German Weimar Republic in the early 1920s and the U.S. - Troubling similarities

There's a possibility of something similar (but not as severe) happening in the U.S. - we'd rather at least mention it than not.

The parallel to the German war reparations is the derivatives area today.

Don't shoot the messenger, we didn't invent the facts below.

Year German Weimar Republic United States Year
  1. German mark (Reichsmark) worth about 20-25 cents, about 4-5 marks per U.S. dollar.
  2. Bank interest rate - 5%
  3. Government deficit in 1914 was 1.5 billion, about -16% of the total budget.
  4. Government deficit in 1918 near war's end was over 15 billion, about -34% of the total budget.
  5. Coins made up 56% of the circulated money in 1913. In 1918 it was a mere 0.5% due to war inflation and metals shortage.
  6. German stock market at 126
  7. Money velocity - 1.5
  1. U.S. Dollar Index falls from $1.20 in 2001 to about $0.85 in 2004.
  2. Home mortgage rate varies between 5.5-7%
  3. Government (unaudited) surplus in 2001 was $128 billion, about +7% of the total budget.
  4. Government (unaudited) deficit in 2004 was $412 billion, about -21% of the total budget.
  5. Steel, copper and other key industrial metals prices are up between 30-150%.
  6. Dow Jones stock average - about 10,500
  7. Money velocity - 1.5
  1. Bank interest rate - still 5%
  2. German stock market at 97 in January 1919, 166 in January 1920, 278 in January 1921 and 731 in December 1921.
  3. The general price level has doubled since 1914.
  4. Most of the rest of the world allows their money supplies to contract as a "war withdrawal" effect, and goes into recession or depression (general prices fell 16% in the U.S. in 1921). Germany keeps creating or printing money, and the government deficits continue to increase.
  5. Newspapers and many financial folk are very confused by the continual price increases. Its blamed somewhat on the Versailles Treaty and France but mostly on speculators and "foreigners" inside Germany (an ominous sign and similarity to what's ahead with Hitler and the Holocaust, etc.).
  6. In other countries, its blamed on the German government deficit. But the real problem is that too much money is being created by the German banks.
  7. Money velocity - 1.5
  8. Government has currency controls, one couldn't buy foreign currency to help protect one's assets.
  9. Many foreign companies have large foreign currency gains, due to the falling value of the mark.
  10. August 1920, Germany starts to buy significant amounts of foreign currency.
  11. Ocober 1920, Germany's national debt - 287,800 million marks (Britain's was about 8,000 million pounds).
  12. The mark varies between 152 and 1040 to the British pound during 1920, ending at about 750.
  13. By February 1921, the stock market had dropped about 50% but was still above December 1920 values.
  14. Since 1913, bread prices had risen 13x, meat 17x, sugar & milk & pork about 25x and butter about 33x - officially.
  15. Unemployment in 1921 - 3%
  1. Home mortgage rate averages 5.5-6%
  2. Dow Jones stock average - about 10,000
  3. Home prices, health insurance, energy and many other costs have roughly doubled or more in the previous 4-6 years.
  4. As of mid/late 2005, there are strong indications that the world economy has topped and is slowing down.
  5. Newspapers and many financial folk are very confused by the continual price increases. It 'must be' greedy businessmen, housing speculators, mid eastern oil owners trying to stick it to the U.S., interest rates have been raised too much by the Fed, war spending is too high, terrorism, etc.
  6. In other countries and per the International Monetary Fund and others, its blamed on the U.S. government deficit. But the real problem is that too much money is being created by the Federal Reserve Central Bank and other banks or financial institutions.
  7. Money velocity - 1.5
  8. Some currency controls do exist as of mid 2005. All money transfers above $10,000 are required to be reported to the government and there are many other requirements in the Patriot Act.
  9. Many foreign companies have foreign currency gains, due to the falling value of the dollar and hedging operations.
  1. Bank interest rate still 5% as it was in 1914
  2. Bank interest rate rises to 7% in August, 12% in November.
  3. German stock market at 743 in January and rose to 8981 in December.
  4. From 1914-1922, the stock market rose about 89x (from about 100 to 8900), the dollar rose 1525x and coal rose 1250x.
  5. March 1922, 1400 marks per British pound.
  6. The general price level over doubles in the first five months.
  7. Average cost of living in April was increasing at about 50% per month.
  8. On June 24, 1922, right-wing fanatics assassinated Walter Rathenauer, the moderate foreign minister who was in favor of adhering to the Treaty of Versailles, and also assured the population that Germany was not 'printing' too much money. From here on, inflation and social unrest, etc. really took off. Within a week, the mark was at 2200 per pound.
  9. Confidence in the mark is waning, the German people begin to demand foreign currency such as US dollars for trade and tend to not use marks.
  10. Money velocity - 3
  11. Speculation is rampant, whether a stock boy or housewife or weathly persons.
  12. Many foreign companies have large foreign currency gains, due to the falling value of the mark.
  13. "Hugo Stinnes himself, the richest and most powerful industrialist in Germany, whose empire of over one-sixth of the country's industry had been largely built on the advantageous foundation of an inflationary economy, paraded a social conscience shamelessly. He justified inflation as the means of guaranteeing full employment, not as something desirable but simply as the only course open to a benevolent government. It was, he maintained, the only way whereby the life of the people could be sustained."
  14. July, 2430 marks per pound. Also around this time, state & local authorities & some businesses were allowed to create thier own money ("Notgeld") as an emergency measure due to the failure of the Reichsbank to be able to print enough money.
  15. "The face values of new postage stamp issues which in 1916 had ranged from the 2-pfennig grey to the 4-mark red and black, in late 1922 started at the 50-mark blue and went up to the 100,000-mark red."
  16. "A litre of milk, which had cost 7 marks in April 1922 and 16 in August, by mid-September cost 26 marks. Beer had climbed from 5.60 marks a litre to 18, to 30. A single egg, 3.60 in April, now cost 9 marks."
  17. October found 18000 marks per pound. November, butter at 800 marks a lb., eggs at 22 marks each. December, 48,000 marks per pound.
  1. October 2005 - Home mortgage rate averages 6% & slightly increasing as of early 2006.
  2. April 2006 - Prime rate has moved from 5.5% to 7.75% in the last year.
  3. April 2006 - The S&P 500 has moved from below 1200 to over 1300 in the last 6 months.
  4. From 1982-2006, the stock market rose about 15x.
  5. The general price level, once the CPPI issues are taken into account, has gone up 50% in about the last 6 years.
  7. June 2007 - Issues with dollar confidence start to show with lessening purchase of US Treasuries by Foreign Central Banks, who have also been dropping their reserves in dollars since 2002. Possible derivatives dangeers showing with Bear Stearns, which could affect dollar confidence significantly.
  8. July 2006 - Money velocity - 1.94. May 2009, it's 1.70.
  9. Speculation is quite significant.
  10. Some foreign companies have significant foreign currency gains, due to the falling value of the dollar.
  1. Bank interest rate rises to 19% in January, 30% in April, 90% in September.
  2. German stock market at 21,400 in January and rose to 26,890,000 in November at the peak.
  3. Crime, malnutrition, suicides etc. have reached unusually high levels.
  4. Money velocity - 5-12
  5. Many foreign companies have large foreign currency gains, due to the falling value of the mark.
  6. "New borrowings from the Reichsbank, furthermore, from whom commercial enterprises could obtain credit at very low discount rates even at the height of the crisis in 1923, were automatically written off in the same way: rapid depreciation caused the real value of repayments to be smaller than the original loans by whatever factor time and the rate of fall dictated."
  7. March 1923 - 100,000 marks per pound, June 1st 320,000..
  8. During March, April and May the government's income was around 30% of its expenditures.
  9. "...well over a million Germans in early 1923 were engaged in exchange speculation. Their dealings took place mainly through the so-called Winkelbankiers, the back-street operators who had sprung up with inflation and, battening on an unhealthy economy, made a living entirely through taking advantage of the difference in the buying and selling prices of foreign currencies. Although they were not even members of the Bourse, they played a significant part in determining the daily rate of exchange — and, indeed, to the arbitrage machinations of the Winkelbankiers was attributed the fact that Berlin invariably closed at a lower rate than New York."
  10. "Petty crime, the crime of desperation, was flourishing. Pilfering had of course been rife since the war, but now it began to occur on a larger, commercial scale. Metal plaques on national monuments had to be removed for safe-keeping. The brass bell plates were stolen from the front doors of the British Embassy in Berlin, part of a systematic campaign unpreventable by the police even in the Wilhelmstrasse and Unter den Linden. That members and families of the British Army of the Rhine suffered severely from burglaries probably reflected the fact, not that thieves had particular animus against the forces of occupation, but that these days foreigners were so much more robbable than anyone else. Over most of Germany the lead was beginning to disappear overnight from roofs. Petrol was syphoned from the tanks of motor cars. Barter was already a usual form of exchange; but now commodities such as brass and fuel were becoming the currency of ordinary purchase and payment. A cinema seat cost a lump of coal. With a bottle of paraffin one might buy a shirt; with that shirt, the potatoes needed by one's family."
