Following the November 1918 abdication of Kaiser Wilhelm II, Germany was left in political chaos as socialists and communists fought for advantage in the power vacuum.
What became known as the Weimar Republic lasted from 1919 until 1933. Initially, following civil unrest and disastrous strikes, the German economy virtually collapsed.
In an effort to pay state benefits to the unemployed, including strikers, massive amounts of paper money were printed. The mark fell in value from 12 against the U.S. dollar in April 1919 to 4.2 trillion against the dollar by December 1923.
It would have taken 84 trillion marks to buy a single ounce of gold at the then-official price. Apparently an entire block of downtown Frankfurt could be purchased for a single ounce of gold. The poor suffered terribly.
Is the Washington-led West heading along the same path as Weimar Germany, where politically acceptable currency debasement resulted in financial collapse?
Evidence is growing that the economies of both the United States and Europe are heading into a second-dip recession. Some observers are less optimistic and see a full-blown depression ahead. Most see government policies as the cause of the underlying problem.
More concerning is the fact that government policies for dealing with the deteriorating situation are more of the same -- more debt and more printed money, similar to some of the policies that caused financial collapse in early Weimar Germany.
American and European consumers are in a state of shock. The velocity of money circulation is falling fast. The broad measure of America's money supply, M3, no longer is published in the U.S. but it is calculated in London. It is falling like a stone, off some 9.6 percent in the past three months.
The Leading Economic Index, though still high at 9.2 percent, has turned downward for the past two months. Credit remains tight as banks become increasingly risk-averse. Jobs are being lost at an alarming rate, causing the true total unemployment level to rise to over 20 percent -- or two-thirds the level reached in the Great Depression.
Despite this depressing news from the real economy, the government has failed to cut back on the lavish entitlements in the public sector and which increasingly are threatening the financial viability of an alarming number of states. Indeed, the White House proposes massive new taxes and regulations that further will deplete consumer income and confidence.
At the same time, the government is borrowing and printing synthetic paper money in the trillions of dollars, amounts unheard of until recently. This risks not only inflation but also hyperinflation on a scale not seen in the developed world since the Weimar Republic.
Most commentators focus attention on the massive and highly contagious sovereign debt problem. Western governments are set on solving this problem by issuing even more trillions of their paper currencies with which to buy debt obligations. However, the real problem is even worse.
The concentration of media focus on the looming debt crisis is diverting attention away from the underlying problem of a massive currency crisis, which is hidden deceptively from the public.
After years of authorizing the printing of synthetic paper money by politicians abusing the powers vested in their central banks, investors now are questioning the continued viability of certain currencies. These fears are not limited to minor currencies but are focusing initially on the mighty euro, the second-largest world currency and the most widely circulated in cash form.
If the euro collapses, intense pressure will be focused on the U.S. dollar, whose status as the international reserve currency increasingly is being questioned.
The world is facing the serious threat of an economic depression and a currency collapse simultaneously. The critical problem facing any government is that the commonly held cures for depression, including low interest rates and increased public-sector spending, would cause an intensification of currency debasement and vice versa.
The early Weimar government is a model of financial and economic failure. Printing paper money wildly in a depression to maintain public-sector social benefits resulted in financial collapse and abject poverty. Should Washington continue to print money to support lavish public-sector benefits and ill-judged subsidies, history regrettably just might repeat itself.
