Limbaugh Tie
Some pretty strange things have happened throughout history. In one bizarre instance, a single American dollar was actually worth 4.2 trillion German marks. It's true. To fund its mega-expensive World War I effort, Germany severed the tie between its mark and gold, something that's happened over the course of every government-generated currency. Today there are no gold-backed currencies in the world.
After 1914 in Germany, the mark became just another fancy piece of worthless paper. No longer tied to gold, there were no longer any limitations on how many marks could be printed. But no worries, either - the patriotic German populace somehow believed everything would work out fine as long as Germany won the war. Because the winners of wars, everybody knew, always dictated the terms of surrender, including - and especially - the economic terms.
The trouble was:
GERMANY LOST THE WAR
By the end of the war in 1918, Germany was a mess. The Treaty of Versailles imposed steep war reparations, and that did nothing to strengthen a German Reichmark no longer backed by gold...or anything else for that matter.
Confidence in the mark continued to nosedive, especially under a deluge of post-war government spending in many new social programs (sound familiar?). But Germany couldn't spend its way back to normal - neither can any country - and confidence in the post-war currency continued to plummet.
By 1922, just four years after the war, Germany's serious inflation had turned into a full-grown hyperinflation monster.
VICIOUS CIRCLE
That's what hyperinflation is.
The faster the government prints its money, the faster business raises its prices. Round and round the whole thing goes, in one miserable cycle, never quite catching itself.
During a hyperinflation, even the printing of the currency becomes a challenge. In post-war Germany, it took 300 paper mills to make paper for the inflated mark. And 150 printers with 2,000 presses running 24/7 to turn out the marks. It got so ridiculous, in fact, that the German government actually tried to print a quintillion (a million trillion) marks in one remarkable day.
On the world economic stage, exchange rates for the mark understandably plunged. Prior to the hyperinflation, the gold-backed dollar (yes, our dollar was once backed by gold) was worth eight marks in a reasonable 1-8 ratio.
That soon changed. After the war, just one of our gold-backed dollars was worth - ready for this? - 4.2 trillion marks. That's right...a 1-to-4.2 trillion exchange rate existed between our currencies.
Even our lowly copper penny was worth 42 billion marks. Yikes.
Think a $1,000 bill is a lot? Try a 100 trillion-mark bill. The Germans had to carry those kinds of comical bills around.
But absurd denominations like that were actually necessary. That's because retail prices were just as absurd. What was even more absurd, however, were the politicians and economists who argued that there was no inflation in Germany.
One professor wrote, "In proportion to the need, less money circulates in Germany now than before the war." That was said straight-faced, despite an official inflation rate of about 325,000,000%.
THIS TIME AN OUNCE OF GOLD COULD BE WORTH 2.3 TRILLION
People eating at restaurants would watch the prices of the food they were eating rise even as they ate. One maid was tipped a dollar by a visiting American, then met with her family to figure out how to invest this relative fortune.
"The ones who fared best were the small minority who had the foresight to exchange marks into foreign money or gold very early," reported Scientific Market Analysis.
Could our once-mighty dollar suffer the hyperinflation humiliation of the German mark? Could an ounce of gold be worth millions, billions, even trillions in world currencies?
Could gold be the last money standing?
Stranger things have happened, and if that were to happen here, investor timing would be key. Once the weakness of the dollar was understood, it may be too late to exchange paper for gold...or anything else of value, for that matter.
Kevin DeMeritt, President of Lear Capital, is a published author, analyst and expert guest on more than 1000 radio programs, including Rush Limbaugh and Coast to Coast with George Noory, discussing today's economy, gold and the geopolitical picture. Now more than ever, his insights are welcome by nervous investors. Visit http://www.LearCapital.com for all the investing help you need.
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