Lessons From The Weimar Republic

Inflation causes a lot of change which can impoverish the majority but at the same time provide  incredible opportunity for creating wealth for those who are educated and informed.So why not read the story below and benefit a little?

July 24, 1914 – The depreciation of Germany’s currency, the Reichsmark, began when the Reichsbank (Germany’s central bank) suspended gold convertibility on the Reichsmark, meaning you could no longer trade in your Reichsmarks for actual gold. From that point forward there was no limitation to the amount of money the Reichsbank could then create (money backed by nothing, basically just printed out of thin air and placed into the system thereby reducing the value of the existing currency, ie, inflation).

Within 2 weeks of the gold-convertibility suspension, circulation of the Reichsmark increased by 2 milliard marks (two billion marks). In comparison, when inflation finally stopped on Nov 15, 1923 when they quit printing money and went to the Rentenmark, a new currency actually backed by something substantial and real, the amount of Reichsmarks in circulation had increased to 92.8 trillion. That’s a lot of Reichsmarks and huge inflation – hyper-inflation in fact where it would require as much as an entire wheelbarrow full of cash just to buy a loaf of bread (you didn’t worry about someone stealing the cash, you worried about someone stealing your wheelbarrow! The cash was basically worthless).

Why did Germany turn to inflating their currency? After world war one, many countries went through a contraction period, demobilizing their militaries and decreasing their expenditures, and contracting their money supply which caused a period of deflation and high unemployment in the U.S. between 1920 and 1921 with similar events taking place in Great Britain and France (withdrawal symptoms after getting off the inflation drug in order to recover). But Germany, however, stuck with footing the bill for having just lost the war, in addition to the massive unemployment and massive loss of confidence, decided to go the opposite direction with their newly formed Weimar government.

So while the rest of the world was contracting and cutting back, Germany’s Weimar government began spending lots of money on unemployment, extravagant government expenditures and public works projects, spending and printing their way to (temporary) good times, all the while widening the gap between their revenues and expenses.

In the short term this caused the economy to begin to recover, the stock market began to go up, economic growth rates began to go up, more people began to go to work, and this tremendous influx into the economy created a lot of “initial false prosperity”. On the main street level, people were starting to believe that times were getting better, the German public believed they were prospering.

But then the “smart” money – the big industrialists and wealthy class, began to realize what the government was doing, realized that the government was inflating. They started putting their money outside the country, converting it into other currencies so that it would gain in value against the German Reichsmarks.

Today, learning from this inflation from the past, you can follow the course of the wealthy Germans. As a currency depreciates from all the excess money printed and flowing through the economy, money can be made by converting the depreciating currency into hard assets like gold and silver or other foreign currencies that can hold their value, allowing you to go back into the market when inflation enters the end or terminal stage and buy things for next to nothing, resulting in steep discounts and huge profits.Farms,businesses and income generating properties,often bought on loans that were inflated away turned out to be the best investments.