Monday, November 8, 2010

Tough Times in the Weimar Republic


Yesterday we looked at Happy Times in the Weimar Republic. Unfortunately, those happy days were short lived. The picture above shows the Weimar Republic in more troubled days. You can see that people began to find it difficult to feed themselves, and breadlines and souplines developed across the country. In the image above, the army is trying to help provide some food for the people. 

You remember that we discussed how the Treaty of Versailles put Germany in a position of having a huge National Debt. We then described the brilliant idea that German central bankers had to deal with the problem. Remember yesterday's illustration . . . Germany has a bushel of wheat. If it used the bushel of wheat to pay a creditor nation, it would have no food to feed its people. If it used it to feed its people, it would default on its national debt. So, it decided to print 10 marks. Five of the marks were sent help pay the national debt (monetization of debt), and five was injected into the economy to try and spur economic activity (stimulus, or quantitative easing). Also, remember, that somewhere out in Germany was a person with 5 marks that could have used it to buy the bushel of wheat to begin with. Now, this is what happens. That country that received the 5 marks wants something tangible for the 5 marks, so it tries to buy the bushel of wheat from Germany. The person that got the 5 marks through the stimulus program wants to buy the bushel of wheat, and the original person who had 5 marks to begin with wants to buy the bushel of wheat. Notice that even though there is now 15 marks, there is still only ONE bushel of wheat. The person who originally had 5 marks, the saver, finds that he is facing stiff competition for the purchase of the wheat. He finds that his 5 marks will no longer buy the wheat. The creditor nation that was paid 5 marks finds it was not a very good deal, because it is not enough to buy the bushel of wheat. The person who received the 5 marks through the stimulus program also finds that it will not buy the bushel of wheat. So, in the end, pretty much everyone loses.

I enjoyed reading the comments. Some suggested that the US is going down the same path as the Weimar Republic, and very dark days are ahead of us. I think this comparison is completely inappropriate. Even though we are printing money to buy our debt (monetization of the debt) and printing money to stimulate the economy (quantitative easing, TARP, stimulus, etc.), WE HAVE NO BREADLINES!!! So, obviously we are not in trouble, and the people running the FED are smarter than the central bankers in Weimar.

In a Totally Unrelated Story:

I compiled this chart from data provide by the US Department of Agriculture, and it shows the number of Americans receiving food stamps over the past two years.


Nope, no breadlines in the US. Hmmm . . . what if these people were in breadlines instead of getting food stamps. Well imagine that each state in the United States had 1,000 breadlines. Imagine that standing in each breadline was 1,000 people. That sort of helps you understand what this chart shows. But, food stamps are very different than breadlines, so we are not like the Weimar Republic. Everything is going to be just fine.

Party On!

18 comments:

  1. The US has a population of 310,000,000. 42,000,000 of them receive foodstamps. Let's say ach of them also has an average of 2 dependents. So by that math, rought half the people in the US are relying on foodstamps.

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  2. Anyone interested in the details of the hyperinflation of the Weimar Republic would do well to read "When Money Dies" by Adam Fergusson. The subtitle is "The Nightmare of the Weimar Hyper-inflation." It truly was a nightmare; I pray we don't experience anything remotely like it.

    One of my grandfathers was a bank officer in Chicago and, although a natural born American, also spoke fluent German at home. From him I have some of those Weimar era marks. Huge denominations.

    Inflation is already beginning to show. Gold is up. Silver is up. Commodities are up. Oil is up.

    I think we're going to get what we've got coming, good and hard.

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  3. Most revolutions, most, are caused by one simple thing: hunger.
    Look it up.
    What do we Americans have that other nations lack???
    The most prime real estate on Earth!
    Ronald Reagan used to refer to it as God's will; and I cannot disagree.
    Hell, we could feed the world if we could break the administrative red tape.
    It most certainly would not be in the govts. interest to have riots so everybody eats. Sure, we may be broke, but no one will starve.

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  4. anon,
    your argument assumes farmers will cheerfully produce crops without getting paid. You might say, well they will get paid by the government, which would mean they would be working extremely hard, to get paid with printed money. I think your argument ignores the fact that farming is hard work, and the farmer will expect value for his crops. It is not we can not produce the food, it is how to pay for it.

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  5. Wow, I see those black helicopters up above!!!

