All This and Weimar, Too: The Million Reichsmark March
As the Examiner notes, “Think the economy is bad? Worse is coming.” And as always, Manhattan leads the way, with “Homelessness Up 50% In New York City” according to this article.
Meanwhile, the Zero Hedge Website is ready to party like it’s 1923, exploring what 21st-century Weimar-style hyperinflation would look like, and noting, somewhat reassuringly, “Civil society will stumble about like a drunken sailor, but eventually right itself and carry on with a new normal.” As the Gipper would say, that’s an insult to drunken sailors, but the scenarios, and the methods to survive them are still worth reading, as this excerpt highlights:
A banker friend of mine manages the assets of a fabulously wealthy 70-something gentleman, whom I’ll call Alfredo. In 1973, Don Alfredo was a youngish man, just starting out, with a degree in engineering but no money—until he inherited US$3,000 from a deceased aunt. Alfredo realized that the $3,000 were in a sense worthless: He couldn’t buy anything with them, and it wasn’t enough for him to leave the country and start over someplace else. After all, even then, $3,000 was not that much money.
So he took those $3,000, went down to the stock exchange, and spent all of it on Chilean blue-chip companies: Mining companies, chemical companies, paper companies, and so on. The stock were selling for nothing—less than penny stock—because of the disastrous policies of the Allende government. His stock broker at the time told him not to buy stocks, as Allende’s government, it was thought, would soon nationalize these companies as well.
Alfredo ignored his broker, and went ahead with the stock purchases: He spent all of his $3,000 on buckets of near-worthless equities.
On September 11, 1973, the commanders in chief of the four branches of the Chilean military staged a coup d’état. Within a year, Alfredo’s stock had rebounded about ten-fold. Since then, they’ve multiplied several thousand-fold—yes: Several thousand-fold. Don Alfredo has lived off of that $3,000 investment ever since—it’s what made him a multi-millionare today.
He realized, of course, that either those blue-chip companies would be nationalized by Allende—in which case he would lose all his $3,000 inheritance, which really wouldn’t change his fortunes very much—or somehow a new normal would arrive in Chile. Since the $3,000 couldn’t buy him anything, he took a gamble—and won.
What do these two true stories tell us? Simple: Buy when there’s blood on the streets.
That’s Baron de Rothschild’s famous line—but it hides a key insight, one which should be highlighted perhaps even more forcefully than the line itself:
Even in the midst of Apocalypse, things will get better.
That’s something people don’t quite seem to understand. In fact, it’s why teenagers tragically kill themselves over some girl or boy: They don’t realize that, no matter how bad things are now, they will get better later. To repeat:
Even in the midst of Apocalypse, things will get better.
I’m not repeating this insight as an empty comfort to my readers—I’m saying it as a trading strategy. When things are at their crazy worst, when everyone believes the Apocalypse is well nigh here, that’s when thing are about to turn for the better. This applies to every situation—including and most especially in a hyperinflationary situation.
Why? Simple: Because hyperinflation—by definition—cannot last. Because people need a stable medium of exchange. So if the currency goes up in flames in a hyperinflationary fire, of course there will be a period of terrifying instability—but it will pass. Either the currency will be repaired somehow (as Volcker repaired the dollar back in 1980–’82). Or the currency will be completely and irrevocably trashed—and then be replaced by something else. Because—to insist—people need a stable medium of exchange.
If Treasuries tank and commodities shoot up so high that they essentially break the dollar, civilization will not come crashing down into anarchy. At worst, there’ll be a three-four years of hell—economic hell. Financial hell. But then things will settle down into a new normal.
This new normal might well have unsavory characteristics. I tend to be a pessimist, and just glancing through history, I can see that just about every period of hyperinflation has been stabilized by some subsequent form of autocratic or totalitarian government. The United States currently has all the legal decisions and practical devices to quickly transition into an authoritarian or totalitarian regime, should a crisis befall the nation: The so-called PATRIOT Acts, the Department of Homeland Security Agency, the practical suspension of habeas corpus, etc., etc.
But as I said in my previous post, and reiterate here: Speculations about the new normal are pointless at this time. The future will happen soon enough.
What I do know is, One, a hyperinflationary event will happen, following the crash in Treasuries. Two, commodities will be the go-to medium for value storage. Three, all asset classes will collapse in short order. And Four—and most importantly—civil society will not collapse along with the dollar. Civil society will stumble about like a drunken sailor, but eventually right itself and carry on with a new normal.
During that stumble, opportunities will present themselves. I hope I have explained why.
Hey, the Weimar Republic managed to right itself after its bout with hyperinflation — it just took a quarter century and a World War to do the job.
