Going back just a century, we can use the Weimar Republic (Germany) as an example of what happens when you inflate your currency. Many nations that partook in World War One removed their gold standard from their currencies in order to fulfill wartime demands. This is why the U.S. only accepted gold from countries looking to buy supplies, weapons, and munitions. The U.S. knew gold’s value, but had no clue how badly individual countries were inflating their currencies to meet wartime demand. Germany, “losing” the war, was forced after the Treaty of Versailles of 1919 and the 1921 London Schedule of Payments requirements forced Germany to repatriate 132 billion gold marks ($33 billion), despite not starting it (Don’t forget that’s $33 billion in 1920 money…) This put a huge strain on them monetarily. Not only had they inflated their currency a boat load during the war by delinking from gold, now they had to payoff an insurmountable debt from the destruction of the war. It took Germany or until 2010 to payoff the debts from WWI.
During the interwar period starting in 1921, the German Papiermark began to hyperinflate at an astonishing rate. The currency was so out of control, German citizens were buying bread because it had a better of value overnight versus the Papiermark. BREAD, which molds relatively quickly unless frozen was a harder asset than the Paipermark…
This all came about from Germany suspending the gold standard at the start of First World War to finance the war beyond its means. German Emperor Wilhelm II decided against an income tax, instead decided to borrow heavily. The exchange rate of the mark against the US Dollar during the war went from 4.2 to 7.9 marks per dollar. That was just preliminary inflation, then the currency went up over a million percent the following years between 1919 to 1923. In January 1919, it took 170 German Marks to buy one ounce of gold. By November 1923 it took (87 trillion) German Marks to buy one ounce of gold.
This led to the origins of the Nazi party formation when Adolf Hitler spoke in Munich to 6,000 people in February 1921. The party was originally named German’s Workers Party (DAP), but shortly changed to Nationalsozialistische Deutsche Arbeiterpartei (National Socialist German Workers Party; NSDAP) to increase its appeal. Munich was the party headquarters and was the hotbed of anti-government German Nationalist determined in crushing Marxism. Hitler was later arrested on November 11th, 1923 for high treason. He was put in jail for over a year, finally being released on December 20th, 1924.
Post Hitler’s release, globally the world was entering the Roaring 20’s in full swing, so Hitler was swept off to the side as people’s lives vastly improved. That was until October 1929 when markets began to turnover and we saw the beginning of a global . Hitler took advantage of this and ran in stride becoming a prominent politician. Leading the NSDAP from relatively unknown to Germany’s majority party. How was he able to do it, despite the lunacy of his ideas? Because people were under severe economic hardship. When people experience undue economic hardship, they will turn to anyone to rescue them out of it, and that’s what Hitler did. Hitler was revered as Germany’s savior via improving its infrastructure and people’s lives there vastly. Henry Ford was friends with Hitler and so was the aviation pioneer Charles Lindbergh. Heck, even Time Magazine named Hitler Man of the Year in 1938. I bet they regretted that one.
All this was possible because government distortion of money supply which pushed people to their ends wit. We see this repeat throughout history, where people lose hope when there are such economic hard times, that even a man with terrible intentions can become a ruler because people see no other way to prosperity.
When hyperinflation strikes, the velocity of money picks up exponentially, as the world has seen with Venezuela over the past few years. Everyone in Venezuela is a “billionaire”, but it doesn’t mean anything because the bolivar is worthless.
Fast forward to 2019 with the Everything Bubble staring politicians and economist in the face, along with the exponential growth of debt since the Global Financial Crisis, politicians and economists are beginning to turn to MMT as a way out of this debt laden cage they are in.
Part of my theory now is they are trying to warm the general public up to the idea of MMT as a way to keep the “Greatest Economy Ever” going. The greatest economy ever is nothing short of a lie that has been pushed forward by politicians including Donald (I’m not here to pick political sides, that’s what the ruling class does to keep the public at arms against each other versus looking for real solutions to our problems.) You want to know how I know this isn’t the greatest economy ever? in a savings account. The next recession will spiral into a .
As central banks around the globe continued to pump liquidity into the markets after the GFC, what did they expect to happen? For everyone to get piece? Or to keep inflating asset bubbles as to keep deflation away? I will go with the latter and it is why we see housing prices that are completely affordable for the average worker this day. Because the world moved away from a gold backed currency after 1971 when Nixon closed the gold window, we saw the beginning of the stock market boom in the U.S. and globally that has carried on to this day. The relationship between money supply and the stock market is nearly perfect.
When you look at the expansion of the money supply, you must ask MMTer’s why we need to continue to increase it? The disparity between the very wealthy and the poor hasn’t been this wide of a gap since 1929. This is do wholly in part to central banks kicking the can down the road in 2008 instead of letting the system reset naturally via the free market. Instead they have made the consequences much worse this time around.
I think the chart above should be enough to discourage anyone reading this from thinking MMT is a viable solution to our problems we face. All people in power want to do is to keep the system afloat because they know we are on unsustainable path. The only way out of our current system is for systemic collapse. At this point it’s not a matter of if, but when that happens. Careless policy makers have made decisions that will have extreme consequences we will see soon here.
The solution to our problems here is sound money. That is, money that has a high stock to flow ratio. The fiat monetary system we have now is one in which there is a low stock to flow ratio. High stock meaning the amount that has been mined already and flow meaning the amount being mined or printed. The answer to our problems today likely lie with gold, silver, and . The current monetary system we have is unsustainable and will end with a massive collapse.
Published at Thu, 09 May 2019 17:05:50 +0000