  11. "In June after a brief pause, support for the mark was resumed. The reason was quite openly stated — to allay popular discontent which was assuming alarming proportions. The people had reason to complain. In the month following May 20, the price of an egg rose from 800 marks to 2,400; of a litre of milk from 1,800 to 3,800, of a kilo of flour from 2,400 to 6,600, of pork from 10,400 to 32,000. In the Ruhr, too, while salaries doubled (a workman's wage rose from 3,300 an hour to 6,800) the cost of commodities trebled. Tradesmen could not know how to establish prices, and often simply shut up shop. For these reasons, in a single day in June, 6 million gold marks were lost to the reserves in 'another of the Reichsbank's convulsive and desperate attempts', as Mr Joseph Addison put it, 'to bolster the mark by throwing foreign currency on the market — in this case with the object of bringing the dollar below 100,000.' The government's hopes again turned out to be illusions. In mid-June, the note circulation stood at 8,564 milliard marks. By June 21 the daily increase in the circulation was 157 milliards. By June 28 the mark was at 170,000 to the dollar, the total circulation had risen to 11,000 milliards, and no notes of less than 100,000 marks (2s 10d) were being printed."
  12. "Towards the end of June 1923, the government began turning with repeated, but undue, optimism to temporary expedients of all kinds. One nostrum was the multiplier, to be wielded by the Minister of Finance as he thought fit, to keep the rate of taxation on a par with that of depreciation. It worried no one in the ministry that it sinned deeply against Adam Smith's sacred canon of certainty which provides that taxpayers know clearly in advance what they have to pay. During May, income tax had been multiplied 25 times, and it was now announced that in August, when payment would be due, the multiplier would be 40. Yet it was obvious that the tax returns could never keep up with the speed of depreciation, from whatever source they came. The yield from consumption duties — for example, on tobacco, beer, wine, sugar, salt and playing cards — no longer even met the cost of their administration."
  13. The next day, July 3, there appeared a new ordinance to forbid the buying of futures. It was partly aimed at restricting imports, for stocks were now very high and importers had been able to obtain great quantities of foreign bills during the period of heavy mark support. The consequence was that the Bourse rapidly became overloaded with demands for 'sight' bills rather than three-month bills; and of these only about a tenth could be satisfied. Accordingly importers began to apply for ten times the dollars they required in the hope of getting their full quota.
    This ordinance was also aimed at those who sought to buy dollars at, say, 160,000 marks each and use the dollars to buy dollar Treasury bills quoted at a very much higher rate — an obvious way of making great gains. The higher quotation of the bills had even led people to believe that the dollar rate was artificial and that the bill rate was the genuine one. Over-ordering, however, meant that many firms were caught out:xwhen the Reichsbank, with more than usual astuteness, called their bluff by requiring cheques to meet the total application. In that it revealed which of the smaller banks were condoning exchange speculation this ordinance therefore had some success.'
  14. "By July 10, Germany's free gold reserve had fallen to the equivalent of £35 million pounds, and all the Bank was doing had produced precisely the effect it was hoped to avoid. Another loss of 50 million gold marks was suffered during the week which ended on July 14 — the direct result of supporting the paper mark by rationing supplies of foreign currencies and having to cover indispensable imports from the gold reserve. If intervention continued at the then level of 10 million gold marks daily, bankruptcy would come within 60 days: the reserves had already taken as much as they could stand. If intervention ceased, on the other hand, it was broadly expected that the dollar would go to a million marks, the pound to over 4 million — and by the end of July that expectation was fulfilled. Merchants were still said to be borrowing paper marks to the value of 80 per cent of their stock, and exchanging them at the Bank for dollar Treasury bills needed ostensibly for imports. These bills were sent abroad to the merchants' buying agencies, and in most cases stayed there with no countervalue returning to Germany."
  15. "The workers responded in the only way they could, demanding not only higher wages but daily payment so that their income would keep its spending power long enough to get rid of it. The demands were enforced with repeated strikes, disorders and demonstrations in all parts of the country. The possibility of civil war was openly discussed in the press, and frenziedly denied by the government. A thousand arrests were made after riots and plundering on July 20 and in Breslau, where organised bands of Cqmmunists prowled through the streets. July 24 produced demonstrations against profiteering, capitalism and Fascism in Frankfort, where inoffensive citizens were molested, windows were broken, and one man kicked to death. Open air meetings were forbidden in Berlin, but 10,000 demonstrated peaceably enough in Leipzig, and 5,000 in Dresden. In the last week of July demonstrators were killed in the Bavarian town of Rosenheim, and in Potsdam. There were ship-building strikes in Hamburg and a pilots' strike in the Kiel canal."
  16. "At the end of July 1923 German shares had established themselves as a popular though unstable repository of wealth. In general, shareholders were a good deal poorer than they thought, the fact of impoverishment having been largely veiled by the gigantic increases in nominal prices. Speculation kept all shares at a high level above their interest-return value, even given that dividends were still being held artificially low to avoid income tax.
    Anyone who during the first six months of the year had sought a haven for money in domestic shares would at least have lost little of it. in real terms. The total value of German company shares quoted in Berlin, though at a paltry £89 million in December 1922, was three times as great — at .£271 million — in July 1923. This must have been a comfort to any who could overlook the comparison with the pre-war total of £1,767 million,, or the £600 million in July 1921. The price (in terms of the dollar) of a number of so-called 'undiluted' shares in the first few months of 1923 was actually twice as high as during the previous October, their all-time low. At that point, in terms of the paper mark the dollar had riseri, 1,525 times, but nominal share prices had increased only, 89 times. In fact from October 1922 onwards it was possible by choosing investments carefully actually to increase one's real capital substantially: by July 1923 the average portfolio would have risen sixteen times, by September twenty-three times and by October twenty-eight times in terms of gold."
  17. "On August 3, 1923, observing as though for the first time that the market rate on loan money was .1. per cent a day, the president raised the Bank's discount rate from 18 to 30 per cent per annum and on loans from 19 to 31 per cent. The move, against the advice of the Bank's central committee who considered that it was truckling to market conditions, was however insisted upon by Dr Havenstein's fellow directors; and Havenstein himself opined that it was the Reichsbank's duty not to make rates of interest but to follow them. Had he meant — or at least understood — what he was saying, he should have set the Bank rate at 360 per cent, for even the 3 to 4 per cent a week pertaining to current accounts represented 200 per cent a year. The new rate had no impact whatever."
  18. "The full enormity of Havenstein's [the Reichsbank head] policies was duly revealed in the speech he made — published immediately afterwards — to a Council of State on August 17. 'The Reichsbank,' he said, with evident pride and satisfaction, 'today issues 20,000 milliard marks of new money daily, of which 5,000 milliards are in large denominations. In the next week the bank will have increased this to 46,000 milliards daily, of which 18,000 milliards will be in large denominations. The total issue at present amounts to 63,000 milliards. In a few days we shall therefore be able to issue in one day two-thirds of the total circulation.'
    ...The speech was largely reproduced in the German press, and provoked neither outcry nor astonishment. "
  19. "On September 8 a Commissioner for the Control of Foreign Exchange was appointed, with the widest powers to seize foreign currency wherever he could find it, and to oblige holders of bills of exchange or of gold securities to deliver them against gold loan scrip. The appointment required the suspension of various portions of the constitution with regard particularly to postal secrecy, domestic inviolability and the expropriation of goods or property generally; and within ten days the new Devisenkommissar had assumed the right also to seize gold, silver, platinum and alloys, whether in coin or raw metal. This move was in part occasioned by the realisation that as 200 million gold marks had been set aside to guarantee the Reich dollar Treasury bills, Germany's gold reserves were effectively down to the equivalent of less than £14 million, too little now with which to establish a new currency in which people could believe.

