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| A Tale from Weimar Germany
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Most readers will be familiar
with the great hyperinflation of Weimar Germany. Indeed, it
is often held up as the icon of what can go drastically wrong
when government throws off all restraint as regards to the
production of fiat money. I do not need to labour the point
much as to how billions and then trillions of marks were literally
not worth the paper they were printed on and how workers had
to be paid by the hour lest their wages rapidly lost purchasing
power in the brief time between being paid and spending that
same money.
As ever, gold and silver proved to be safe
havens from the ravages of inflation. Indeed, anything other
than the mark seemed to a good place to park one’s wealth.
In those days, that could be anything from bedpans to US dollars
to precious metals. However, depending on one’s accumulated
wealth, gold and silver were amongst the top assets in terms
of holding and transporting wealth. Despite this, one set
of figures and one notable week in the life of Weimar Germany
demonstrated that one particular form of wealth proved to
be in particularly heavy demand.
Thanks to an article by Rob
Kirby that listed the increasing value of gold and silver
in terms of German marks, I was able to plot a couple of graphs.
The chart of the price of silver and gold over the period
from January 1919 to November 1923 shows the rapidly deteriorating
value of the Mark. For those having trouble counting the zeroes,
gold went from 170 marks per ounce in 1919 to 87 trillion
marks per ounce about five years later.
Likewise silver went from 12 marks to nearly 544 billion marks
per ounce. The next step was to see how the gold-silver ratio
performed over this period and that is where the surprise
came as we can see below. For practically all of that five-year
period, gold and silver faithfully followed the historic range
between 14.17 and 16.10 with one temporary blip to 27 in September
1921. But, lo and behold, the ratio leapt to 160 on the week
beginning October 23rd 1923 and stayed there till our price
record ends on November 30th 1923!
What was going on here? Was there an error in
the gold price data? Perhaps an extra zero had been accidentally
introduced thus skewing the numbers. I queried Rob Kirby on
this but we both agreed that the numbers were correct.
This left an obvious mystery, why would gold
suddenly become ten times more expensive than silver in very
short measure? The only clue was to look at the timeline of
Weimar Germany during 1923 and the truth became quickly evident.
The timeline below is taken from Wikipedia (see link)
October 6, 1923 Dr. Gustav Stresemann
(People’s) forms 2nd cabinet
October 20, 1923 General Alfred Mueller marches on Saxony
to prevent a communist takeover. Also:
General Otto von Lossow in Bavaria is relieved of command
by Berlin; he refuses.
October 23, 1923 Communist takeover
of Hamburg
October 25, 1923 Hamburg uprising suppressed
November 8, 1923 Beer Hall Putsch
November 9, 1923 Beer Hall Putsch quelled.
November 12, 1923 Dr. Hjalmar Horace Greeley Schacht was named
‘’Reichswaehrungskommissar’’.
November 15, 1923 Rentenmark issued; pegged to the Gold Standard;
Rentenmark 4.2 = 1 US dollar; at this time:
Old Reichsmark 4,200,000,000 = 1 US dollar
On October 23rd, the communists began an uprising
in Hamburg. With memories of the Bolshevik Revolution of 1917
still fresh in the memories of Germans, this must have set
alarms bells furiously ringing. Was Weimar Germany about to
go the way of Tsarist Russia? The message racing through the
minds of many a panicked German must have been “Get
out of here!” and spare no expense in doing so!
Tales of mass executions and the often violent
expropriation of wealth by Lenin and his cohorts surely would
have focused the minds of wealthy Germans on getting their
wealth changed into a form that was easily transportable and
that could only mean gold. With an equivalent amount of silver
weighing about sixteen times as much, it seems quite apparent
that demand for gold skyrocketed whilst other forms of tangible
but more cumbersome wealth were traded in for gold to the
extent that people were prepared to give up 90% of their assets
to accommodate this dectupling of the gold price. It must
have been a desperate frame of mind that bid gold up to such
feverish prices.
As it happened, less fraught people who
traded one ounce of gold for 160 ounces of silver probably
made a killing as the Germany nation finally stabilized into
some semblance of normality. One wonders how such trading
in gold and silver fared as another form of socialism - National
Socialism – began to cast its shadow across the land.
Doubtless, that is a tale for another time.
*******
Roland Watson is the author of the “Silver
Spike Report” which analyses the technical and fundamental
data from 1979 to 1980 to look for lessons that may help exit
strategies if another jagged peak is upon us. This report
can be purchased by visiting the blog site www.newerainvestor.com.
He also writes investment newsletter The New
Era Investor that can be purchased for an annual
subscription of $99. To view a sample copy of the newsletter,
please go to www.newerainvestor.com.
and click on the "View Sample Issue Here"
link to the right.
Comments are invited by emailing the author at
newerainvestor@yahoo.co.uk
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