90 Years Ago: The End of German Hyperinflation
On 15 November 1923 decisive steps were taken to end the nightmare of hyperinflation in the Weimar Republic: The Reichsbank, the German central bank, stopped monetizing government debt, and a new means of exchange, the Rentenmark, was issued next to the Papermark (in German: Papiermark). These measures succeeded in halting hyperinflation, but the purchasing power of the Papermark was completely ruined. To understand how and why this could happen, one has to take a look at the time shortly before the outbreak of World War I.
Since 1871, the mark had been the official money in the Deutsches Reich. With the outbreak of World War I, the gold redeemability of the Reichsmark was suspended on 4 August 1914. The gold-backed Reichsmark (or “Goldmark,” as it was referred to from 1914) became the unbacked Papermark. Initially, the Reich financed its war outlays in large part through issuing debt. Total public debt rose from 5.2bn Papermark in 1914 to 105.3bn in 1918. In 1914, the quantity of Papermark was 5.9 billion, in 1918 it stood at 32.9 billion. From August 1914 to November 1918, wholesale prices in the Reich had risen 115 percent, and the purchasing power of the Papermark had fallen by more than half. In the same period, the exchange rate of the Papermark depreciated 84 percent against the US dollar.
The new Weimar Republic faced tremendous economic and political challenges. In 1920, industrial production was 61 percent of the level seen in 1913, and in 1923 it had fallen further to 54 percent. The land losses following the Versailles Treaty had weakened the Reich’s productive capacity substantially: the Reich lost around 13 percent of its former land mass, and around 10 percent of the German population was now living outside its borders. In addition, Germany had to make reparation payments. Most important, however, the new and fledgling democratic governments wanted to cater as best as possible to the wishes of their voters. As tax revenues were insufficient to finance these outlays, the Reichsbank started running the printing press.
From April 1920 to March 1921, the ratio of tax revenues to spending amounted to just 37 percent. Thereafter, the situation improved somewhat and in June 1922, taxes relative to total spending even reached 75 percent. Then things turned ugly. Toward the end of 1922, Germany was accused of having failed to deliver its reparation payments on time. To back their claim, French and Belgian troops invaded and occupied the Ruhrgebiet, the Reich’s industrial heartland, at the beginning of January 1923. The German government under chancellor Wilhelm Kuno called upon Ruhrgebiet workers to resist any orders from the invaders, promising the Reich would keep paying their wages. The Reichsbank began printing up new money by monetizing debt to keep the government liquid for making up tax-shortfalls and paying wages, social transfers, and subsidies.
From May 1923 on, the quantity of Papermark started spinning out of control. It rose from 8.610 billion in May to 17.340 billion in April, and further to 669.703 billion in August, reaching 400 quintillion (that is 400 x 1018) in November 1923. Wholesale prices skyrocketed to astronomical levels, rising by 1.813 percent from the end of 1919 to November 1923. At the end of World War I in 1918 you could have bought 500 billion eggs for the same money you would have to spend five years later for just one egg. Through November 1923, the price of the US dollar in terms of Papermark had risen by 8.912 percent. The Papermark had actually sunken to scrap value.
With the collapse of the currency, unemployment was on the rise. Since the end of the war, unemployment had remained fairly low — given that the Weimar governments had kept the economy going by vigorous deficit spending and money printing. At the end of 1919, the unemployment rate stood at 2.9 percent, in 1920 at 4.1 percent, 1921 at 1.6 percent and 1922 at 2.8 percent. With the dying of the Papermark, though, the unemployment rate reached 19.1 percent in October, 23.4 percent in November, and 28.2 percent in December. Hyperinflation had impoverished the great majority of the German population, especially the middle class. People suffered from food shortages and cold. Political extremism was on the rise.
