Tuesday, November 16, 2010

How Stocks Performed During the Weimar Republic Hyperinflation

Thinking ahead, just in case Bernanke really loses it.

From Bearwatch:

It is well-known that German money became worthless in 1923, thanks to hyperinflation. The value of cash savings was wiped out; fixed rents also became worthless, which benefited the ordinary person; but practically all one's income was spent on food, instead (see Table 6 at the bottom of this page).

What is less well known is how investors who didn't have to sell their shares actually gained, after a market pullback.

BTW: In 1975 on Meet the Press, Friedrich Hayek named stocks as a way to hedge against inflation.


  1. Robert, How did a stockholder get paid if the currency was worthless?

    1. 1. Crash the national currency.
      2. Buy stocks dirt cheap with *foreign* currency
      3. Fix the national currency

      Result: the whole of Germany bought for as a penny on the dollar.

      It was a robbery.

  2. The inflation of Weimar, & even U.S. during the 1920s mostly worked, because few of the public had any idea of what was occurring. Today Fed stats are watched closely.

    Besides, Bernanke will either be replaced and/or severely controlled. His helicopter is running out of gas already -- as shown by recent market activity in all asset classes.

  3. How did they buy stock if the money was worthless? How did they buy anything with the profits from the stock if the money was worthless? Enquiring minds want to know!

  4. They bought the stocks before the money was worthless, and when the money was finally replaced they cashed out in the new currency.

    While the inflation roared they sold as they needed funds.

  5. Wouldn't hyperinflation destroy companies' earnings and balance sheets thus making them poor investments? Especially if there are alternatives such as there are today.

  6. You do know we have essentially ZERO inflation (core inflation has been 0% for 3 months running). Do you have any clue how damaging deflation will be? The scare mongering about hyperinflation when we are at the cusp of deflation would be laughable if the effect on our ability to confront our real challenges wasn't so impinged by the ignorance.

  7. @ alanmoorepdx:

    You're right, we're in a deflation at the moment, but the undermining of the currency is already showing up as inflation in energy and food prices. Recently (http://www.youtube.com/watch?v=J2-BZEyOnhE) Mike Shedlock and Dr Marc Faber appeared together on an interview and they agreed that inflation was the end stage, the only real difference of opinion between them was over timing.

    Deflation would greatly benefit holders of cash (and gold, which seems to be a great each way bet if you buy in at the right price), but pretty much cripple and bust everyone else, so you're right again. Which is why our governments are so very motivated to find a way to restimulate inflation.

    This time, the most indebted countries seem to be competing to see who inflates most (so they end up debauching their currencies in parallel), and the creditors who depend on exporting to them are trying to follow suit. The global economy has never been so interconnected before so we're in new teritory.

    Faber reckons we are heading for a global bust; in which case I suppose global trade will break down, the focus will be on national and individual self-sufficiency and those who have spare assets will hold commodities of one sort or another until a new, sound currency arises.

    Scaremongering? My mother's family lived through the Weimar inflation, but got through OK because they were farmers; until the busted German middle class turned to a new leader. The farm is now in Russian-held territory and we haven't seen it since 1945.

    I have hope for the USA because it has natural resources (including land) that could satisfy the reasonable needs of the population; and because you have a Constitution that could be your storm cellar, if you don't let your corrupted elite persuade you to fill it in and build over it.

  8. The FED is fighting INFLATION not DEFLATION. Ask yourself what is deflating? Home prices and your currency!!!!! Anything else? I didn't think so. Deflationist are dead wrong.

  9. Deflation is what happens after the elitists, bankers, governments and corporations have stolen all real property and assets of real intrinsic value from the common populace.

    When this happens the currency has collapsed, debts have all defaulted and you start over with reasonable deflated prices, a new worthless currency, maybe a fractional reserve currency and a new cycle of enslaving everyone into debt again.

    You see, at that point no common joe has any property or assets to barter with because they had to sell them to eat. All they have is their labor. You work, earn a paper credit, save a few credits and then start borrowing credits at interest...the cycle begins a new.