Posted Jun 7, 2013 by Martin Armstrong
QUESTION: Hello Mr. Armstrong,
Thank you for taking the time to address the questions that I and many others who follow your work have asked.
In your most recent answer to a readers question, you state, “Therefore, it was the complete lack of CONFIDENCE in the government that (1) caused the hoarding, and…..”
From what I have read about The Weimar Republic, as soon as people would have fiat in hand they would rush out and spend it before prices would increase, often requesting a bill at the start of a meal to prevent having to pay a higher price upon completion.
How does hoarding play a role where people could not get rid of fiat fast enough?
When you say, “Because people were hoarding real money so there was none to be deposited in banks…”, by “real money”, are you referring to fiat or some other form of capital?
Your clarification would be mush appreciated.
ANSWER: The Wiemar Republic was a 1918 communistic revolution following the 1917 Russian Revolution. The extremists even wanted to invite their fellow communists in Russia to come take Germany.
Whenever you have war, wealth is hoarded. In the case of the WWI and WWII, the gold fled Europe and moved to USA so the US that was broke and needed J.P. Morgan to bail it out in 1896 emerged with 76% of the world gold reserved by the end of WWII, which is why the dollar became the reserve currency.
In Germany, wealth was hoarded because of WWI to start with. Therefore, the German banks were cash poor by the end of the war. With the communists seizing control, that wealth remained hidden. With gold and silver hoarded, there was nothing to create money to restart the nation. This is why the Wiemar Republic went into hyperinflation. (1) real wealth was hoarded (meaning gold and silver coin both domestic and foreign), and (2) nobody in their right might would lend to a communist government that defaulted on all bonds anyway. This resulted in the total collapse in CONFIDENCE in the government and hence all they could do was to print money. They were crazy revolutionaries with no respect for capital or assets.
Gresham’s Law thus applied. Bad money drives out Good Money. So the inflationary notes took place because nobody would hold those and they spent that as fast as they could hoarding anything of international value. The Japanese government did a similar thing where nobody trusted the money of the state and refused to accept it. Hence, Japan recognized coins from China as well as rice. But the Japanese government had with each new issue of coins valued them at 10 times what was in circulation. That meant you could not SAVE money for it was constantly being devalued. This eventually led to the people not accepting the coinage and it thus vanished for 600 years.
The money hoarded in Germany were gold and silver coins of Germany and foreign nations. As the prospects of the war began to look quite dim for Germany, people hoarded foreign coin as well. This is why there was hyperinflation – the complete collapse in CONFIDENCE in government. This is precisely what followed the fall of Rome where gold vanished and was not coined again in Europe until the 13th century. Japan also experience the complete collapse in trust of government and this is essential to creating a dark age.
This is also why I say those buying gold or silver for a hedge, should buy coins rather than bars. With government on the prow and these people willing to do anything, this time they have the data to come knocking on your door asking for the ten 1 ounce coins you bought from the Mint or some dealer they seized all his records. They couldn’t do that in 1934.
You should also understand the reason FDR made an exception for collector coins is because Teddy Roosevelt was a big ancient coin collector. It was Teddy who wanted the mint to strike coins as beautiful as the Greek in high relief. They minted the 1907 $20 St Gaudens in high relief, but they could not in large quantity. So FDR understood that aspect of collecting since it was in his family. Will government respect that again? Who knows? They seem to respect absolutely nothing right now.