    Thus under the commission's auspices the Wucherpolizei on September 20 raided the cafes and restaurants of Unter den Linden and the Kurfόrstendamm in Berlin, forced every customer to produce his wallet or purse, and extracted all foreign money therein. The yield of the day's raids, for which receipts were duly given, consisted of 3,120 dollars, £36 sterling, 373 Dutch guilders, 475 Swiss francs, 200 French francs, 42,523 Austrian kronen, 37 Danish kroner, 30 Swedish kronor, 1,402 Czech koruna, 800 Hungarian korona, 143 Serbian dinars, 18,000 Bulgarian lewa, 30 Estonian marks, 5,100 Polish marks and 500 Soviet roubles. "
  20. "The new danger was that when the peasants finally refused to deliver produce to the towns, the towns would go and fetch it. It had happened in Austria during the blockade. It had happened in the Ruhr and the Rhineland under the provocation of French militarism and enforced idleness. Now there were reports from Saxony -unoccupied Germany — that bands of several hundred townspeople at a time had taken to riding out into the countryside on bicycles to confiscate what they needed. "
  21. "On September 18 were published the plans for the new Boden Credit Bank, later to be known as the Rentenbank, a bank of issue backed not by gold (it was too late for that) but by mortgages on both agricultural land and industry. It was fundamentally an expedient to induce the farmers to co-operate in feeding the nation: and the Bodenmark was by way of a solid form of Kontomark — the units of account worth ten cents each which the Reichsbank was now using to express the real values of current accounts: at last the old fiction of Mark gleich Mark had been formally abandoned. "
  22. "By the end of the third week in September, therefore, the Government's control of the political, let alone the financial, situation was strained to breaking point. So were the ministers: according to Benes, then Czech Foreign Minister, they were so exhausted that they were incapable of any real consideration of the problems they had to deal with, 'the decision of which depends on which minister had most sleep the night before'. The proclamation of September 19 threatening a month in gaol and unlimited fines to anyone who hoarded food or money, or prevented the paying of taxes, or impeded the distribution of food or fodder, though signed by the Chancellor, the Minister of the Interior and the President himself, was a useless act of desperation: everyone, ministers included, was hoarding all he could; no one made any effort to pay taxes; and the only impediment to the distribution of food was the lack of a negotiable currency to pay for it. "
  23. "On September 26 [Chancellor] Stresemann suspended seven articles of the Weimar constitution, himself declared a State of Emergency, and gave executive powers to Herr Gessler, the Defence Minister who had succeeded Noske after the Kapp Putsch. This transfer was a formality. Effectively, from then on, for five months, General von Seeckt, Commander-in-Chief of the Reichswehr, was the supreme executive and administrative power in the land.

