Lessons of history

'When Money Dies' Author Adam Fergusson And James Turk Discuss (Hyper)Inflation In The Past, In The Present And In The Future

Highly recommended video.

Zero Hedge

When it comes to discussing monetary history, and specifically what happens when it all goes horribly wrong, there are two must read tomes: one is "The Dying of Money" by Jens Parsson (pdf link) and the other one is "When Money Dies" (pdf link) by Adam Fergusson. Today, we are lucky to bring to you a must watch interview between James Turk of the GoldMoney Foundation and the author of the former, Adam Fergusson. 

They discuss the fateful decisions that led to hyperinflation in post-First World War Germany, and how central bankers as well as ordinary members of the public today would be well advised to heed this warning from history. 

Fergusson discusses how the hyperinflation affected different groups in German society in different ways – with debtors benefiting and huge numbers of middle-class savers wiped out. Riots, corruption and political extremism were just some of the malignancies encouraged by the hyperinflation. 

He points out that those who held hard currencies as well as people who held tangible assets like gold and silver were in-large part protected from the worst economic consequences of the hyperinflation. In his words: “gold remained at all times in Germany the measure of what was important to them.”

James and Adam discuss whether or not today there is any way for governments in the developed world to repay their huge debts. Both men conclude that inflation is the only politically viable method of repudiating these unmanageable obligations. 

Fergusson highlights the importance of velocity and the demand for money in determining whether or not inflation turns into hyperinflation – though points out that this tipping point can take a surprisingly long-time to arrive; in Germany, people kept confidence with the rapidly devaluing mark throughout the First World War, despite clear signs that the country was heading for a currency crisis.

Fergusson thinks that we are heading for high inflation in many countries, but is doubtful that Weimar Germany’s nightmare currency collapse can be replicated in a sophisticated modern economy. He concludes with a quote from Jean-Claude Juncker, prime minister of Luxembourg, who recently commented with respect of the sovereign debt crisis: “we all know what has to be done; what we don’t know is how to get re-elected once we done it.”