By the way, remember the infamous one million mark note designed for the Weimar Republic by Herbert Bayer, one of the pioneering modernists of the Bauhaus? After more than a century of Starting From Zero, the more things change:
The more they remain the same:
After plenty of “reeducation” from the Ministry of Love the regime the administration this new currency should seem even more doubleplusgood!
And speaking of Germany, high finance, and the more things change…
Related: “Running for Congress on an Amity Shlaes platform”?
That definitely works for me.
Elsewhere in the “All This and World War II” files, as I quipped when I wrote the headline for Kim Zigfeld’s article on the Pajamas homepage, “It’s Springtime for Stalin at Emmy-Nominated Russia Today.”
Related: “They told me if I voted for John McCain, America would be taken back to the 1920s. And they were right!”
Hey, at least it’s America’s 1920s, and not Weimar. Yet.
(And incidentally, miss him yet?)
Mate, I live about 400 kilos from Zimbabwe’s border and I am not that optimistic.
One need only look at New Orleans before, during and immediately after Katrina to get an idea of what society will be like during a period of economic meltdown. In other words, it ain’t gonna be pretty.
Put a small ‘m’ just to the right of the ’1′ on the Obama dollar and it would be more appropriate.
Here is a more detailed report on the German link. I actually don’t find things too different from the discussions in America.
http://www.spiegel.de/international/germany/0,1518,714643,00.html
Actually Weimar Germany was well on the way to stability and prosperity by the late 1920s thanks to extensive U.S. investments. Hyper-inflation was gone. The Nazis were fading and apparently headed towards permanent fringe ststus. The left was also in retreat. Then the U.S. stock market collapsed which hit Germany hard, drying up U.S. investments. German unemployment soared and the gains of the Weimar Republic shimmered like a mirage. Nazi populariy surged. In January 1933 after they had won a plurality, Hitler was appointed Chancellor. Four months later Roosevelt took office after the Demoncrats swept the 1932 elections. It was the end of the begining of the grim 1930s.
The excerpted Zero Hedge article suffers from one flaw. It assumes determinism. In reality, individuals make choices. The author assumes some series of events that eventually cause conditions to become better. How? No, it’s individuals who act; and if they don’t act, nothing will get better.
Consequently, it would seem that those who mistakenly believe in determinism are a passive lot; they do nothing but wait for the world to change.
Well, for rational individuals, the “new normal” is not inevitable. We have the power of choice to act otherwise and to consider the Austrian-economic alternative of an economic recovery. For an outline of this alternative, check out Dr. George Reisman’s 2009 speech on the economic recovery at his site Capitalism dot net.
Could we tweak the Bill of Rights? Not freedom of religion, but “No laws limiting speech”? and maybe “No illegal search and seizure.” Because the thing being limited is the government, and we are to be free from a tyrannical government.
Your blithe comments on the Germany situation during the 1930′s and return to normalcy ignores the fact the hundred of thousands of people had to stop the madness with force. Counting the Russians around 100,000 million were lost. [Includes army loss of at least 3- 5 million. No one really knows.
Spent 18 months in Germany and met the Russians on the ELby river. What your are talking about is not fun and games, and how well one can survive while chaos reigns around you just isn’t that simple.
Re: previous post. Op’s 100,000 million should have been 10 million or more.
My problem with the Zero Hedge piece is, what the heck replaces the Dollar? Its the world’s global currency. Inflation renders Chinese, and Japanese, and British investments in the US worthless (the three biggest holders of US debt, Japan only slightly lower than China). Which makes them collapse, essentially. What then?
Hyper US inflation means two things: replacing the Dollar with some other international currency, the Yen, Renmenbi, Pound, and Euro all having large problems of their own. AND replacing the dollar with something else.
In all likelihood, silver coins. Which the US has the capacity to mint, have a floor value of metal, and are radically different from a hypothetical discredited greenback.
That Obama-worshiping redesign of the currency looks like a 1970′s Logan’s Run society crossed with Saddam Hussein. Truly frightening to what people’s minds are at these days.
A new currency???
Internationally, don’t have a clue.
Domestically, I’ll rely on a composite assembly utilyzing brass, copper, & lead; encapsulating various forms of nitro-cellulose and fulminate of mercury.
Let us not forget the Enabling Act of 1933, where the German Parliament turned over all control of Germany to Hitler to be run by the bureaucracy. Fiat rule, of course it was supposed to only last 5 years.
And you wonder why our Congress is passing these thousand page fill in the blanks bills, all about setting up control, of the people …
Did you read Kagan’s paper “Presidential Administration”. No? Why not?