    Germany had become a military dictatorship, no less, and by the choice, at that, of a largely Socialist cabinet. The country was divided into seven military districts, with a local military dictator over each. Simultaneously President Ebert announced the end of passive resistance in the Ruhr. "
  24. "The average pre-war wage had been about 36 gold marks — £1 16s — a week. In October 1923 the purchasing power of the average wage fell to less than 20 per cent of normal. The situation hardly required extremists to whip up revolutionary feeling. Sums of less than one million marks were no longer dealt with, and, indeed, as Lord D'Abernon reported to Curzon, 'a beggar would hardly accept any smaller note.' "
  25. "'The population is ripe,' Joseph Addison wrote home to Alexander Cadogan,* (Later Sir Alexander Cadogan, O.M., Permanent Under-Secretary of State for Foreign Affairs, 1938-1946.) 'to accept any system of firmness or for any man who appears to know what he wants and issues commands in a loud, bold voice.' "
  26. "When the Rentenmark Ordinance was published on October 15, creating the Rentenbank, it was hailed as radically unsound. The Rentenmark was the Bodenmark rechristened, in essence a modified Roggenmark (or rye-mark), the device propounded by Karl Helfferich; and it was designed to win support from Helfferich's agrarian Nationalists as well as from the Left who found the Roggenmark politically suspect. Whatever might be said against the Rentenmark — especially about the reality of its backing — it met the fundamental principle of releasing the Reichsbank from the fatal obligation of having to finance the government."
  27. "Generally speaking a 'ground price' is fixed on gold marks at double the pre-war figure, and this is multiplied by a multiplica-tor fixed by the retailers themselves, according to their own free will, and which increases not only day by day but frequently even hour by hour in an effort to keep pace with the Gadarene downward rush of the paper mark — rather, to keep ahead as, in order to provide against the rapid depreciation on their hands of the resultant 'gold' price in paper marks, an enormous rate of profit is included.* (The envelope of Elphick's letter to London, postmarked October 22, bore stamps with a face value of 148,000,000 marks.) "
  28. "As elsewhere, the cry remained in Hamburg for wages of fixed value. It appeared to be a long time since the unions' single demand had been for ever-higher wages — enough marks to meet the Increase in prices. On October 26 the very men who were clamouring for fixed wages turned down the offer of a wage rendered in the new Hamburg gold mark notes on the dual grounds that their employers were in no position to pay it and that, in any case, they needed paper marks to meet their living expenses. People hardly knew what they wanted. On November 1, after the Hamburg assembly had voted 500,000 milliard marks (nearly.£2,000) to relieve distress, Hamburg, went back to work again, with payment in the port being made after all in the municipal 'gold' currency. The arrangement was far from perfect, because the notes had to be converted into paper marks before they were spent, and outrageous advantage was frequently taken by the moneychangers."
  29. "November 8 - the failed Hitler Putsch"
  30. "Dr Schacht was appointed Commissioner for National Currency on November 13... no one nursed more than a hope that the Rentenbank scheme could work."
  31. "Government expenditure at this time amounted to 6 quintillions to which revenue had contributed a mere 6 quadrillions, one-thousandth as much."
  32. "There were problems, many of which had already been thrashed out at the end of the summer. The gold and gold-equivalent reserves had been so frittered away during the Ruhrkampf that they were inadequate to back the new currency. The Rentenbank's notes were therefore guaranteed in equal amounts by mortgages on landed property and by bonds on German industry — trade, commerce, banking and transport — to a combined amount of 3,200 million gold marks, about £160 million. The maximum note issue in Rentenmarks was to be 2,400 million. The Rentenbank was independent (as the Reichsbank had been) of government interference. In return for special credits of 1,200 million to the Reich — including 300 million Rentenmarks at nil per cent to pay off the floating debt — the government guaranteed not to discount any more Treasury bills with the Reichsbank."
  1. As of mid 2009, bank & mortage interest rates are beginning to rise.
November 14, 1923
  1. German mark worthless (4+ Trillion marks per dollar)
  2. Bank interest rate over 900%
  3. German stock market at 26,890,000 at the peak
  4. The value of the Daimler company was about $980 million and a car cost $3 million - the whole company was only worth 327 of its cars.
  • We do not expect anything even closely resembling the Weimar experience in the US in magnitude. We do expect inflation of well over 25% though.
November 15, 1923 & beyond
  1. German Central Bank issues the Rentenmark, a new currency, backed by various property in Germany.
  2. Old marks are converted to Rentenmarks at a ratio of one billion marks = 1 Rentenmark.
  3. Many governments have enacted extremely stiff wage and price controls in the wake of hyperinflation, which is a form of forced savings: goods become unavailable, and hence people hoard cash.
  4. No episode of hyperinflation in history has been ended by the use of wage and price controls alone, though they have sometimes been part of the mix of policies used to halt hyperinflation.
  5. "The legal reduction of the paper mark to this extreme fraction was not sanctioned until the monetary law of August 30, 1924, which permitted the conversion of the note inscribed 'Eine Billion Mark' (with the addition, in the interests of clarity, of the further inscription '1,000 Milliarden') into a Reichsmark. "
  6. "As it was, the confidence trick worked. The Rentenmark, the stopgap designed to shift the 1923 harvest, became the weapon which held the field for the billion-mark note until the Reichsmark was brought in a year later. 'On the basis', said Bresciani-Turroni, 'of the simple fact that the new paper money had a different name from the old, the public thought it was something different from the paper mark … The new money was accepted, despite the fact that it was an unconvertible paper currency. It was held and not spent as rapidly … "
  7. "At a boisterous Cologne meeting on November 25, the National Currency Commissioner resisted the supplications and threats of a large assembly of industrialists and municipal officials — all aimed at restoring the acceptance of Notgeld — and declared that the decision stood, and that they would once more have to accustom themselves to budgeting with stable figures."
  8. "The black market was dealt with automatically, but no less brusquely. Speculators closing their books at the end of November, when the black-market dollar rate was at its highest, had not the money to meet their commitments. Credits which the Reichsbank would formerly have gladly given were no longer to be had, so that anyone who had bought dollars at 12,000 milliard marks each was now forced to sell them back at 4,200 milliard, losing two-thirds of their outlay. Before December 1, £10 million in foreign currency had returned to the Bank in this way. The speculators took off for Paris and went to work on the franc, their departure the first signal that stabilisation was a fact. "
  9. "On Christmas Day 1923, Lord D'Abernon wrote of the 'magical wand of Currency Stability':
    Not even the most fanatical advocate of stabilisation — and this title I yield to no one — could have anticipated more remarkable results from its attainment than those which are now manifest. Food has become abundant in the great towns; potatoes and cereals are brought to market in large quantities; while butter, which was obtainable only in the better quarters, is now offered at stable, if at high prices. Animals crowd the abattoirs and queues have disappeared from before the shops of butchers and provision merchants. The economic detente has brought in its train political pacification — dictatorship and Putsches are no longer discussed, and even the extreme parties have ceased, for the moment, from troubling … "
  10. "In February 1924 Dr Kuczynski, a leading German statistical authority confirmed that a sea-change had come over German life: 'The difference in public feeling compared with two months ago', he told the British Ambassador, 'is absolutely astounding. Then everyone was depressed and thought a catastrophe imminent. Today they are full of confidence. There is no adequate physical or economic reason for this — the change is mainly psychological. You may say it is based upon the Renten-mark, but that is more or less a fraud, and it would be more correct to say that it is due to the moral effect of the mere cessation of printing banknotes, or more correctly to the belief by the public that printing has at last stopped. This has given them so much confidence that they keep the circulating medium in their pockets and tills — £125 million there today against £5 million last September …' "
