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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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