What is hyperinflation?
In 1923, to do something about the Germans.
Answer:
Sean is correct, James is a little off base. James' reason for the devaluation of the Reich Mark (The Deutesche Mark came later) is that German industry was destroyed. That is incorrect. Sean is correct in that the more money your print, the more you devalue the currency, thus driving inflation. Most people think that increases in price are inflation, that is incorrect, the value of the item doesn't change (for all intensive purposes, but increased demand for the item will), the value of the currency decreases thus requiring more of the currency to buy that item. To the casual observer, it's seen as increase in the price of the item. Let me give you an example, let's say you have a widget for sale and that widget has an average demand and is worth $1, and let's say the the dollar actually is worth $1. So, if I want to buy that widget and it's worth $1 and my dollar is actually worth $1, then I just need to produce $1 to purchase it. Now, let's move forward and say that the gov't has printed so much money that that $1 now only is worth a nickel, that is, that dollar has the purchasing power of just 1 thin nickel (which is what's happening now). So, you still have that widget and it has average demand, so for all intensive purposes, that widget is still only worth $1, BUT since the dollar only has the purchasing power of a nickel, I'd need to produced $20 to actually have $1 in true purchasing power. See what happened? The value of the widget stayed the same, but because the dollar lost value/purchasing power, I needed more of them to get a true dollar in purchasing power.
After WWI, the Germans were required to make war reparations to the victors. The problem was that their industrial base had been destroyed during the war, thus the German's couldn't produced the goods to sell to raise the funds to make the war reparations. There was no way the French were going to let the Germans off the hook, thus Germany had to make the payments. Since, they couldn't produce the necessary goods to sell, the German gov't just turned on the printing presses and started printing Reich Marks. Prior to the process, the Reichmark had an exchange rate of about 4 or 5 to 1 against the US Dollar; 1 oz. of silver was about 12 Reich Marks and 1 oz. of gold was about 170 Reich Marks. Two years later at the height of the hyperinflation, the RM/USD exchange rate was 2.4 trillion to 1; 1 oz. of silver was 580 Billion Reich Marks and 1 oz. of gold was 87 trillion Reich Marks. The German gov't had printed so much money that it was absolutely worthless. It literally took a wheelbarrow full of RM to buy a loaf of bread. Housewives would use Reich Marks to kindle the morning fire. It was not unusual for a person to carry a 10 billion Reich Mark note. The money was being devalued so quickly, that instead of printing new denominations, they just printed stamps with the new value to paste over the old value, ie, if the note was say a 5 billion Reich Mark note, and they needed to print 10 billion Reich Mark note to replace it becasue the currency was devaluing so quickly, instead of printing a new note, they's just print stamps that said "10 billion" and they's paste that stamp over the "5 billion" number already on the note.
As the other posters mentioned, it's simple a matter of printing so much money that that currency is basically worthless. I'll give you a none currency example. Gold is so valuable because it's so rare. From what I've read, the total amount of gold mined and brought to market in the last 4,000 years of human civilization would fit into an area of 55 cubic feet, ie, 55 feet high by 55 feet wide by 55 feet deep. That's a small amount of gold. But, if gold were so plentiful that you it was as common as finding regular rocks out in your back yard, then gold would be worthless, it would be no more valuable than a rock you can pick up out on the street. The same with Reich Mark, the Germans printed so much of it, it was absolutely worthless, so you needed a million of them to buy a loaf of bread.
my stomach after a huge bbq
Hyper inflation is when the value of money becomes worthless, in the example of Germany after world war one, the DM had degraded to such a value that it would cost one million DM for a loaf of bread, the value of a currency is based upon the strength of a country's industry (as an entire whole), the German economy and productivity engine had been crippled, hence hyper inflation took hold.
Hyperinflation in 1923 Germany
A history of the German hyperinflation of 1923 and how the paper mark currency was ... Few Germans held money in deposits through the entire period. ...
www.usagold.com/germannightmar...
Hyperinflation is just a very high rate of inflation. Inflation is the percentage loss in the value of money during the period of a year. So, for example, if in 2005, inflation in the united states was 3%, then one dollar on january 1st, 2006 would be worth 3% less than one dollar on january 1st, 2005. In 1923, Germany was no longer able to make the payments to the countries that it lost to in World War One, which ended in 1918. To deal with this, the German government decided, in essence, to just print lots more money and use it to pay the debts it owed to france and england. The problem with this is that the germans printed so much money that the German Mark (their currency) because nearly worthless. This threw German society into chaos and helped lead to the rise of Adolph Hitler in 1933.