  11. "DR SCHACHT, the author of the reform, had no illusions about its shortcomings. He understood that the Rentenmark could hold the tide only so long, that new credits from abroad were essential, and that for that reason no departure could be made (despite the pleadings of the government, desperate for money) from the strictest discipline. Nothing could be done that would put at risk the currency stability or the budgetary balance. 'After a long devaluation,' Schacht held on January 24, 1924, 'stability can only be regained at the cost of a severe crisis. We are in the midst of this crisis. External commerce is at a standstill. The balance of trade is active [i.e. in Germany's favour] only because imports have ceased as importers have no means of paying. Industry is living on old stocks.' "
  12. "Nor had the new confidence, or even the new plenty, worked itself through to the poor or the workless, least of all in the Rhine-Ruhr area. Stabilisation was having devastating effects on many sections of the food trade, especially the food importers.... There was in fact much suffering, in part because a great many workers were on strike over the return of the ten-hour day, but more because so many of the larger factories had closed down. In the Ruhr and the Rhineland, unemployed were to be seen in crowds in every town."
  13. "[in Austria] The kronen and heller have been changed into schillings and groschen.* (Their issue in silver and copper coins rather than paper was to encourage thrift and restore confidence. The change of style was to get rid of large figures.) It is a drastic change. For 15,000 kronen we get — one schilling! Thousands of Austrians have been reduced during the last days to beggary. All who were not clever enough to hoard the forbidden stable currencies or gold have, without exception, suffered losses. An old married couple with whom I have been friendly for years had a holding of government stock amounting to 2 million pre-war kronen which brought them in interest 80,000 pre-war kronen a year [more than £3,200]. They were rich people. Today their stock brings them in 8 new schillings a year. Panic has seized the Stock Exchange. My millions have dwindled to about a thousand new schillings. We belong to the new poor. The middle class has been reduced to the proletariate.... The korona fell from 14,500 in March 1923 to 92,000 in August and to 120,000 to the pound in October, the free rates always being much higher and prices going at last to twice the level in the United Kingdom. Farmers had long ceased to hoard currency and now hoarded corn and cattle, to the desperation of the townspeople."
  14. "Economic recovery, and a fall of interest rates from January's 100 per cent to May's 30 per cent, reduced the number of unemployed to half by April 1924. The great increase in imports during this period, however, led to such dangerous signs of weakness in the Rentenmark that Schacht intervened at once with drastic credit restrictions. The Reichsbanksprasident's unpopularity was enormous stability was immediately restored, but not without a return to higher interest rates, more bankruptcies, and more unemployment. Marks became practically unobtainable. At that juncture the Dawes Committee presented its plan, which was adopted by the Allies in August, for reparations to be paid only to the extent that Germany's currency could stand the strain. The new payments schedule, still without any specification of what the total settlement would be, was to be helped off the ground with a large foreign loan and the evacuation, at last, of the French and Belgians from the Ruhr. The Dawes plan also provided for the introduction of the Reichsmark to replace the old currencies. "
  15. "Firms that mushroomed during the inflation now found that the real interest they paid on loans for the first time was positive rather than negative, lower though the rates appeared to be. Perhaps most significant, for the first time they were obliged to pay real taxes, many of which were extremely high because of the necessity rapidly to balance the budget and to bring official salaries, which had fallen disastrously, up to an acceptable level again. Companies were often unable to buy new machinery after stabilisation came, so much so that huge stocks of unsold iron and coal began to build up in the Ruhr. Not even the foreign loans flowing in were able to prevent the seizing up once again of the Ruhr mining industry where pit after pit, especially any producing poor quality coal, was forced to close. Workers were to flock from pit to agriculture, from mines and quarries and engineering to the production of food and direct consumer goods, and to building. Hugo Stinnes himself had been deceived by the artificial prosperity of inflation into a fanatical confidence in the future of coal. It was the post-stabilisation depression in the coal, iron and steel industries, contriving even the depopulation of Ruhr townships, which led eventually in June 1925 to the collapse of the Stinnes empire. "
  16. "That event finally pricked the abscess. The great groups who had resisted over-expansion during the depreciation — Krupp, Thyssen, Gelsenkirchen — were able to ride the storm. Others such as the Sichel and Kahn groups foundered. The defects of 'vertical' industrial concentrations, embracing all stages of manufacture from raw material to finished article, had been revealed, the strength of horizontal combines confirmed. The speculators, in a word, found they had to pay for their folly, improvidence and greed; and the old captains of industry resumed their sway.
    The Stinnes debacle demonstrated above all that great industrial possessions could not be held without adequate liquid resources (as early as June 1924, Stinnes had been trying to pledge Bochumer Verein and Gelsenkirchen shares against Dutch loans); and that vertical combines were inefficient and unprofitable except under the exceptional conditions which had bred them. "
  17. "In the inflationary period new factories were built, old establishments reorganised and extended, new plant laid down, participations in all fields of industrial activity bought up, and the great amorphous concerns founded. Too late, it was found that this process had undermined the capital structure of the country: capital was frozen in factories for which, because of the extermination of the rentier and the reduction of the real wages of so many of the great consumer classes, there was no economic demand. Once the demand for goods was shut off and the flow of cash dammed, the fate of the productive apparatus was sealed. Even in 1924, firms of undoubted solidity and large assets were unable to pay out trifling sums of money. In 1926 that apparatus was still too great in relation to the working capital and the nation's power of consumption. Thus, whereas in 1913 there were 7,700 bankruptcies, and in 1924 only 5,700, the figure for 1925 was 10,800; and between the third quarter of 1925 and the second of 1927, bankruptcies numbered 31,000 — a rate of 15,000 a year. "
  18. "Where some firms went into liquidation, many others rationalised at the expense of the work force. The picture in the first week of December 1925 presented the politicians' nightmare of 1922: the approach of the genuine, unhidden mass unemployment that the policy of inflation had so largely been designed to avoid. The mark stood steady. The franc, which before the war had been equal to the gold mark, was threatening to hit 150 to the pound. With France dumping currency and producing iron and steel more cheaply than her neighbours Germany was experiencing exactly what she had done to others, and finding it very unpleasant. Krupp had just dismissed 12,000 men, and dismissals on the same scale were being pursued by Mannesmann, Gelsenkirchen, Phoenix, the Prussian State Mines, and numerous other works. Thyssen was restricting output everywhere. Gasmotorenfabrik Deutz of Cologne had sacked hundreds and would close on December 15. Osram, the lamp makers, were on short-time. Various huge firms were winding themselves up for ever, while others were closing down for a number of weeks to await eventualities -- Rheinische Stahlwerke, for instance, and Bochumer Verein, some of the biggest names in German industry. The locomotive industry was producing 2 per cent of its pre-war output. The motor industry was in severe difficulties, too, with Benz deciding to close its works for a month and Opel dismissing 5,000 of its 7,000 workers.

