shortages of goods
  • Evaporation of the Middle Classes
  • Rapidly rising home + asset prices
  • Gambling on the stock exchanges (WSB in general, except GME)
  • Rampant corruption and greed in government offices
  • Central banks buying massive amounts of government debt
  • Politicians’ continual denial of the worsening inflation

Nothing on this Post constitutes investment advice, performance data or any recommendation that any security, portfolio of securities, investment product, transaction or investment strategy is suitable for any specific person. From reading my Post I cannot assess anything about your personal circumstances, your finances, or your goals and objectives, all of which are unique to you, so any opinions or information contained on this Post are just that — an opinion or information. Please consult a financial professional if you seek advice.

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