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Answer:
Sean is correct, James is a little off base. James' reason for the devaluation of the Reich Mark (The Deutesche Mark came later) is that German industry was destroyed. That is incorrect. Sean is correct in that the more money your print, the more you devalue the currency, thus driving inflation. Most people think that increases in price are inflation, that is incorrect, the value of the item doesn't change (for all intensive purposes, but increased demand for the item will), the value of the currency decreases thus requiring more of the currency to buy that item. To the casual observer, it's seen as increase in the price of the item. Let me give you an example, let's say you have a widget for sale and that widget has an average demand and is worth $1, and let's say the the dollar actually is worth $1. So, if I want to buy that widget and it's worth $1 and my dollar is actually worth $1, then I just need to produce $1 to purchase it. Now, let's move forward and say that the gov't has printed so much money that that $1 now only is worth a nickel, that is, that dollar has the purchasing power of just 1 thin nickel (which is what's happening now). So, you still have that widget and it has average demand, so for all intensive purposes, that widget is still only worth $1, BUT since the dollar only has the purchasing power of a nickel, I'd need to produced $20 to actually have $1 in true purchasing power. See what happened? The value of the widget stayed the same, but because the dollar lost value/purchasing power, I needed more of them to get a true dollar in purchasing power.
After WWI, the Germans were required to make war reparations to the victors. The problem was that their industrial base had been destroyed during the war, thus the German's couldn't produced the goods to sell to raise the funds to make the war reparations. There was no way the French were going to let the Germans off the hook, thus Germany had to make the payments. Since, they couldn't produce the necessary goods to sell, the German gov't just turned on the printing presses and started printing Reich Marks. Prior to the process, the Reichmark had an exchange rate of about 4 or 5 to 1 against the US Dollar; 1 oz. of silver was about 12 Reich Marks and 1 oz. of gold was about 170 Reich Marks. Two years later at the height of the hyperinflation, the RM/USD exchange rate was 2.4 trillion to 1; 1 oz. of silver was 580 Billion Reich Marks and 1 oz. of gold was 87 trillion Reich Marks. The German gov't had printed so much money that it was absolutely worthless. It literally took a wheelbarrow full of RM to buy a loaf of bread. Housewives would use Reich Marks to kindle the morning fire. It was not unusual for a person to carry a 10 billion Reich Mark note. The money was being devalued so quickly, that instead of printing new denominations, they just printed stamps with the new value to paste over the old value, ie, if the note was say a 5 billion Reich Mark note, and they needed to print 10 billion Reich Mark note to replace it becasue the currency was devaluing so quickly, instead of printing a new note, they's just print stamps that said "10 billion" and they's paste that stamp over the "5 billion" number already on the note.
As the other posters mentioned, it's simple a matter of printing so much money that that currency is basically worthless. I'll give you a none currency example. Gold is so valuable because it's so rare. From what I've read, the total amount of gold mined and brought to market in the last 4,000 years of human civilization would fit into an area of 55 cubic feet, ie, 55 feet high by 55 feet wide by 55 feet deep. That's a small amount of gold. But, if gold were so plentiful that you it was as common as finding regular rocks out in your back yard, then gold would be worthless, it would be no more valuable than a rock you can pick up out on the street. The same with Reich Mark, the Germans printed so much of it, it was absolutely worthless, so you needed a million of them to buy a loaf of bread.
my stomach after a huge bbq
Hyper inflation is when the value of money becomes worthless, in the example of Germany after world war one, the DM had degraded to such a value that it would cost one million DM for a loaf of bread, the value of a currency is based upon the strength of a country's industry (as an entire whole), the German economy and productivity engine had been crippled, hence hyper inflation took hold.
Hyperinflation in 1923 Germany
A history of the German hyperinflation of 1923 and how the paper mark currency was ... Few Germans held money in deposits through the entire period. ...
www.usagold.com/germannightmar...
Hyperinflation is just a very high rate of inflation. Inflation is the percentage loss in the value of money during the period of a year. So, for example, if in 2005, inflation in the united states was 3%, then one dollar on january 1st, 2006 would be worth 3% less than one dollar on january 1st, 2005. In 1923, Germany was no longer able to make the payments to the countries that it lost to in World War One, which ended in 1918. To deal with this, the German government decided, in essence, to just print lots more money and use it to pay the debts it owed to france and england. The problem with this is that the germans printed so much money that the German Mark (their currency) because nearly worthless. This threw German society into chaos and helped lead to the rise of Adolph Hitler in 1933.
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