    During the first half of November there had been 145 bankruptcies in the textile industry, and now came report after report of closures and sackings. They were not confined to the Rhine-Ruhr area. In Saxony 179 factories producing metal, textiles, and machinery had been temporarily shut. In the Black Forest 65 per cent of the clockmakers were unemployed or on short time. The shipbuilding industry was employing half its pre-war and four-fifths of its 1924 numbers, and the tonnage launched was down accordingly. By February 1926 the number of registered unemployed soared over 2 million, with depression reaching from Hamburg to Bavaria. The average number of registered unemployed stayed at over 2 million throughout 1926 — otherwise a year of rationalisation, and of economic and industrial recovery -and was still at nearly 1.5 million in December.* (*The average figure for both 1927 and 1928 was 1.4 million. The 1926 figure, which seriously under-represents the true total of workless, would have been much greater had not the British miners' prolongation of the General Strike in the United Kingdom so enormously boosted the fortunes of the Ruhr mines.)

    The industrial crises of 1926 at least spared the professional classes who had suffered so greatly in the financial one. By May of that year the circumstances of doctors, lawyers, professors and writers and the like had radically changed. They were again able to live in circumstances appropriate to their cultural environment: their fees were being paid, and their services were required in full measure. By 1927, when all Germany in an outburst of physical exercise and gymnasticism attempted to become 'strong and beautiful', the standard of living of the masses, too, had become very high, with individual prosperity as superficially evident as the municipal and national. Only the legions of unemployable whose substance had been dissipated and the hundreds of thousands of workers for whom there was no work bore the outward scars of the great inflation and spoilt an otherwise happy picture. "
  19. "My relations and friends were too stupid. They didn't understand what inflation meant. They didn't rush to get rid of their money (that was what the Jews and the Germans did). All my relations thought it would stop the next week — and they went on thinking so.