The central problem for sorting out the monetary mess was the Reichsbank itself. The term of its president, Rudolf E. A. Havenstein, was for life, and he was literally unstoppable: under Havenstein, the Reichsbank kept issuing ever greater amounts of Papiermark for keeping the Reich financially afloat. Then, on 15 November 1923, the Reichsbank was made to stop monetizing government debt and issuing new money. At the same time, it was decided to make one trillion Papermark (a number with twelve zeros: 1,000,000,000,000) equal to one Rentenmark. On 20 November 1923, Havenstein died, all of a sudden, through a heart attack. That same day, Hjalmar Schacht, who would become Reichsbank president in December, took action and stabilized the Papermark against the US dollar: the Reichsbank, and through foreign exchange market interventions, made 4.2 trillion Papermark equal to one US Dollar. And as one trillion Papermark was equal to one Rentenmark, the exchange rate was 4.2 Rentenmark for one US dollar. This was exactly the exchange rate that had prevailed between the Reichsmark and the US dollar before World War I. The “miracle of the Rentenmark” marked the end of hyperinflation.
How could such a monetary disaster happen in a civilized and advanced society, leading to the total destruction of the currency? Many explanations have been put forward. It has been argued that, for instance, that reparation payments, chronic balance of payment deficits, and even the depreciation of the Papermark in the foreign exchange markets had actually caused the demise of the German currency. However, these explanations are not convincing, as the German economist Hans F. Sennholz explains: “[E]very mark was printed by Germans and issued by a central bank that was governed by Germans under a government that was purely German. It was German political parties, such as the Socialists, the Catholic Centre Party, and the Democrats, forming various coalition governments that were solely responsible for the policies they conducted. Of course, admission of responsibility for any calamity cannot be expected from any political party.” Indeed, the German hyperinflation was manmade, it was the result of a deliberate political decision to increase the quantity of money de facto without any limit.
What are the lessons to be learned from the German hyperinflation? The first lesson is that even a politically independent central bank does not provide a reliable protection against the destruction of (paper) money. The Reichsbank had been made politically independent as early as 1922; actually on behalf of the allied forces, as a service rendered in return for a temporary deferment of reparation payments. Still, the Reichsbank council decided for hyperinflating the currency. Seeing that the Reich had to increasingly rely on Reichsbank credit to stay afloat, the council of the Reichsbank decided to provide unlimited amounts of money in such an “existential political crisis.” Of course, the credit appetite of the Weimar politicians turned out to be unlimited.
The second lesson is that fiat paper money won’t work. Hjalmar Schacht, in his 1953 biography, noted: “The introduction of the banknote of state paper money was only possible as the state or the central bank promised to redeem the paper money note at any one time in gold. Ensuring the possibility for redeeming in gold at any one time must be the endeavor of all issuers of paper money.” Schacht’s words harbor a central economic insight: Unbacked paper money is political money and as such it is a disruptive element in a system of free markets. The representatives of the Austrian School of economics pointed this out a long time ago.
Paper money, produced “ex nihilo” and injected into the economy through bank credit, is not only chronically inflationary, it also causes malinvestment, “boom-and-bust” cycles, and brings about a situation of over-indebtedness. Once governments and banks in particular start faltering under their debt load and, as a result, the economy is in danger of contracting, the printing up of additional money appears all too easily to be a policy of choosing the lesser evil to escape the problems that have been caused by credit-produced paper money in the first place. Looking at the world today — in which many economies have been using credit-produced paper monies for decades and where debt loads are overwhelmingly high, the current challenges are in a sense quite similar to those prevailing in the Weimar Republic more than 90 years ago. Now as then, a reform of the monetary order is badly needed; and the sooner the challenge of monetary reform is taken on, the smaller will be the costs of adjustment.
About the Author:
Thorsten Polleit is chief economist of the precious-metals firm Degussa Goldhandel GmbH. He is also an honorary professor at the Frankfurt School of Finance & Management. He is an adjunct scholar of the Ludwig von Mises Institute and was awarded the 2012 O.P. Alford III Prize in Libertarian Scholarship. His website is www.Thorsten-Polleit.com. Send him mail.
Image credit: https://mises.org
The United States has More People in Jail than High School Teachers and Engineers
America has become a gigantic gulag over the past few decades and most of its citizens don’t know, or just don’t care. One of the primary causes of the over incarceration in the U.S. is the absurd, tragic failure that is the “war on drugs”, and indeed nearly half of the folks in prison are there for drug related offenses. Making matters worse is a rapidly growing private prison system, which adds a profit motive to the equation. Recently, I wrote an extensive rant against the private prison system and provided details on how it works in: A Deep Look into the Shady World of the Private Prison Industry.
