[Silverback Kent (Sintra Silverbacks) is our go-to guy for crypto-currency. He published this several weeks ago, and I thought it might have relevance especially for those Jungle dwellers who are living on a fixed supply of bananas. You can keep yourself up-to-date on the financial world by subscribing to his newsletter, Kent’s Corner available on Substack https://kenth.substack.com/ SB SM]
“What I had written yesterday, and I’d like to cover today, is not more of the parallels between the hyperinflationary period of the 1918-1923 Weimar Republic and modern-day society, but the lessons I gathered by reading When Money Dies. If you’re sick of reading about the topic, fast forward. No harm, no foul.
Let me start the diatribe by stating how inflation history seems to repeat the same way everywhere. It’s a cycle that starts with some pressing social need the government is trying to solve. Generally speaking, governments can either raise taxes to pay for things, or they can print money to pay for them, devaluing their currency in the process. Not solving the social need is akin to political suicide. Asking for taxes is no different. The solution: print money — politicians are trying to stay in their careers after all. Once the money is printed, it filters its way into price inflation. As the cost-of-living prices increase, wage earners have difficulty making ends meet and push for higher wages. Asset holders see their asset prices increase which drives the inequality wedge between them and wage earners. Instead of attacking the money printer, the two classes begin to attack each other. The social fabric gets stretched, creating more social needs and pressure on politicians to solve them. From a bird’s eye view, the whole cycle can be seen as a societal effort at pain avoidance. An anesthetization of social needs through money printing. Any of this sounding familiar to my American readers?
The solution is of course to separate the ability to print money from politicians. Literally making it impossible for the political class to create money. The founders of the American constitution tried by putting into the constitution that legal tender must be gold or silver. But the power of the money printer is humanity’s Eye of Sauron, corrupting all who fall under its all-powerful gaze, including those sworn to protect the US Constitution. Bitcoin represents the first time in human history where humanity has a shot at separating money and state. But of course, like any pain-avoidant addict, Bitcoin’s sobering impact is a threat to society’s high. The societal gnashing of teeth and wailing at Bitcoin are the natural sounds of sobering up. I expect that to continue and get worse before sobriety comes.
But I digress from my diatribe on lessons from the Weimar Republic, aka modern-day Germany. First, the bad news: everyone thought the worst was behind them, only for a worse set of circumstances to unfold. The bottom was much further down than any sane person could have imagined at the 1918 outset. The good news is that there were winners in the Weimar Republic — and I suspect it’s the same in every hyperinflationary situation. They followed a simple strategy of acquiring hard assets like real estate, companies, and stocks. As the assets increased in price, they could pay off debts more easily. They were also able to leverage their assets for loans which reduced in value as the currency did, making them easier to pay off. Eventually, the tide of money receded when money printing did, setting off deflation. The winners of the deflationary period sold their assets and lent out their capital at the high interest rates created by the money shortage. Although unemployment was high, the collapse of prices meant that those living off the interest from their capital could purchase more goods and services for less—winner, winner chicken dinner.
Here’s the most important lesson as society sobers up: if you successfully navigate this period, don’t be flashy about your success. Much to the chagrin of more conservative Jews, the ostentatious show of wealth by successful Jews was one of the things that Hitler was able to rally the angry masses behind to create the Jewish scapegoat, giving him the ability to start WWII. If we go through a hyperinflationary period, most of society will not understand what’s happening and will look for a scapegoat to attack. A flashy show of wealth is likely to grab the angry mob’s attention. Be low-key. Better yet, move to a place without an angry mob.
Is this a fun set of lessons? Not at all. But most addicts will tell you the sobering process is not pleasant either. I hope I’m wrong about hyperinflation occurring in the years ahead, but I’d rather be a good boy scout and be prepared than pretend it’s impossible to occur. The dominoes leading to hyperinflation are continuing to fall in that direction.”