Friday, March 6, 2009

Here's what is going to happen next

In 1923, hyperinflation turned Germany upside down. Hyperinflation is a relentless rise in prices caused by the circulation of too much money in the economy.
By the second half of the year, virtually everyone in Germany was caught up in the chaos of hyperinflation:
* Most workers were paid daily and given time to shop before the value of their wages fell further.
* Housewives used small bills to fuel their ovens because they were worth less than wood
* The German central bank printed larger denominations of bills almost every month.
* Depositors received letters from their banks informing them that their life savings were worth less than the administrative costs of maintaining their accounts.
* A retired minister might spend his entire annuity payment from his life insurance policy
on a loaf of bread and a jar of jam.
* Young women who had been setting aside money for their dowries saw their savings
evaporate, thus making a traditional German marriage impossible.
* A concert pianist would be paid with a suitcase of bills for his performance and ex-
change half of the bills for several sausages
Here's a chart of what's happened to the U.S. money supply in the last 6 months. There's no other way to pay for all the crap (bailouts, stimuli, banks, voters) that the government is currently purchasing.


Anonymous said...

Just to help visualize...

Lisa said...
This comment has been removed by the author.
Lisa said...

Steven M Smith-Thanks for the visualization. All I can say is WOW!!

Francis Shivone said...

I haven't stopped by much lately -- the truth depresses me too much.

I have been saying the same thing for the last year. It 's just a question of how bad it will be and how quickly it will arrive. That's hard to predict.

Dr Ralph said...

Does Godwin's Law apply when you are discussing events that led up to Nazi Germany? Because you are skating dangerously close to that threshold. While an interesting bit of history, the conditions you describe in Weimar Germany and present-day US are not even close.

The stimulus package will cost $787 billion. Meanwhile, the military activities in Iraq to date have cost $845 billion to the U.S., with the total cost to the U.S. economy estimated at $3 trillion. This is spending that has benefited no one, with the possible exception of Halliburton and the Corporate Mercenaries Formerly Known as Blackwater.

Where were the horror stories of hyperinflation when all that went down?

Your attitude seems to be that of the guy who refuses to call the fire department when his house catches fire, on the grounds that it costs too much and sooner or later the fire will go out by itself.

The Whited Sepulchre said...

One problem with your analogy.... In this case the fire department and the arsonists are the same people.

Regardless of which of the two government factions is spending and printing, it is still incredibly harmful, no matter how they're choosing to waste it. They can waste it in Iraq, on stimulus packages, or whatever. It's still wasted.
And you forgot to mention the earlier Bush stimulus, the Wall street bailou (1), the Detroit bailouts (2) and the ones that haven't hit yet.

There's a good reason that you aren't allowed to print money in your garage. It cheapens the value of everyone else's money. You would go to jail for doing it.

Is what's going on now any less harmful?

p.s. - the most obscene part of this is that the ultra-wealthy generally get to spend the new money before its presence inflates prices for the poor.

Dr Ralph said...

WS -- more like the cause of the fire is people proclaiming we shouldn't have to have smoke detectors. End result, a small fire turns into an inferno before anyone notices.

Regardless of the cause, do we just wait until the house burns to the ground? And when sparks from your neighbor's fire set your house on fire, do we let it burn to the ground, too?

The Whited Sepulchre said...

One problem with your analogy. My neighbor's house is not on fire. There's not a single house in my neighborhood that's on fire. We live in a fairly modest home in a fairly modest little neighborhood. All of my little neighbors have lived in their little houses for quite some time. None of these are on fire, literally or metaphorically.

However, one can go to other neighborhoods, usually higher up the food chain, and see lots of houses that aren't on fire but that the owners wish could be burned.

They bought these homes as an investment, a gamble, hoping to flip the houses whenever they chose to do so. But now they're stuck with them. Other people who picked up the IOU's for these houses are looking at some losses too. Those people are even higher up the food chain.

We've taken care of the donors and contributors at the top of the "loser" pyramid during the Wall Street bailout.

Now we're in the process of taking care of everyone else. We don't have the money to do this, so we're just printing it. Printing it like madmen. Devaluing the savings of everyone else in a very Weimar Republic way.

For me, the upside of all this is that my little house will eventually be worth twice what I paid for it. The downside? The only money in existence will be .25 cent dollars.

Dr Ralph said...

WS - Speculators and flippers? I agree: let'em burn.

However, the latest unemployment figures are reporting 8.1 percent unemployment: over 12.5 million people out of work.

A mortgage that looked affordable 12 months ago with two incomes looks a lot different with only one, or maybe none. I'm guessing at least some of those 12 million are struggling with house payments and weren't flipping houses on the side.

I remember you recently talking about your employer having to lay off quite a few people. Do any of them have mortgages? What's happening to them?

Is your house paid off?

The Whited Sepulchre said...

My house isn't paid off yet, but I bought it so long ago, and there's been so much mad money printed that I could cover the payments working the drive-thru at McDonald's.

And you are correct that there are 12 million people looking for work in the U.S.

So here's a math problem.... What is 787 trillion dollars divided by 12 million ?

Dr Ralph said...

WS - glad to know Big Macs can pay your mortgage.

You know my math skills aren't that good, being a former art major and all, but I *think* 787 billion (since that's what I'm guessing you meant - that being the stimulus package) divided by 12 million is around $65,500 and some change. I suspect I know where you're heading with this, but I'll play along.

I too wish this economic disaster could be solved with a bumper sticker simple solution, but I'm afraid it can't.

The Whited Sepulchre said...

Yeah, billion. The amount of ONE of the recent giveaways. $65 K per person. Enough to solve the problem nicely, IF you assume that's the purpose of the stimulus/bailout. (Which I don't.)

And how long until trillion becomes the new billion?

Dr Ralph said...

WS - clearly neither of us thinks the purpose of the stimulus package is just to drop a wad of cash on every unfortunate's lap.

It's a lousy situation. It took us a while to get here, it will take us a while to get out.

The stimulus package is flawed - no one says it's perfect. But I think it's better that the alternative -- I don't think doing nothing is the answer.

I suspect we are going to have to agree to disagree (once again). I still love you, man. And unlike some, I'm not ashamed to admit it.

Dr Ralph said...

PS - all this talk about moving up the food chain sounds positively like the class warfare, which the Democrats are usually accused of.

There's hope for you yet, Comrade!