Now here are some of the sad facts. There are 1.57 million people in federal and state prison (does not even include county and local jail) according to the Department of Justice. That’s above the nation’s 1.53 million engineers and 1.05 million high school teachers.
More from the Huffington Post:
If sitting in a prison cell was a job, it would be one of the most common jobs in the United States. In 2012, there were some1,570,000 inmates in state and federal prisons in the U.S., according to data from the Justice Department.
By contrast, there were about 1,530,000 engineers in America last year, 815,000 construction workers, and 1 million high school teachers, according to the Bureau of Labor Statistics.
There were also 750,000 car technicians.
Yep, you know it. USA! USA!
Full article here.
Follow Mike on Twitter!
Why Are So Many People Choosing To Leave The United States Permanently?
Have things gotten so bad that it is time to leave the United States for good? That is a question that a lot of Americans are dealing with these days, and an increasing number of them are choosing to leave the country of their birth permanently. Some are doing it for tax reasons, some are doing it because they believe the future is brighter elsewhere, and others are doing it because they are very distressed about the direction that America is heading and they don’t see any hope for a turnaround any time soon. Personally, I have several friends and contacts that regard themselves as “preppers” that have decided that the United States is too far gone to recover. They have moved their families out of the country and they never plan to return. As this nation continues to head down the very troubled road that it is currently on, this trend is probably only going to accelerate even more.
In fact, some Americans are even going so far as to renounce their citizenship when they leave. This represents only a small percentage of those that are leaving the country, but as Bloomberg recently reported, the number of Americans that renounced their citizenship in the second quarter of 2013 was six times larger than the number that renounced their citizenship in the second quarter of last year…
Americans renouncing U.S. citizenship surged sixfold in the second quarter from a year earlier as the government prepares to introduce tougher asset-disclosure rules.
Expatriates giving up their nationality at U.S. embassies climbed to 1,131 in the three months through June from 189 in the year-earlier period, according to Federal Register figures published today.
Renouncing the country of your birth is not an easy thing to do. From the moment that we come into this world, those of us born in this country are trained to think of ourselves as “Americans”. The following is an excerpt from a recent article by Simon Black of the Sovereign Man blog…
It doesn’t matter where you’re from– the United States, Sweden, New Zealand, or Venezuela… many people all over the world are inculcated from birth with a sense that their country is ‘better’ than all the others.
We grow up with the songs, the flag waving, and the parades until the concept of motherland becomes deeply rooted in our emotional cores.
Not to mention, when so many of our friends and neighbors unquestionably fall in line, it’s a powerful social reinforcement that only strengthens the bond.
We come to view our nationalities rather ironically as a big piece of our core individuality. I am an American. I am a Canadian. I am an Austrian. Instead of– I am a human being.
It has taken decades… centuries even… to reach this point. So the fact that more and more people are making the gut-wrenching decision to ditch their US passports is truly a powerful trend.
Traditionally, the American people have been some of the most patriotic people on the face of the planet.
So why are we now seeing such an increase in the number of people choosing to leave the United States permanently?
Image credit: http://theeconomiccollapseblog.com
Air Force Unveils Spirit: The 7th Largest Super Computer in the World
The US Air Force (USAF) has announced the development of a super computer that will be stationed at Wright-Patterson Air Force base (WPAFB).
This computer is being touted as the most powerful system – rivaling even the Department of Defense (DoD).
However, under the Navy DoD Supercomputing Resource Center (NAVY DSRC) is a supportive branch of the DoD High Performance Computing Modernization Program (HPCMP) provides “on a daily basis, global, regional, and very high resolution coastal ocean circulation and wave model oceanography products supporting worldwide Navy and DoD operations.”
This computer will be tasked with simulated experiments that are too risky to be undertaken for soldiers as well as calculating 1,500 trillion calculations a second; which makes this computer the 7th biggest and most powerful computer in the world.
Every branch of the military and off-shoot of the DoD will be allowed to use it.
Dubbed “Spirit”, the highly – dense supercomputer sits on 9,000 square feet and weighs more than 30 tons. The price tag for this technology is $25 million.
