Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
When Will UK Coronavirus Crisis Imrpove - Infections and Deaths Trend Trajectory Analysis - 8th Apr 20
BBC Newsnight Focuses on Tory Leadership Whilst Boris Johnson Fights for his Life! - 8th Apr 20
The Big Short Guides us to What is Next for the Stock Market - 8th Apr 20
USD Index Sheds Light on the Upcoming Gold Move - 8th Apr 20
The Post CoronaVirus New Normal - 8th Apr 20
US Coronavirus Trend Trajectory Forecast Current State - 7th Apr 20
Boris Johnson Fighting for his Life In Intensive Care - UK Coronavirus Crisis - 7th Apr 20
Precious Metals Are About To Reset Like In 2008 – Gold Bugs, Buckle Up! - 7th Apr 20
Crude Oil's 2020 Crash: See What Helped (Some) Traders Pivot Just in Time - 7th Apr 20
Was the Fed Just Nationalized? - 7th Apr 20
Gold & Silver Mines Closed as Physical Silver Becomes “Most Undervalued Asset” - 7th Apr 20
US Coronavirus Blacktop Politics - 7th Apr 20
Coronavirus is America's "Pearl Harbour" Moment, There Will be a Reckoning With China - 6th Apr 20
Coronavirus Crisis Exposes Consequences of Fed Policy: Americans Have No Savings - 6th Apr 20
The Stock Market Is Not a Magic Money Machine - 6th Apr 20
Gold Stocks Crash, V-Bounce! - 6th Apr 20
How Can Writing Business Essay Help You In Business Analytics Skills - 6th Apr 20
PAYPAL WARNING - Your Stimulus Funds Are at Risk of Being Frozen for 6 Months! - 5th Apr 20
Stocks Hanging By the Fingernails? - 5th Apr 20
US Federal Budget Deficits: To $30 Trillion and Beyond - 5th Apr 20
The Lucrative Profitability Of A Move To Negative Interest Rates - Pandemic Edition - 5th Apr 20
Visa Denials: How to avoid it and what to do if your Visa is denied? - 5th Apr 20 - Uday Tank
WARNING PAYPAL Making a Grab for US $1200 Stimulus Payments - 4th Apr 20
US COVID-19 Death Toll Higher Than China’s Now. Will Gold Rally? - 4th Apr 20
Concerned That Asia Could Blow A Hole In Future Economic Recovery - 4th Apr 20
Bracing for Europe’s Coronavirus Contractionand Debt Crisis - 4th Apr 20
Stocks: When Grass Looks Greener on the Other Side of the ... Pond - 3rd Apr 20
How the C-Factor Could Decimate 2020 Global Gold and Silver Production - 3rd Apr 20
US Between Scylla and Charybdis Covid-19 - 3rd Apr 20
Covid19 What's Your Risk of Death Analysis by Age, Gender, Comorbidities and BMI - 3rd Apr 20
US Coronavirus Infections & Deaths Trend Trajectory - How Bad Will it Get? - 2nd Apr 20
Silver Looks Bearish Short to Medium Term - 2nd Apr 20
Mickey Fulp: 'Never Let a Good Crisis Go to Waste' - 2nd Apr 20
Stock Market Selloff Structure Explained – Fibonacci On Deck - 2nd Apr 20
COVID-19 FINANCIAL LOCKDOWN: Can PAYPAL Be Trusted to Handle US $1200 Stimulus Payments? - 2nd Apr 20
Day in the Life of Coronavirus LOCKDOWN - Sheffield, UK - 2nd Apr 20
UK Coronavirus Infections and Deaths Trend Trajectory - Deviation Against Forecast - 1st Apr 20
Huge Unemployment Is Coming. Will It Push Gold Prices Up? - 1st Apr 20
Gold Powerful 2008 Lessons That Apply Today - 1st Apr 20
US Coronavirus Infections and Deaths Projections Trend Forecast - Video - 1st Apr 20
From Global Virus Acceleration to Global Debt Explosion - 1st Apr 20
UK Supermarkets Coronavirus Panic Buying Before Lock Down - Tesco Empty Shelves - 1st Apr 20
Gold From a Failed Breakout to a Failed Breakdown - 1st Apr 20
P FOR PANDEMIC - 1st Apr 20
The Past Stock Market Week Was More Important Than You May Understand - 31st Mar 20
Coronavirus - No, You Do Not Hear the Fat Lady Warming Up - 31st Mar 20
Life, Religions, Business, Globalization & Information Technology In The Post-Corona Pandemics Age - 31st Mar 20
Three Charts Every Stock Market Trader and Investor Must See - 31st Mar 20
Coronavirus Stocks Bear Market Trend Forecast - Video - 31st Mar 20
Coronavirus Dow Stocks Bear Market Into End April 2020 Trend Forecast - 31st Mar 20
Is it better to have a loan or credit card debt when applying for a mortgage? - 31st Mar 20
US and UK Coronavirus Trend Trajectories vs Bear Market and AI Stocks Sector - 30th Mar 20
Are Gold and Silver Mirroring 1999 to 2011 Again? - 30th Mar 20
Stock Market Next Cycle Low 7th April - 30th Mar 20
United States Coronavirus Infections and Deaths Trend Forecasts Into End April 2020 - 29th Mar 20
Some Positives in a Virus Wracked World - 29th Mar 20
Expert Tips to Save on Your Business’s Office Supply Purchases - 29th Mar 20
An Investment in Life - 29th Mar 20
Sheffield Coronavirus Pandemic Infections and Deaths Forecast - 29th Mar 20

