Everyone PLEASE READ:
From Richard Russell - Dow Theory Letters, Inc.
via an email from a subscriber
------TRADE REPARATION, HYPERINFLATION, AND GOLD
In early 1923, German railroad workers went on strike for an increase in weekly wages. They were asking for much more than the 2,500,000 marks they were presently earning. A few days later they settled on a 9,000,000 mark weekly wage. A week later their 9,000,000 marks bought less than the 2,500,000 marks they were earning a little over a month before.
Yes, this was the infamous hyperinflation of Weimar Germany in 1922-1923. When shops would close and update their prices hourly and higher. When an old lady would have to bring a wheelbarrow of billions of paper marks to buy an apple, only to be mugged beforehand and have her wheelbarrow stolen from her. When the German mark was used as wallpaper or toilet paper. How could this happen?
Simply. The Germans lost the First World War and the allies handed them a reparations bill (132 billion gold marks) that they couldn't pay. Not only did the allies demand payment for damages, but also imposed restriction on German industry, even annexing parts of industrial Germany to Poland. Germany fought back by suspending payments in gold in order to expand the supply of paper money and pay for the war with fiat currency. By 1921 the German mark had plunged to being worth only one-third of a cent on foreign exchange markets. This didn't stop the German government from running up huge budget deficits and putting more marks into circulation. War reparations were destroying what little was left of Germany after the war, and laying the
foundation for what was to be the greatest hyperinflation of modern times.
Then, in 1923 French troops moved into the Ruhr industrial area of Germany, closing down factories in order to squeeze the gold out of the Germans. The Germans did the only thing they could and printed billions of marks to put up whatever resistance they could. The Reichsbank commissioned 2,000 printing presses to print around the clock in order to keep up with demand for the fiat paper money. Money was literally given to the people to spend in the confines of a complete socialist, welfare state. The mark fell from 20,000 to the dollar to 4,200,000,000,000 (that's trillion) to the dollar in a short period of nine months. The cost of an egg went for a quarter of a mark in 1918 ... to 5,000 marks in July, 1923 ... to the absurd cost of 80 billion marks three months later. It all ended when the mark was scrapped for a new currency called the rentenmarks which had a face value of 1 trillion of the old marks. Of course, Germany never really recovered and the economic landscape resulting from the hyperinflation of 1923 consequently brought Hitler to power. And we all know the rest of that story.
In retrospect, Weimar Germany, absurd and nonsensical as it was, clearly illustrates what actually can happen when a country is bankrupted and cornered with no way of offering anything of value to pay off its bills.
Fast forward to 2002. I hate to say it, but there is another Weimar Germany in the making and nobody wants to talk about it. Nobody! It has come about over such a long period of time and the bankrupting and cornering is being done so slowly and covertly that nobody notices or doesn't want to know. Nobody believes it can or will happen.
For the month of September, 2002, the U.S. racked up a record trade deficit of over 38 billion ($38,000,000,000) dollars. Not 3.8 billion. 38 billion! At this rate, the US is going to record a trade deficit of over 400 billion dollars just for this year alone. This is absurd.
To put this another way Richard, as you like to do: This is like all Americans cummulatively swiping their AMEX card at the BIS (Bank of International Settlements) each and every month to the tune of $35 billion plus. And, we've been swiping this card for over thirty years now. But since its an American Express (not GOLD) card, we never have to pay the debt back.
Why? Because it is NOT a GOLD card. It it were, we would have quit swiping long ago. These are hyperinflation numbers and the wheelbarrow would again be a hot commodity if these figures were taken to press. But they aren't.
At any rate, the debt ends up as just a bunch of digits recorded on a hard drive somewhere at the BIS in Switzerland and the Treasury in Washington. Month after month we receive goods and services free from the rest of the world and Greenie's niece at the BIS keys (Keynes?!) another 35 bil. on the debt side of the U.S. Treasury ledger into the computer. Our creditors just keep hoping that someday they will be allowed to cash out those digits into something of real, tangible value.
But the day is coming when our creditors are going to need the cash and cash out they will. Or it will be War. And the demand for payment, or Trade Reparations, will unmask the inflation that the FED and the U.S. Government has attempted to hide from us all -- for generations.
We already have hyperinflation, they just haven't had to crank up the presses yet. The trade deficits and all the monopoly-money, digital debts we have piled up are going to be paid back in cheaper, hyperinflated dollars. The numbers tell us hyperinflation.
The tide has already changed. U.S. credit is no longer good for 30 years; the 30 year bond is dead and illiquid. The 10 year bond is suppose to be the benchmark, but almost all monies raised by our government are in the shorter maturities, usually no longer than two years out. U.S. corporate debt for all practical purposes is junk. A bit more on the downside on Wall Street and everybody will be getting into cash, the little of it that exists.
The clock is ticking, the war is on, both inside and outside the country. Another election, another crisis. A lower, lower dollar. No more AMEX, no more swiping, no more Greenie, and no more credit. When it comes, it just comes, Weimar just happened..... and GOLD just sits there patiently waiting for all takers...
All the best,
JD |
