Source: Bernd Widdig, Culture and Inflation in Weimar Germany (Univ. of CalPress, 2001)
The poor were already poor before the crisis, so they were affected the least. The rich, at least the smart ones, got a whole lot richer. But it was the middle class that was hurt the most. In fact, it was all but obliterated.
But there were a few exceptions. There were a few who had the right qualities and cunning to take advantage of the economic environment. They were shrewd, adept, and nimble, but most of all, adaptable. Those who could quickly adapt to a world they had never seen before, a world turned upside down, prospered. It didn’t matter what class they came from, poor or middle class, if they could adapt, and adapt well, they could become wealthy in a matter of months.
At this time, an entire city block of commercial real estate in downtown Berlin could be purchased for just 25 ounces of gold ($500). The reason for this is that those who held their wealth in the form of currency became poorer and poorer as they watched their purchasing power destroyed by the government. On the flip side, those who held their wealth in the form of gold watched their purchasing power increase exponentially as they became wealthy by comparison.
Here is the important lesson: During financial upheaval, a bubble popping, a market crash, a depression, or a currency crisis such as this one, wealth is not destroyed. It is merely transferred. During the Weimar hyperinflation, gold and silver didn’t just win, but smashed their opponent into the ground, by delivering yet another devastating knockout blow to fiat currency. Thus, those who held on to real money, instead of currency, reaped the rewards many times over.
I hope by now you’re beginning to see a pattern develop. In all the examples I’ve shown you so far (and there are plenty more), the pattern is the same:
1. A sovereign state starts out with good money (i.e., money that is gold or silver, or backed fully by gold and silver).
2. As it develops economically and socially, it begins to take on more and more economic burdens, adding layer upon layer of public works and social programs.
3. As its economic affluence grows so does its political influence, and it increases expenditures to fund a massive military.
4. Eventually it puts its military to use, and expenditures explode.
5. To fund the war, the costliest of mankind’s endeavors, it steals the wealth of its people by replacing their money with currency that can be created in unlimited quantities. It does this either at the outbreak of the war (as in the case of World War I), during the war or wars (as in the cases of Athens and Rome), or as a perceived solution to the economic ravages of previous wars (as in the case of John Law’s France).
6. Finally, the wealth transfer caused by expansion of the currency supply is felt by the population as severe consumer price inflation, triggering a loss of faith in the currency.
7. An en masse movement out of the currency into precious metals and other tangible assets takes place, the currency collapses, and massive wealth is transferred to those who had enough foresight to accumulate gold and silver early on.
But surely something like this can’t happen to the United States, you might say. We are, after all, the greatest country in the history of the world. Beyond that we aren’t an empire. We don’t conquer nations; we spread democracy.
We may not be an empire in the traditional sense of the word, but when it comes to economic issues, we operate like one in many ways. This is why I believe that not only will the United States decline and see its dollar crash; it’s already on its way. Let’s take a trip down memory lane and see how the United States got to this point in history.
Dread the Fed, the Golden Rule Is Dead
The beginning of the end for the United States economy started with the inception of the Federal Reserve. The Fed, as it’s called, is a private bank, separate from the U.S. government, with the power to dictate our country’s fiscal policy. Since the Fed’s formation, the U.S. dollar has become nothing but currency.
From roughly 1871 to 1914, when World War I began, most of the developed world operated under what is referred to as the classical gold standard, meaning most of the world’s currencies were pegged to gold. This meant that they were also pegged to each other. Businesspeople could make plans and projections far into the future, ship goods, start businesses, and invest in foreign lands, and they always knew exactly what the exchange rate would be.
On average over the period when the developed world was on the classical gold standard, there was no inflation . . . none, zero zip, nada. Sure, there were a few booms and busts, inflations and deflations. But from the beginning of the classical gold standard to the end, it averaged out as a zero sum game. The reason? Gold: the great equalizer.
Here’s why: When countries experienced economic booms, they imported more goods. The imported goods were paid for with gold, so gold flowed out. As gold flowed out of the countries, their currency supplies contracted (that is monetary deflation). This caused these economies to slow down and the demand for imports to fall. As the economy slowed, prices fell, making these countries’ goods more attractive to foreign buyers. And as exports rose to meet foreign demand, gold flowed back into that country. Then the process started all over again, the value of currency—based on gold—always moving up and down, in a narrow range, maintaining the equilibrium.
During the classical gold standard our currency was real, verifiable money, meaning that there was actual gold and silver in the Treasury backing it up. The currency was just a receipt for the money. Then, in stepped the Fed, one of the most notorious and misunderstood institutions in the history of the United States.
The difficulty with the Fed is that there’s a lot of information out there, which is one reason why it’s so controversial. There are two very polarized camps when it comes to the Fed. On one end you have the government, which trusts it to regulate the U.S. economy. On the other end, you have the conspiracy theorists, who believe, in no uncertain terms, that the Fed will eventually bring about the collapse of the U.S. economy.
Well, I’m here to tell you these “crackpots” are not as crazy as they may seem. For one thing, the Federal Reserve is not a government agency. It is a privately owned bank that has stockholders to whom it pays dividends. It has the power to actually create currency from nothing, and it is shielded from audits and congressional oversight. As former senator and presidential contender Barry Goldwater pointed out, “The accounts of the Federal Reserve System have never been audited. It operates outside the control of Congress and manipulates the credit of the United States.”
Not So Humble Beginnings
Famed Austrian School economist Murray N. Rothbard, the vice president of the Ludwig von Mises Institute, distinguished professor of economics, and author of twenty-six books, opens his book The Case Against the Fed with the following:
By far the most secret and least accountable operation of the federal government is not, as one might expect, the CIA, DIA, or some other super-secret intelligence agency. The CIA and other intelligence operations are under control of Congress. They are accountable: a Congressional committee supervises these operations, controls their budgets, and is informed of their covert activities.
The Federal
