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February 28, 2021 | Why Weimar-Style Inflation Is Nearly Impossible

Rick Ackerman

Rick Ackerman is the editor of Rick’s Picks, an online service geared to traders of stocks, options, index futures and commodities. His detailed trading strategies have appeared since the early 1990s in Black Box Forecasts, a newsletter he founded that originally was geared to professional option traders. Barron’s once labeled him an “intrepid trader” in a headline that alluded to his key role in solving a notorious pill-tampering case. He received a $200,000 reward when a conviction resulted, and the story was retold on TV’s FBI: The Untold Story. His professional background includes 12 years as a market maker in the pits of the Pacific Coast Exchange, three as an investigator with renowned San Francisco private eye Hal Lipset, seven as a reporter and newspaper editor, three as a columnist for the Sunday San Francisco Examiner, and two decades as a contributor to publications ranging from Barron’s to The Antiquarian Bookman to Fleet Street Letter and Utne Reader.

The global credit-blowout has stoked fears of a money-printing catastrophe like the one that wrecked Germany’s economy a hundred years ago, planting the seeds of World War II.  However, even a cursory look at the Weimar hyperinflation of 1921-23 reveals why it is extremely unlikely to happen again, especially on a global scale.  It was a local event involving physical paper currency that would be nearly impossible to replicate using a global reserve currency, particularly at a time when digital transactions overwhelmingly dominate.

The German hyperinflation featured literal boxcars of D-marks delivered weekly to the biggest employers. The country was a ‘union shop’, so to speak, and the sums sent to workers ahead of each payday were continually renegotiated to include an adjustment for inflation. The system was put in place in order to hold down unemployment and worker unrest. It worked so well, at least initially, that the Germans enjoyed lower joblessness in the early 1920s than some of the Allied nations that had defeated them in The Great War.

Money by the Boxcar

The money-filled boxcars pushed the exchange rate to an extreme, in 1923, of 4.2 trillion marks per dollar. However, the periodic spikes in money creation that quickly ramped inflation to this level were caused not by official money-printing, but by employers who issued their own scrip. This was by agreement with the German government, which was fearful of riots if workers were not paid on time. In fact, Germany’s money presses, stressed to the limit, did break down a couple of times during the 1921-23 period. Employers reacted with such patriotic vigor that it was immediately following each successive scrip-a-looza that inflation took unfathomable leaps.

No similar mechanism or infrastructure exists to ramp up the physical supply of U.S. dollars. Although it is all too easy for the Fed to create asset inflation, even this is predicated on having the ginned-up dollars borrowed into existence. That’s why wage inflation could not be used to keep deflation at bay. Nor will helicopter money work to stave off yet another juggernaut of deflation bearing down on us, the collapse of the public-employee pension system. It is coming, and one need only imagine how it would play out to understand why “the Government” (i.e, taxpayers) will not be able to rescue us. Illinois is out front in the race to failure, but two dozen other states whose pension systems are nearly as bankrupt would line up quickly for their fair share of bailout money.  Although this scenario represents a theoretical path to hyperinflation, it would detumesce quickly when the generous checks sent out each month to pensioners in 25 states became nearly worthless in just a few short months.


For those who would value gold and silver above all in the event of a financial collapse, keep in mind that you cannot eat either. Arable land was the best asset to own during the German hyperinflation.  If you’d financed the purchase of farmland at 100% just before inflation began to take off in the spring of 1921, you could have paid back the entire loan with profits from your first harvest of potatoes.

All of the facts cited above are from Adam Fergusson’s extraordinary book, When Money Dies. The work is a must-read for anyone who believes it would be easy for the Fed to hyperinflate a global-reserve currency. It is available in paperback for $15.

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February 28th, 2021

Posted In: Rick's Picks

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