Avery Goodman

Why Our Credit Crunch Mirrors the Weimar Hyperinflation from 1919-1923

Some of you have expressed a preference for "housing" over gold, as your theoretical means of escaping from the stealth tax of heavy inflation. Let me quote from the famous former Fed Chairman, Alan Greenspan who, before being seduced by the "dark side" wrote, in 1966, in a paper, titled "Gold and Economic Freedom":

"...Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights..."

Why Our Credit Crunch Mirrors the Weimar Hyperinflation from 1919-1923

On the other hand, a terrorist attack might actually have the opposite effect of prolonging the avoidance of hyperinflation. This is why I have pointed out, in the article, that no two historical events are ever alike. But, there remains a frightening parallel between the credit/debt situation of Wiemar Germany vs. the USA, as well as the behavior of the Reichsbank in 1918 and early 1919, in reaction to the post-war "credit crisis" and the behavior of the Federal Reserve, now, in response to this "credit crisis."

Why Our Credit Crunch Mirrors the Weimar Hyperinflation from 1919-1923

The Zimbabwean experience has few parallels to the process now happening in the USA, other than the unfunded fighting of a foreign war (which is not insignificant, however). It is presented only to show that neither the German reparations payments, nor the destructive war on Germany's territory, nor a change of government at the initiation of hyperinflation, are necessary prerequisites required for the initiation the phenomenon.

Because of the policies of the monetary oligarchy, all the elements needed for hyperinflation are already in place, with respect to the USA. By means of example, and not by limitation, all that is now needed is, perhaps, a new terrorist attack, or even just a series of failed treasury auctions to fill in the missing element of a "trigger" event. The same is even more true of the U.K., which is unlucky enough not to be issuing the world's reserve currency.

Why Our Credit Crunch Mirrors the Weimar Hyperinflation from 1919-1923

Some comments imply that in the absence of the devastation of WW I, and the payment of reparations, hyperinflation is not possible. This is a reflection of the basic humanity of the commentators, and must be understood as such. The first instinct we all have is to deny reality, and say, "No, no...that can't possibly happen. Maybe, it can happen to someone else...but NOT to me!" I went through this phase, during the first part of the time I began to consider the possibility.

It is human to deny, but it is not always logical or correct. We must often overcome such instincts in order to see the truth. One cannot flee from reality simply because it is very hard to accept. Neither the devastation of a war on a nation's own territory, nor forced reparations are a necessary prerequisite for hyperinflation.

Up until recently, Zimbabwee was the breadbasket of Africa, one of that continent's richest nations, a net exporter of grain and minerals, and one of the most successful African nations. It has not been involved in a devastating war. It did experience a change of government, in 1980, when blacks took over the government from the minority white government, but heavy inflation didn't start until years after that.

Inflation rates in Zimbabwee were high, in the 1980s, ranging from 7% to 20%, but, in the early part of that period, prior to the ascent of Paul Volcker to the Fed Chairmanship, inflation was high all over the world, including in America. Extraordinarily high inflation rates, in Zimbabwee, began in the 1990s. It did not begin as a result of any war, but, rather, as a result of economic mismanagement.

Zimbabwean inflation was made considerably worse, however, when the nation became involved in a war in Congo in 1998. That is when heavy inflation converted itself into hyperinflation. The war was never fought, however, on Zimbabwean territory. There was no bombing of cities or towns, no wrecked homes or industrial parks, no shell-shocked population. Zimbabwee simply intervened in a foreign war, pure and simple. All fighting took place in Congo. Just as George W Bush emptied America's coffers by invading Iraq, Robert Mugabe, the President of Zimbabwee, emptied his country's coffers supporting troops in Congo.

Since then, the situation has become uncontrollable. Just recently, it was taken out of circulation by the new government, and foreign currencies are now the circulating medium of exchange, with the U.S. dollar, and South African Rand dominant. In short, Zimbabwean hyperinflation was purely the result of economic mismanagement, including economic mismanagement of the budget for a war, and nothing else.

According to Wikipedia, "The first Zimbabwean dollar was introduced in 1980 and replaced the Rhodesian dollar at par...At the time of its introduction, the Zimbabwean dollar was worth more than the U.S. dollar, with ZWD 1 = USD 1.47...According to Central Statistical Office statistics, annual inflation rate rose to 231 million percent in July 2008." As most people already know, the Zimbabwean currency is now worth next to nothing.

One would hope that Americans, being more politically active, with a long history of an active republic, with traditions of independence and the rule of law, will eventually cry out so loudly that those in power will no longer be able to ignore them. The monetary oligarchy, otherwise known as the "Federal Reserve", and its constituent banks, will be forced to take notice. Before that happens, however, a devaluation in the range of the single or low double digits is certainly possible, and, dare I say...even likely.

As I said in the body of the article, my personal estimate for U.S. dollar devaluation does not reach into the millions or trillions. I believe that American devaluation will range somewhere between 1 to 4, or 1 to 10 by the end of the next 4 years. That, however, is still enough to essentially wipe out the savings of the middle class. The wild betters and risk takers will be subsidized, and those who were prudent will be punished.

That is why such inflation is immoral. That is why it will deeply scar our nation for a generation. It is time for people to begin to make their voices heard, so that the inevitable scarring can be kept as small as possible. Even in countries that do not own the world's exchange currency, the process of currency devaluation takes place over time. This time, the event will be far more protracted than in cases like Weimar Germany or modern Zimbabwee.

We are Americans, and fortunate enough to have the benefit of forefathers who were much wiser than we. The rest of the world willingly gave them the right to print the world's reserve currency. They did this because they believed in us, our integrity, our honesty, in our strength, in our courage and in our convictions. The monetary oligarchy, however, is in the process of either knowingly, or unknowingly, tearing all of that apart.