    They woke up very late. They started selling their valuables because they couldn't buy food — the china from the mantelpiece, the furniture, the silver. That made them think — it made them think when the price of a set of old silver spoons went up from 20,000 to 40,000 crowns in a matter of a week or two. And if you had to sell a valuable writing desk for money which was worth only half as much a week later, of course there was ill-feeling.

    It was resented when Jews bought these things. The Jewish women would turn up at parties or at the dansants when we were all broke, wearing the silver fox furs — three at a time for ostentation -- and diamonds which they had bought from our relations for a song — or what, when they saw them again, had become a song. My relations didn't know the value of anything. They were stupid. Our solicitors were no better. My mother's bank manager gave her appalling advice — he didn't know what he was talking about either.

    Anti-Semitism had been negligible before inflation. Although Bela Kun's revolution had been mainly run by Jews, the White Terror had largely purged political resentment. The Jews had been badly treated in Hungary since the 1860s, and were not received socially for many years. Nine out of ten bore grudges, and when the opportunity of impressing the arrogant gentiles arrived at last, who was to blame them for taking it? When they made a success of inflation, they were hated. When they were ostentatious about it, they were hated even more. It may have been stupid of them, and of course the wiser Jews, especially the older ones, were greatly upset, and remonstrated with the younger, because they foresaw the antagonism their behaviour would create.

