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easy2012

Dying Of Money - Inflation Can Be Very Sudden

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The book "when money dies" was talked about in another thread today. There was another similar book which is available online (it is called dying of money - think this was mentioned at HPC before as well)

http://www.delanion.com/Dying%20of%20Money.htm

And the following is a very interesting extract. Basically Germany could expand money supply for years with little CPI inflation (note Mervyn/BOE, Bernake), and then things suddenly went crazy.

Germany started by not paying adequately for its war out of the sacrifices of its people—taxes—but covered its deficits with war loans and issues of new paper Reichsmarks. Scarcely an eighth of Germany’s wartime expenses were covered by taxes. This was a failing common to all the combatants. France did even worse than Germany in financing the war, Britain not much better. Germany’s bad financing was due in part to a firm belief that it would be able to collect the price of the war from its enemies, whom it expected to defeat; but to a greater degree it may have sprung from distrust that its people would support the war to the extent not only of fighting it but also of paying for it. Whatever the reason, Germany’s bad war financing did not immediately demand its price. Inflation in the sense of rising prices was moderate. Domestic prices only a bit more than doubled to the end of the war in 1918, while the government’s money supply had increased by more than nine times. The government’s debt increased still more. So long as the government in this way could spend money it did not have faster than its value could fall, Germany had both its war and life as usual at the same time, which was the same as having the war free of charge.

After the war, Germany and all the other combatants underwent price inflations which served as partial corrections for their wartime financing practices. The year 1919 was a year of violent inflation in every country, including the United States. By the spring of 1920, German prices had reached seventeen times their prewar level. From this point, however, the paths of Germany and the other nations diverged. The others, including the United States, stopped their deficit financing and began to take their accumulated economic medicine by way of an acute recession in 1920 and 1921. Their prices fell steeply from the 1920 level. Germany alone continued to inflate and to store up not only the price of the war but also the price of a new boom which it then commenced enjoying. Germany’s remarkable prosperity was the envy of the other leading countries, including the victors, who were in serious economic difficulties at the time. Prices in Germany temporarily stabilized and remained rock-steady during fifteen months in 1920 and 1921, and there was therefore no surface inflation at all, but at the same time the government began again to pump out deficit expenditure, business credit, and money at a renewed rate. Germany’s money supply doubled again during this period of stable prices. It was this time, when Germany was sublimely unconscious of the fiscal monsters in its closet, which was undoubtedly the turning of the tide toward the inflationary smash. The catastrophe of 1923 was begotten not in 1923 or at any time after the inflation began to mount, but in the relatively good times of 1920 and 1921.

The stimulation of the government’s easy money spread through virtually all levels of the German economy. The life of the inflation in its ripening stage was a paradox which had its own unmistakable characteristics. One was the great wealth, at least of those favored by the boom. These were the “profiteers” of whom everyone spoke. Industry and business were going at fever pitch. Exports were thriving; that was one of the problems. Hordes of tourists came from abroad. Many great fortunes sprang up overnight. Berlin was one of the brightest capitals in the world in those days. Great mansions of the new rich grew like mushrooms in the suburbs. The cities, particularly in the eyes of the austere country folk, had an aimless and wanton youth and a cabaret life of an unprecedented splendor, dissolution, and unreality. Prodigality marked the affairs of both the government and the private citizen. When money was so easy to come by, one took less care to obtain real value for it, and frugality came to seem inconsequential. For this reason, Germans did not obtain so much real wealth as the growth of money alone would have indicated.

and here (some similiarities compared to Brown's Britain or Greece). And also the 'suspension of processes of natural selection' (given current BoE measures).

There was no unemployment, but there was vast spurious employment—activity in unproductive or useless pursuits. The ratio of office and

administrative workers to production workers rose out of all control. Paperwork and paperworkers proliferated. Government workers abounded, and heavy restraints against layoffs and discharges kept multitudes of redundant employees ostensibly employed. The incessant labor disputes and collective bargaining consumed great amounts of time and effort. Whole industries of fringe activities, chains of middlemen, and an undergrowth of general economic hangers-on sprang up. Almost any kind of business could make money. Business failures and bankruptcies became few. The boom suspended the normal processes of natural selection by which the nonessential and ineffective otherwise would have been culled out.

And so M1,2,3,4 growth does not need to go very fast to lead to hyperinflation. When people got scared about rising prices, the velocity of the money goes through the roof and price changes go through the roof (even the total transaction volume falls significantly). Again - note to Mervy regarding his negative interest rate regime.

This phenomenon also made money so scarce, even in the face of astronomical prices, that urban Germans could not find the price of their daily bread.

Replace 'intrenched interests' in Germany with bankers and property investors and things again sounds similar. All these are done under paper money system, nothing to do with gold standards.

The grand-daddy of all credit squeezes ensued from Dr. Schacht’s order of April 7, 1924, which stopped all credit from the Reichsbank. New inflation, which had begun to stir again, was then abruptly and finally stopped. The intrenched interests in Germany, especially the industrialists like Stinnes, characteristically fought Schacht every inch of the way, although a few later acknowledged the tightness of his course.

So, unproductive businesses that based on nothing but inflationary boom were swept away (such as property speculation in modern britain). And after the correction, happy days started to return.

Germany now took its stored-up dose of hard times. Germans who had been caught in the inflation were relieved of their worldly goods. Businesses which were based on nothing but the inflationary boom were swept away. Credit for business was practically impossible to come by. Unemployment temporarily skyrocketed. Government spending was slashed, government workers dismissed, taxes raised, working hours increased, and wages cut.

Germany very quickly began to feel better economically, however, as the stabilization medicine did its work.

Finally, follow the government, and go buy farms, not houses.

The good fortune of the debtors demonstrated the prudence of following the government’s lead: one must beware of being a creditor whenever the government was a huge debtor. Farmers in particular were the classic case of invulnerability to inflation, because they always had food, their farms were constant values, and the many who had mortgages on their farms were forgiven their debts outright.

Edited by easybetman

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The book "when money dies" was talked about in another thread today. There was another similar book which is available online (it is called dying of money - think this was mentioned at HPC before as well)

http://www.delanion.com/Dying%20of%20Money.htm

And the following is a very interesting extract. Basically Germany could expand money supply for years with little CPI inflation (note Mervyn/BOE, Bernake), and then things suddenly went crazy.

and here (some similiarities compared to Brown's Britain or Greece). And also the 'suspension of processes of natural selection' (given current BoE measures).

A scarily apposite quote.

:unsure::ph34r:

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I'm expecting something sudden, just don't know what though.

Here on the ground I'm seeing a sudden ban on overtime which will cause me to cut spending to compensate....which will cause ....etc. As far as I'm concerned the depression starts now, the 'coyote hang' period is over

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  • 261 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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