An impressive 2,000 people can log into Spirit at once.
A specialized water-pump system has been created to cool the computer off, prevent over-heating and speed up the hyper-fast electronics; as well as thousands of miles of copper wiring that encompasses the fiber optic cables.
Spirit will test weapons systems, simulate bomb detonations and project how cargo in aircrafts could be parachuted to land when necessary and safely.
Scientific research will also be a function of Spirit with a possible focuses on anything from subatomic particles to hurricane forecasting.
Spirit is one of two currently built and in use at WPAFB; with another supercomputer being developed and slated for construction in 2014.
Lloyd Stonaker, head of the Spirit project, said: “Instead of going out there and blowing something up, we can simulate it. We save a lot of money that way and we can take a look at the different options available to us.”
The National Security Agency (NSA) Utah Data Center is scheduled to come up LIVE in September of this year. More than $2 billion have been spent to create a network that can analyze yottabytes of information daily.
According to the NSA website , with regard to private data being surveilled, “if you have nothing to hide, you have nothing to fear.”
The NSA claims that “domestic surveillance plays a vital role in our national security by maintaining a total information awareness of all domestic activities by using advanced data mining systems to ‘connect the dots’ to identify suspicious patterns.”
The Homeland Security Presidential Directive 6 (HSPD6) grants the NSA authority to screen information “to protect against terrorism” while collecting and disseminating “information about suspected foreign and domestic terrorists.”
The NSA readily admits to spying on Americans and creating a national citizen database for “security reasons” that is comprised of:
• internet searches
• websites visited
• emails sent and received
• social media activity (Facebook, Twitter, etc)
• blogging activity including posts read, written, and commented on
• videos watched and/or uploaded online
• photos viewed and/or uploaded online
• music downloads
• mobile phone GPS-location data
• mobile phone apps downloaded
• phone call records
• text messages sent and received
• online purchases and auction transactions
• bookstore receipts
• credit card/ debit card transactions
• bank statements
• cable television shows watched and recorded
• commuter toll records
• parking receipts
• electronic bus and subway passes / Smartpasses
• travel itineraries
• border crossings
• surveillance cameras
• medical information including diagnoses and treatments
• prescription drug purchases
• guns and ammunition sales
• educational records
• arrest records
• driver license information
About the author:
U.S. Government’s Secret Move to Hide Files on the Osama Bin Laden Raid
The Osama Bin Laden raid was suspect from the very beginning. Not only were key initial descriptions of the assault completely incorrect (such as him being armed and his wife being killed), but the manner in which his body was rapidly tossed into the ocean was beyond bizarre. I mean, Tony Soprano keeps a body longer than that.
Well it seems the “most transparent administration ever” has made sure that the American public never receives any information beyond the propaganda of Zero Dark Thirty. From the Associated Press:
WASHINGTON (AP) — The nation’s top special operations commander ordered military files about the Navy SEAL raid on Osama bin Laden’s hideout to be purged from Defense Department computers and sent to the CIA, where they could be more easily shielded from ever being made public.
The secret move, described briefly in a draft report by the Pentagon’s inspector general, set off no alarms within the Obama administration even though it appears to have sidestepped federal rules and perhaps also the Freedom of Information Act.
But secretly moving the records allowed the Pentagon to tell The Associated Press that it couldn’t find any documents inside the Defense Department that AP had requested more than two years ago, and could represent a new strategy for the U.S. government to shield even its most sensitive activities from public scrutiny.
Crashes of Convenience: Michael Hastings
Published by corbettreport
SHOW NOTES AND MP3: http://www.corbettreport.com/?p=7636
Michael Hastings was that rarest of breeds: a mainstream reporter who wasn’t afraid to rail against the system, kick back against the establishment, and bite the hand that feeds him. On the morning of June 18, 2013, he died in a fiery car crash. But now details are emerging that he was on the verge of breaking an important new story about the CIA, and believed he was being investigated by the FBI. Now even a former counter-terrorism czar is admitting Hastings’ car may have been cyber-hijacked. Join us this week on The Corbett Report as we explore the strange details surrounding the untimely death of Michael Hastings.
