The reality of hyperinflation is that money becomes so abundant and circulates so quickly, that it depreciates while you add it up. Fergusson gives the anecdote of a 5,000 mark cup of coffee costing 8,000 marks by the time you've finished drinking it. So how can money be scarce, yet so abundant? Because notes with many more zeroes are constantly being introduced into the money supply. Here's one way to think of it: imagine a situation where you've only got a $5 bill to buy a loaf of bread. Yet the Treasury has just introduced $1,000 notes, $5,000 notes, and $10,000 notes into circulation. Suddenly that $5 bill is worth a tiny fraction of that $1,000 bill. You're suddenly cash-starved. The money supply is so large that all the previous notes are simply insufficient to the task of operating as currency. This is precisely why people used old paper notes as wall paper, toilet paper, fuel--or why people would use wheelbarrows to move large amounts of currency to purchase goods. There is a large amount of currency in circulation, but only the new bills have any value.
This scenario is what Fergusson describes in his book on the Weimar Germany hyperinflation. The dangers of hyperinflation are that the money supply is increasing so quickly that people become obsessed with spending--turning their paper currency into something--anything of value, because if they hold it too long it will become worthless. Paying off personal debts become meaningless in such situations. Surviving is difficult enough without worrying about paying your mortgage. You're more worried about getting enough food to feed your family, keeping your furnace running through the winter, and hoping to turn your cash into something of value before it turns into a souvenir for eBay.
Fergusson closes his book with this mournful reflection:
“In hyperinflation, a kilo of potatoes was worth, to some, more than the family silver; a side of pork more than the grand piano. A prostitute in the family was better than an infant corpse; theft was preferable to starvation; warmth was finer than honour, clothing more essential than democracy, food more needed than freedom.”
After reading this book, I am more doubtful that our own situation will come to the sort of hyperinflationary situation of Weimar Germany, though I am more frightened the prospects of such a scenario. Weimar Germany seems worlds away from our world. Such sustained, and naive money printing seems unlikely in our world. Yet I know we are not immune to the same impulses and political pressures. Still, I am optimistic enough to believe that we are a bit wiser and a bit more leery of non-stop money printing than Weimar Germany.
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