Hyperinflation 1 of 2
A bear market implies major liquidation of any security, bond or property across
the board. The majority of people think that switching back to cash is the best
option when other investment vehicles fail. The proverbial cash is king supports
the notion as cash is the most liquid asset to own, it is readily convertible
to any item you wish to trade with, and in most cases, the preferred choice
of payment by merchants. This is true, however, if you look at cash as a utility,
it is virtually worthless. The value of money depends on how people think its
worth and what the government and other economic forces dictate. People behave
just like a herd, when one panics; others follow without even finding out why.
With this state of mind in place, crazy things happen. Looking at its intrinsic
value, paper money can be used to write with, burn it for heat, or use it to
wrap other things with. This scenario normally occurs during times of hyperinflation,
where money is valued less and the masses prefer items with high use for survival.
Hyperinflation happens once in a while, but when it occurs, it devastates a
countryís economy along with the lifestyles of its citizens. Hyperinflationís
heyday started during the industrial revolution, during this era, the development
of machines gave rise to automation. This increased production of goods at speeds
unheard of. This increased production along with less cost to producer with
the help of machines for automation, will increase demand. The result of this
picture is inflation, however, this was kept in check with the available supply
of gold and silver that was used as a basis on how much money is needed to be
printed. If these two precious metals were to be removed from the system, the
probability of uncontrolled inflation is very likely. This was an era where
the idea to break free from the gold standard was attempted on a global scale.
After suffering defeat on the First
World War, Germany and the disbanded Austro-Hungarian Empire stumbled into hyperinflation.
Austrian Crown lost value first from 4.9 to a dollar to over 70,000 before it
was put under control in 1922. This a prelude that would follow in Germany during
the time when a country was forced into paying a bill that its economy cannot
support. Under the treaty of Versailles, the allies gave Germany a 132 billion
mark bill for war reparations. To meet this demand, Germany would have to produce
twice its current GDP. The value of the German mark started to decline by 1922
as the Government started to print more money only to meet its obligations.
By the end of the year prices inflated to as much as 1500 times the pre-war