German Hyperinflation

by Guruprasad

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1923
A German lady feeds her stove with currency notes (German Mark) instead of firewood. That was because of the German Hyperinflation after World War I.
Due to rapidly increasing prices, the cost of goods had become so high, a kilogram of currency notes (billions of German Mark) would fetch only half kilogram of firewood. So it was cheaper to use currency notes instead of firewood for stoves!!

Hyperinflation is a phenomenon that occurs due to many cases. One of the cases is when citizens lose faith in the govt. Might be due to bad governence and administration or as a result of very high govt expenditure during wars. In such a case, the output from the country will be stagnant, leading to insufficient goods available for people. Thats when customers start paying more money for goods (high demand) and due to insufficient supply, sellers increase the prices. This turns into a recursive cycle of “limited supply vs increasing demand” and the flight of severe inflation starts to take off. When the inflation rate exceeds 50% per month, it is termed “Hyperinflation” and once a country gets into hyperinflation, there is no looking back. The inflation grows as an exponential curve and prices double frequently. There have been hyperinflations where prices had doubled everyday (even every 6 hours also at later stages).

To cope up with such a quicksand, the banks release new notes adding more zeroes (notes having values of million, billion, even trillion). This adds up to the fire and hyperinflation becomes totally uncontrollable.
A graph of inflation vs time might give a better picture:
http://en.wikipedia.org/wiki/File:German_Hyperinflation.jpg

As you can see, at later stages it just shot up (year 1923).
One of the solutions to tackle hyperinflation would be to stop printing such high value bank notes and discard the current system of currency itself. Next logical step would be to pick a stable currency for the country. It can be a new system of currency or something which is already established like dollars. The intention is to finalize on a currency which will be mutually accepted by traders, businessmen and citizens.

If you remember, there was similar crisis recently in Zimbabwe in the period 2006-09. Here is the graph of Zimbabwe’s hyperinflation:
http://en.wikipedia.org/wiki/File:ZWDvUSDchart.png

According to sources, Zimbabwe hyperinflation was much severe than the German hyperinflation of 1923. The peak inflation rate of Zim was in the range of hundreds of millions of percent (just to given an idea, India has 6-9% yearly inflation, US has less than 1%).

It seems prices started doubling every 6 hours and at one point of time, it was cheaper to use Zimbabwe currency instead of buying toilet paper. Here is a real photograph of a sign which was used in a restroom and was widely published in all newspapers:
http://www.freakonomics.com/2008/12/18/freak-shots-when-money-goes-down-the-toilet/

There is an interesting documentary called “Money Masters” (3.5 hours long) which was made in 1996 which talks about the history of currency, banking, inflation/hyperinflation, recessions, depressions, currency over/under valuations etc. It also talks about how bankers control our economy and can even create an artificial recession.
In 1996 itself the documentary had analyzed world economic growth and predicted that in 2000 there would be a recession followed by another bigger recession 10 yrs later!!
You can watch the complete documentary online here:
http://video.google.com/videoplay?docid=-515319560256183936#

There is another interesting documentary called Zeitgeist which talks about how influential our bankers are in controlling our economy. You can watch the full documentary online here:
http://video.google.com/videoplay?docid=7065205277695921912#

The above mentioned documentaries are available in torrents also with higher resolution.

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