For now, the U.S. economy operates with low inflation. Stagnant wages and a massive export of U.S. dollars abroad have allowed this anomaly to occur and sustain itself, for now. Conversely, countries like Venezuela, Argentina, and Egypt have fallen into periods of hyperinflation. Even the wealthiest of nations can make enormous mistakes with their fiat currency, and it’s CRITICAL to remember that fiat is designed to work when there is trust – and only under that premise.
The most notorious hyperinflation horror story of the 20th century occurred during Weimar Republic-era Germany, which was a prosperous and optimistic nation prior to WW1. In fact, it was an industrial powerhouse. The economy was expanding; innovation abounded in optics, chemicals, and machinery; and the German Mark held its own against the British Shilling, the French Franc, the Italian Lira, and the U.S. dollar.
Such a prosperous nation saw no evident reason to stay on the gold standard; hence, Germany abandoned the gold backing of its currency in 1914. This gave the German Reichsbank, the nation’s central bank, full permission to print their currency at will – which they did promptly and relentlessly.
Increase in the rate of inflation began inconspicuously, creeping upwards at a rate of 1% to 2%. Then WW1 broke out: the Germans fully expected that the war would be brief and easily won, so it was financed by government borrowing rather than by savings and taxation. After four disastrous years, Germany had lost the war and was forced to make costly reparations under the Treaty of Versailles.
Courtesy: Business Insider
Refusing to tighten their belts or give up their pre-war lifestyles, German citizens hoped that the inflationary pressures would subside quickly – but they didn’t. Prices in Germany doubled between 1914 and 1919, and then doubled again during just five months in 1922. Milk went from 7 marks per liter to 16 marks, while the cost of beer increased from 5.6 to 18 marks.
For as long as it could, the German government used extensive propaganda to hide the inflation from the population. The German stock exchange was closed for long periods of time and foreign exchange rates were not published in order to hide the effect of Reichsbank policies on asset prices.
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By September of 1920, prices were 12-times higher than they had been before the war; by 1923, the German mark had lost so much value that it was being used as wallpaper. Store shelves were empty as people hoarded goods in an attempt to protect themselves against the currency’s falling value.
A similar scenario transpired in Yugoslavia in the 1990’s, when the nation’s government engaged in the unrestrained printing of the Yugoslavian Dinar and generated massive deficits during the Yugoslav Wars. Prices rose 313 million percent in January 1994, equivalent to 64.6% per day, with prices DOUBLING approximately every 34 hours. From 1993 to 1995, it is estimated that prices increased by a staggering 5 quadrillion percent!
One of history’s worst instances of hyperinflation was Zimbabwe in November of 2008, when the nation’s annual inflation rate reached 89.7 sextillion percent and prices doubled every 24.7 hours.
Again, governmental mismanagement was the main reason, with the nation’s central bank printing trillions of Zimbabwean dollars to pay off IMF loans as well as the salaries of soldiers, policemen, and other civil servants.
Today, governments continue to print money recklessly and use propaganda to hide this destructive practice. The lessons haven’t been learned. Politicians continue to sacrifice the security of tomorrow for the expediency of today.
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