Posted Feb 24, 2013 by Martin Armstrong
Many people pay attention to the German Hyperinflation of the 1920’s, yet fail to understand that such an economic crisis followed the German Revolution of 1918. The German Revolution was a politically driven civil conflict in Germany at the end of World War I, which resulted in the replacement of Germany’s imperial government with a Weimar Republic. The revolutionary period lasted from November 9th, 1918 until the formal establishment of the Weimar Republic in August 1919.
The roots of the revolution lie in the German Empire’s demise in the First World War. The Naval Command, which, in the face certain defeat, nevertheless insisted on engaging in a last battle with the British Royal Navy. The German sailors revolted for it made no sense to die. The Wilhelmshaven mutiny erupted and the spirit of rebellion spread across the country. This broke out with a proclamation of a new republic on November 9th, 1918 forcing Emperor Wilhelm II to abdicate.
Nonetheless, keep in mind that the Russian Revolution was 1917. Consequently, the German revolutionaries were certainly inspired by the emerging communist ideas. However, the German communists failed in their effort to hand power to soviets as the Bolsheviks had done in Russia. In Germany, it was the Social Democratic Party of Germany (SPD) leadership that refused to work with communists who supported the Bolsheviks. Moreover, the SPD feared that an all-out civil war would erupt in Germany between the communists and the German conservatives. Hence, the SPD struck a middle ground and did not plan to completely strip the old imperial elites of their power and assets. The SPD sought a compromise whereby they were integrated into the new social democratic system. The left wing fell into political fragmentation that prevented Germany from turning communist at the time. The Weimar Constitution was adopted on August 11th, 1919. It was this government that moved into hyperinflation, not the old Imperial Government.
Consequently, this was a revolutionary government. All economic activity stopped. The wealthy were scared to death. They saw the bloodshed in Russia in 1917. Capital hoarded and the velocity of money imploded. So while many point to the German Hyperinflation and then say we will enter the same result, are taking only the hyperinflation and ignoring the events that caused it. There were NO gold reserves. There were no lenders to the government. There were no bond markets. There was absolutely nothing. Nobody would dare lend anything for the fear was Germany would go the way of Russia.
This is why I say the hyperinflation of Germany and Zimbabwe are just not even plausible today. Yet these events are touted and used as sales tools for gold and that is dangerous for when the fundamentals do not pan out, confusion and crisis follow. Feeding people bullshit stories is highly dangerous for when the truth emerges, they lose confidence rapidly.
This is not about gold going to $30,000 an ounce. This is about tangible assets providing the bridge when the currencies collapse and what we have today is replaced by something new. Our major risk is that everything falls apart and we descend into trade and currency wars as politicians once again try to cling to power rather than reform. When the hyperinflation notes collapsed, the tangible asset to emerge was real estate. This is what backed the Rentenmark in 1925.