    LOL>
    Lighten up folks.
    I've been hearing this paranoia for years and so long as we have bankers paper money will be worth something.
    Besides, as for the food, most of the people in this country could afford to lose a little weight. Have you stopped by a Burger King lately? Boy, the people there sure don't look like the ones in the commercials!!

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  6. Regarding yesterday's story about the stolen basket - my grandmother used to tell us that near the end of the Weimar Republic, inflation was so bad that men were getting paid twice a day. Thier wives would come down to the factory at lunchtime with wheelbarrows, fill them with paper money, and dash off to buy food before the prices went up even more. The men would stop on the way home from work and buy whatever they could afford.

    The inflation finally ended, so the story goes, when an Englishman took a look at Germany's national debt and pulled a small amount of money from his wallet(the amount varies from one to five pounds sterling), put it on the table, and the debt was paid in full.

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  7. Anon,
    Your post is based on ridicule, opinion, and not fact. Please explain how monetization of the debt does not end in hyperinflation. Data please.

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  8. Anon:

    ... so long as we have bankers paper money will be worth something.

    You are correct. In the Weimar hyperinflation the mark was worth something, just not very much. In 1921, the exchange rate was stable at about 60 marks to the US dollar. At the height of the inflation, the exchange rate was 4 trillion marks to the US dollar.

    Like the Weimar Republic, our government is deeply in debt. The time honored way to repudiate debt without explicitly doing so is via inflation. No black helicopters required. I'm not suggesting we'll have a Weimar level inflation, but we're going to get some inflation. It doesn't take much inflation to do real economic damage to savings and investments.

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  9. Dave, good points;
    My point, however, is that we will not have food shortages. Our govt. will be secure.
    Now that the GOP has the house we shall see what they propose to cut spending wise.
    It does make no sense to cut taxes without cutting spending.
    And Rand Paul even agrees that we have to have deep cuts in the military if we are even going to have half a chance of lowering the deficit. God bless him.

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  10. Look up Chris Martenson's "Crash Course" on YouTube. Gives the data and talks about being ready. Are you?
    http://www.youtube.com/watch?v=XnXZzx9pAmQ

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  11. Anon: 9:50; Jesus provides, I don't need any advice from Martenson.
    God Bless YOU!

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  12. i'm someplace in the middle, i guess. the natl. debt reeks, our economy is bad, i agree. but if i get all paranoid, then i will be useless. so i/we keep on plugging away, stay debt free ourselves, and stock up as much as we are able.

    yeah, party on, indeed.

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  13. Trickle up poverty seems to be the answer to all our woes.

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  14. Anon@9:19AM:

    I think that if inflation got really bad it's entirely possible that the value of money falls enough that the affordability of food becomes a major problem. There might be a lot of food around, but you can't afford to buy it. Do you buy food or do you freeze in the dark? It might not be a "food shortage," but it's just as if it where. To be sure, the government could seize food and distribute it, but I am of the opinion that can only go on for so long.

    Like Kelly, I think if you worry too much about it, you'll go mad. I do what I can and prepare myself as I can.

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  15. Tonight's business news reported that the 'US' is forcefully pressing for a devaluation of the dollara at the G20 summit currently underway.

    The economist being interviewed concluded the intent is to favor 'very small pockets of the US economy' -- citing in particular trade unions that benefit from having more of their product sold overseas at cheaper prices. More of that 'change' we were promised. The unions (that support the Dems) benefit, while prices for domestic consumers shoot upward -- penalizing the rest of us.

    He also said to expect the portion of each dollar we spend on food to rise greatly in coming year.

    How much does a greenhouse kit cost? ;-)

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  16. Downtown Indy:
    No seriously, how much does a greenhouse kit cost?
    No ;-)

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  17. Did anyone notice in the news that the German reparation payments for World War 1 were finally paid off on October 1, 2010? That's 92 years! Of course, there was a payment hiatus once AH got control, but payments resumed after the end of WW2.

    http://www.dailymail.co.uk/news/article-1315869/Germany-end-World-War-One-reparations-92-years-59m-final-payment.html

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  18. Stock up on food all you want, but you won't have enough.
    Unless you have a warehouse full of it.
    As far as gardening goes, whose gonna stop anyone from raiding your garden. Suppose they outgun you???
    It's over folks, guaranteed.

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