German history source of bad economic news

German history source of bad economic news
Awhile ago I mentioned the German inflation of 1923 as an example of how a nation's currency can go belly-up in a few short months when things go awry.

Now, for the life of me, I can't tell whether we are in a slowed-down economy or on the verge of inflation. With oil selling for $100 a barrel and food, medical care and other prices going sky-high, it doesn't look like things are ship-shape in the pocketbook, so further exposure to the German situation is not out of line.

Of course Germany had lost a big war and was saddled with huge reparations which she wanted to pay with her German gold mark which was then figured at 4.2 marks (pre-war) to the American dollar (when it was worth something). Because the Germans were slow in paying their war debts, especially to France and Belgium, those two countries sent troops into the Ruhr region of Germany to find out why – and then all hell broke loose!

In time a U. S. dollar would buy 36,000 marks. And by July 1923, it was 200,000 to one.

Much hoarding took place. Farmers – reacting to currency concerns – refused to share their produce with city folks. Holland and the Scandinavian countries didn't ship their meat and dairy products because they didn't like the German paper money. All of a sudden, the German people were close to starving!

Workers were paid twice a day with a big wad of bills and immediately went out to see what they could buy. Anything! Diners at restaurants paid in advance for their orders, because if they waited until they were through eating, the price would go up without notice.

Postage for a single letter cost 200,000 marks. Stamps were overprinted with current price, and Germans lighted their cigars with worthless banknotes. Children played with bundles of money.

Two briquets of pressed coal were accepted as admission to a theatre, and a tailor offered to provide a suit for a gold tooth. Suicides were up, and one father killed himself when his daughter's dowry evaporated in the fiscal turmoil, and the prospective groom broke their engagement.

Newspaper presses were called upon to keep up with the printing of the worthless paper money. Only one side was printed to keep up with the demand.

For a time aluminum coins were tried but they proved unfeasible, and simple bank drafts had to add several feet of paper to accommodate the required revenue stamps.

Someone said it would take a freight train of 40 cars filled with 1,000 German marks to buy one pound of sausage. They tell me that the Hungarian hyper inflation of 1919 was even worse, but the German one, which had 400,000,000,000,000,000,000 (400 quintillion) marks in circulation in the end was bad enough.

And then it was over! Germany declared their currency so much trash and recycled it with a renten mark which was pegged as before at 4.2 to the American dollar. U. S. educated Dr. Hjalmar Schact was the bad guy who calmed the German people into accepting the new currency.

It was then that the Nazi Party came into prominence, and an ex-corporal named Adolph Hitler got out of prison to take over the party. (Dr. Schact later became prominent in the National Socialist German Workingmen's Party from which the abbreviation "Nazi" was derived).

I tell you all of this since I'm mixed up on stagnation and inflation. It can't happen here, it seems, but it shows you what one bad year can do to a nation's economy.

I apologize for being so serious in this column, but I thought you'd like to know!

© 2008 Robert F. Karolevitz

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