For spy tools, drones are pretty easy to spot. And hear, because they’re as loud as a gut-busting rock concert. But now the intelligence community’s research division, Iarpa, plans to start designing a silent drone inspired by quiet, creeping, flying owls.
I just wanted to take a quick time out to wish all here in the U.S. a very happy Thanksgiving Day!
Many of us spend much of our time pointing out, explaining & discussing the problems around us, of which there are many. Whether it be the growing illegal and immoral wars we are engaged in, the corruption in government along with all the needed smoke and mirrors provided by the main stream media to help cover it up, along with the failing economy created by the Federal Reserve and a power hungry government that has run up $61.6 trillion in unfunded liabilities (#528k per household), high prices & unemployment accompanied by higher costs of health care & education. In fact, the only things that are lower is the interest on our savings, the quality of the products we purchase, the quality of education that our students receive and the quality of health care that we all receive. Yes, we do not need “them” dumping fluoride in our water supplies anymore than we need heavy metals sprayed into our air supply. As you all know, the list could go on for days and weeks.
Whatever your situation, employed or not, surrounded by family or not so much, in good health or dealing with illness, take a look around, and you may not have to look very far. You, regardless of your situation, are better off than some others around you. If someone is to feel depressed today I would hope it is because they see a friend or neighbor that is worse off than they are and they have no way to help and share with that person. And for those that do not see one worse off than you may I recommend looking in the mirror. That image in the mirror is worse off, as it is simply a reflection of you today, at that moment, nothing more and nothing less. The real you, on the other hand, has the ability to make good decisions, to make changes that can help create a better life for you and possibly those around you in the future.
I hope all have a very safe and happy Thanksgiving Day!
NEW YORK (MarketWatch) — Standard & Poor’s cut its ratings outlook on the U.S. to negative from stable on Monday, lighting a fire under Washington’s deficit-reduction debate and sending stock markets sharply lower.
The rating agency effectively gave Washington a two-year deadline to enact meaningful change, just days after House Budget Committee Chairman Paul Ryan and President Barack Obama each outlined their plans for slashing debt. S&P nonetheless kept its highest rating, AAA, on the U.S.
Relative to triple-A-rated peers, the U.S. has very large budget deficits and rising government indebtedness, and the path to addressing those issues is unclear, S&P analysts said.
They noted an increasing gap between a lack of action by U.S. fiscal policy makers and steps taken by its AAA-rated peers, even after the Republicans and Obama administration released their 2012 budget proposals.
“The fiscal profile of the U.S. is increasingly diverging from that of its AAA peers,” said David Beers, an S&P analyst, on a conference call. “This was the time to update our opinion.”
It’s the first time S&P lowered its outlook for the U.S. from stable, but Moody’s Investors Service sent up red flags in 1996, only to be taken down when policy makers raised the debt ceiling — which will again be hit soon.
The debt ceiling was not mentioned in S&P’s release or on a conference call with their analysts.
The outlook change indicates a one in three chance of an actual rating downgrade over the next few years, Beers said.
The U.S. is one of 19 sovereign governments rated AAA by S&P, out of 127 rated countries. But all of the closest AAA peers — Germany, France, Canada and the U.K. — have done more to address their fiscal problems coming out of the recession, which in some cases were worse than what the U.S. experienced, analysts said.
“We’re mindful of the fact that policy makers are beginning to focus on some type of fiscal agreement,” Beers said. “Reaching a concrete agreement on a path of fiscal consolidation will be difficult to agree on in the next two years.”
If a meaningful agreement to address medium- and long-term budgetary challenges isn’t reached and implementation hasn’t begun by 2013, it would render the U.S. fiscal profile meaningfully weaker than its AAA-rated peers, analysts wrote in a release. See text of S&P decision.
The news rattled markets, with the Dow Jones Industrial Average DJIA +0.54% plunging more than 200 points. It recently traded down 192 points, led by more than 3% drops in Caterpillar Inc. CAT +0.24% and Bank of America Corp. BAC -1.10% shares. See Market Snapshot.
Analysts said the U.S. still looks relatively better for the next few years, especially against some European countries which have needed bailouts or seem to be considering defaulting on their debt. Read about the dollar.