Tuesday, July 13, 2010

German inflation post WW1

I found this posting from Joel Anderson about the inflation that Germany had post WW1.  While the United States has not gone through a devastating war like Germany in WW1, we have a different type of monetary pressure which are the bank bailouts and federal stimulus programs. Will we experience hyper inflation going forward?  Some people think so, which bodes well for the precious metal markets.

The German hyperinflation following World War I, though not the worst hyperinflation in the 20th Century (that honor belongs to Hungary 1945-46 and Yugoslavia 1992-94), is certainly the most famous. Stories abound of people carrying money in wheelbarrows. Actually wheelbarrows were rarely, if ever used to carry money. Suitcases were the preferred method of transport.
The inflation was triggered by a huge increase in the nation's money supply, caused in part by the heavy demands of the reparations placed upon Germany following its loss in World War I. Soon an inflationary mentality set in. Merchants would raise prices automatically. People would hoard goods, figuring the price would go up, thus causing shortages. The vast quantities of money were issued not only by the German central bank (The Reichsbank), but also by numerous communities, cities, states and companies, only compounded the inflation.

He mentioned that one half of a 'Mark' in 1918 would purchase 1 dozen eggs, 5 pounds of potatoes or a quarter pound of meat.

By 1923, 100 billion 'Mark' would buy 3 pounds of meat.

It's hard to imagine that high of inflation rate in only 5 years.  You never know what can happen, but it's always good to be prepared for the worst, but hope for the best.

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