Market Oracle FREE Newsletter


Western Central Banks Playing with Hyper Inflationary Fire

Interest-Rates / Central Banks Nov 09, 2015 - 06:12 PM GMT

By: Mario_Innecco


There are various examples in history of when national currencies have been debased so much that confidence in those currencies have been lost to such an extent that the nominal value of hard assets and productive assets in those currencies have gone up in a parabolic fashion. The grandaddy of currency debasement was the reichsmark during the Weimar Republic period in the early 1920s Germany. There are present day examples of currency debasement and rising local stock prices like Argentina and Venezuela but we will focus on the German example.

Have a look below at how the stock market performed during the Weimar period in recihsmark and U.S. dollar terms (which at the time was as good as gold). Notice how from 1920 to the middle of 1922 the stock market in Germany was going sideways in both currencies and then it started to move up very quickly in reichsmark terms and drift lower in dollar terms. By the end of 1923 or about eighteen months later the stock market went from an index value of below reichsmark 1000 to  reichsmark 100’000’000’000 (100 billion). In dollar terms the move was up but not parabolic, as the index was valued under $30 at the end of 1923 after having traded just above $20 in the middle of 1920.

This example of the bull market in Weimar Germany clearly illustrates the difference between price and value as one can see that productive assets represented by the stock market index held their value fairly well in terms of gold or U.S. dollar while the nominal value in reichsmark might have gone up parabolically one has to have a look at how the reichsmark performed versus gold or the U.S. dollar. In February of 1920 $1 bought rmark 100.5 and then at the height of the hyper inflation $1 was buying close to rmark 5 billion! Looking at the data from that period though, one will notice that the reichsmark did not plummet in a straight line from 1920 to 1924 as back in January of 1921 the dollar had actually dropped from rmark 100.5 the previous February to rmark 74. We suspect this period of reichsmark strength must have driven a great deal of German dollar holders back to their home currency but it was nothing but a brief respite for the reichsmark as the heavy burden of war reparations made it virtually impossible for Germany to ever repay its debt in real terms. The Inter-Allied Reparations Commission decided that Germany had to pay back 269 billion gold marks in reparations to the Allied nations. 269 billion gold marks at the time was the equivalent of 110’000 metric tonnes or half of all the gold mined in history. It is not surprising that a massive money printing policy was implemented by Reichsbank president Rudolf Havenstein.

So almost one hundred years later and almost a decade after the Great Financial Crisis of 2008 the West has racked up enormous amounts of government debt, welfare state liabilities, corporate debt, student debt and derivatives debt. To be sure there has not been a devastating global war and all the debt that has been incurred in the last few decades since the break up of the Bretton Woods system on August 15th, 1971 is purely the result of monetary and fiscal recklessness. With global debt calculated roughly around $230 trillion or 300% of global GDP one has to wonder if we are witnessing a similar kind of situation that Mr Havenstein faced back in the early 1920s. One worrying aspect about this debt montain is that the $230 trillion figure does not include unfunded liabilities of Western welfare states. The U.S., for example, is claimed to have $211trillion of unfunded liabilities and that does not include the official public or national debt of $18.5 trillion. And what about financial institutions risk exposure to financial derivatives? According to Egon von Greyerz financial derivatives exposures amounts to $1’400 trillion or $1.4 quadrillion and the great bulk of this exposure is held by a handful the Too-Big-To-Fail systemically important financial institutions (SIFI) of the Western world.

When we look at these scary numbers is it any wonder that the major central banks of the world have embarked on a policy of monetary debasement and zero interest rates? We are told by the Federal Reserve and its peers that it is not debasement but a policy of quantitative easing and that it is not money printing because they will eventually raise interest rates and then sell off or sterilise the trillions of toxic assets that they have added to their balance sheets since the Great Financial Crisis of 2008. The ECB or European Central Bank is even talking about making their official interest rates even more negative!

Source: Zerohedge

So the question we at Forsoundmoney ask is the following. Are we in 1921 when gold or the U.S. dollar had dropped from reichsmark 100.50 one year earlier to 75 reichsmark and a hyperinflation of the German currency seemed an outlandish idea? For the last few years the fiat dollar has strengthened versus gold as the gold price has dropped from a high of $1923 in 2011 to a present level of around $1100 so is it time to get rid of gold just like many Germans probably sold their dollars back in July of 1921? Aside from gold we think people also need to keep an eye on the Dow Jones Industrial Average and the Standard and Poors 500 Index as we have seen these indexes rebound from a significant drop earlier this year in August and we are now within striking distance of the all-time highs reached in May of 2015. Could we see U.S. stock markets embark on a Weimar ride?

S & P 500 Index. Source: IG Markets

Dow Jones Industrial Average Index.              Source: IG Markets Ltd

Best regards,

By Mario Innecco
A Futures and Options broker in London for twenty years

Mario Innecco Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules