Hyperinflation was first systematically documented in Germany. The currency on the left is a relic from the Weinmar Republic. It was originally a 1,000 Mark currency note, but because of inflation, it was re-stamped to make it 1,000,000 Marks. You see inflation was happening so fast in the Weinmar Republic there was not enough to print new money, so they just stamped the new amount as the currency was devalued.
The famous Economist, John Maynard Keynes described the situation in The Economic Consequences of the Peace:
“The inflationism of the currency systems of Europe has proceeded to extraordinary lengths. The various belligerent Governments, unable, or too timid or too short-sighted to secure from loans or taxes the resources they required, have printed notes for the balance.
In English, Keynes said, they couldn’t pay their bills so they printed MORE money. Sound familiar? It should.
We are facing a situation today where the Treasury Department is considering printing money to lower the value of our currency to make it “easier” to pay off the money we had to borrow from other countries to pay off our earlier debts incurred because our federal government spend much more than we have.
The probability that the Federal Reserve will provide monetary easing at its November meeting is quite high, a top adviser for the St. Louis Federal Reserve said on Friday.
“There’s a lot of momentum and support to do something,” Christopher Waller, director of research at the St. Louis Fed, told Reuters in an interview. “It’s just how huge, and is it going to be time-dependent or state-dependent … The likelihood we do something is probably pretty high.”
The dollar’s slump could get far worse if the dollar index takes out last year’s low, Robin Griffiths, technical strategist at Cazenove Capital, told CNBC Monday. In fact some are saying the dollar is in danger of becoming a toxic asset.:
“If the (dollar index) takes out the low that was made roughly a year ago I really think that will not only encourage more sales, it will cause a little bit of minor panic,” Griffiths said. “A year ago it was deemed too cheap, if it goes any lower than that it’s actually become toxic waste.”
The dollar [.DXY 77.06 -0.41 (-0.53%) ] resumed its recent downtrend Monday in the wake of a meeting of finance ministers from the Group of 20 nations at the weekend. The meeting failed to yield a definitive agreement on currencies, putting selling pressure on the greenback.
“The dollar is being trashed, we’ve actually had effectively devaluation of about 14 percent in the last two months,” Griffiths said.
Our allies are getting worried also. This past weekend at the G20 summit Germany went public with their concerns:
German Economy Minister Rainer Bruederle on Saturday took issue with what he called a U.S. policy of increasing liquidity, saying it indirectly manipulated exchange rates.
The U.S. Federal Reserve is widely expected to embark on a fresh round of asset purchases to prop up the economy.
“There was criticism of the American policy of monetary easing, or creating more liquidity,” Bruederle said after a meeting in South Korea of finance officials from the Group of 20 economic powers.
“I tried to make clear in my contribution to the discussion that I regard that as the wrong way to go,” he said.
“An excessive, permanent increase in money is, in my view, an indirect manipulation of the (foreign exchange) rate.”
Foreign exchange rates should be determined by markets, said Bruederle, who was attending the G20 meeting in place of Germany’s hospitalised finance minister.
The next few weeks may determine the future of the American Economy. The decision will be made by mid-November. Will this government do what it must to guarantee our future ( drastically cut spending), or will it take the short term “easy way out.” print more money and invite “hyperinflation?” Unfortunately based on the track record of the first two years of Barack Obama, my bet is they will take the short term “easy way out.”