    The Jews probably paid fair prices for what they bought — but that wasn't the point. Except for my father and many of his generation, people hated the Jews. My father realised that the fault did not lie with the Jews but somehow much higher up. Of course, it would be wrong to give the impression that there were not many impoverished Jews in Budapest and other places who had got things just as wrong as everybody else. "
  20. "Nor was German honour inflation-proof. The corruption among officials in 1924, Lord D'Abernon reported, was 'appalling', whereas before the war bribery had been almost unknown, and a high degree of uncorruptibility evident in public and private, if not always in commercial, life. There were few in any class of society who were not infected by, or prey to, the pervasive, soul-destroying influence of the constant erosion of capital or earnings and uncertainty about the future. From tax-evasion, food-hoarding, currency speculation, or illegal exchange transactions — all crimes against the State, each of which to a greater or less degree became for individuals a matter of survival — it was a short step to breaching one or other of the Ten Commandments. Whereas the lower classes with the further goad of unemployment might turn to theft and similar crimes (the figures up by almost 50 per cent in 1923 over 1913 and 1925) or to prostitution, the middle and upper classes under a different kind of strain would resort to graft and fraud, bribing, bribable. Once bribery was the norm, by definition normal people resorted to it, the more so in the months of abject scarcity. No people could be expected to remain unconcerned while huge profits and riotous luxury were ostentatiously being enjoyed by the few. Corruption bred corruption, and the Civil Service caught the infection even in the war years. Counterfeiting was widespread. "
  21. "The air of corruption in business, politics, and the public service, then, was general. The share capital abuses that became common as more and more shares were concentrated in the hands of profiteers were no more than an example, although a serious one, of the moral deterioration caused by inflation — they largely disappeared when stable money was restored. In an article in the New York World written in the summer of 1933, Stresemann rather defensively suggested that 'our whole business life has acquired the character of dishonesty and corruption because the value of the mark in June does not happen to be the same as the value in July'. More privately he admitted that the substance and the shadow of improbity were the same. "
  22. "The Barmat and Kutisker affairs which then rocked the country and shocked the world unfolded backwards like an Ibsen drama, the ramifications of malfeasance going further and higher the more stones were lifted up. A curious feature was that with each fresh series of arrests a dementi was issued by the incriminated declaring their innocence, in every case only to be confronted by irrefutable evidence to the contrary. The press, particularly the Nationalist newspapers, tried to make political capital out of the grave embarrassment of the government, many of whom were personally involved — until the arrest of highly-placed Prussian officials of the old regime showed all too plainly that corruption was not a Republican monopoly. "
  23. "When war came back, so did inflation. With inflation alone, noted Gόnter Schmolders,* (The German Experience', essay in Inflation (Ed. C. Lowell Harriss, The Acad. of Polit. Science, New York, vol 31, IV, I975.)) can a government extinguish debt without repayment, or wage war and engage in other non-productive activities on a large scale: it is still not recognised as a tax by the tax-payer. Thus did Hitler resume deficit spending to finance armaments in 1938, and the experience begin again. As in the first case, the second inflation was a ten-year affair, although huge price inflation did not start in earnest until the eighth and ninth years, when cigarettes took over as the medium of exchange.

    In terms of public perception, however, the second inflation travelled much faster. By 1948 the Reichsmark was abandoned, and ten Reichsmarks were traded in in cash against the new Deutschmark, while bank accounts were credited with only 6.50 Deutschmarks for every 100 Reichsmarks. Disaster had struck the holders of money values once again, but the agony was contained very much more quickly. The pass to which the Reichsmark had come in 1947-1948, the loss of nine-tenths of its value, had been achieved by its predecessor, the mark, as early as 1919. "
  24. "Long before the Ruhr invasion, and perhaps even before the preliminary meetings of the Reparations Commission, there came a stage when it was politically impossible to hah inflation. In the middle of 1920, after the brief post-Kapp Putsch period of the mark's stability, the competitiveness of German exports declined, with unemployment beginning to build up as a result. The point was presumably not lost on the inflators. Recovery of the mark could not be achieved without immediate repercussions in terms of bankruptcies, redundancies, short-time working, unemployment, strikes, hunger, demonstrations, Communist agitation, violence, the collapse of civil order, and thus (so it was believed) insurrection and revolution itself.

    Much as it may have been recognised that stability would have to be arranged some day, and that the greater the delay the harder it would be, there never seemed to be a good time to invite trouble of that order. Day by day through 1920, 1921 and 1922 the reckoning was postponed, the more (not the less) readily as the prospective consequences of inflation became more frightening. The conflicting objectives of avoiding unemployment and avoiding insolvency ceased at last to conflict when Germany had both. "
  25. "What really broke Germany was the constant taking of the soft political option in respect of money. The take-off point therefore was not a financial but a moral one; and the political excuse was despicable, for no imaginable political circumstances could have been more unsuited to the imposition of a new financial order than those pertaining in November 1923, when inflation was no longer an option. The Rentenmark was itself hardly more than an expedient then, and could scarcely have been introduced successfully had not the mark lost its entire meaning. Stability came only when the abyss had been plumbed, when the credible mark could fall no more, when everything that four years of financial cowardice, wrong-headedness and mismanagement had been fashioned to avoid had in fact taken place, when the inconceivable had ineluct-ably arrived.

    Money is no more than a medium of exchange. Only when it has a value acknowledged by more than one person can it be so used. The more general the acknowledgement, the more useful it is. Once no one acknowledged it, the Germans learnt, their paper money had no value or use — save for papering walls or making darts. The discovery which shattered their society was that the traditional repository of purchasing power had disappeared, and that there was no means left of measuring the worth of anything. For many, life became an obsessional search for Sachverte, things of 'real', constant value: Stinnes bought his factories, mines, newspapers. The meanest railway worker bought gewgaws. For most, degree of necessity became the sole criterion of value, the basis of everything from barter to behaviour. Man's values became animal values. Contrary to any philosophic assumption, it was not a salutory experience. "
  • We do not expect anything even closely resembling the Weimar experience in the US in magnitude.

Many charts from Weimar Germany here.

Note: Some of the statements above have been made in a general and somewhat imprecise way in order to make a cleaner and simpler comparison.

Adam Fergusson talks to James Turk about Weimar and today(youtube video, about 35 minutes)

The source of most of the data is: "The Economics of Inflation (Routledge Library Editions-Economics, 84)" by Constantino Bresciani-Turroni (427 pages, Routledge, reprint edition, October 1, 2003, first published 1937) Available at Amazon here.

Here is another article covering the Wiemar period from 1924.

Hyperinflation in China 1937-1949, a similar picture but from China

When Money Dies: The Nightmare of the Weimar Collapse (the source of most of the quotes)