The End of World Dollar Hegemony: Turning the USA into Weimar Germany

In a recent essay, I explained how over time the US abused its responsibility to control the supply of dollars, the world’s premier reserve currency for settling international trade accounts among nations. This abrogation of its duties is leading to the likely adoption of a new reserve currency, commodity based and controlled not by one nation but by members, all watchful that the currency is not inflated.

Let us continue the analogy of an individual receiving a “magic checkbook” which allows him to write as many checks for as much money as he desires. Receivers of these checks could only pass them along to others through the normal course of trade. Over time the owner of the magic checkbook becomes increasingly irresponsible. He funds all kinds of welfare and warfare initiatives.

Naturally dollar reserves build to levels completely unnecessary for peaceful exchange. Prices start to rise at a faster and faster rate. Then a reform consortium assembles a team to offer an alternative currency. Why, one may ask, is that such a problem for the dollar and dollar users?

The Weimar Republic: A Lesson in Supply and Demand
A successful alternative reserve currency would dilute demand to hold dollars. When demand for dollars drops, its price must drop unless and until its supply drops. (A drop in the dollar’s “price” is just another way of stating that its purchasing power falls—i.e., more dollars are required to buy the same goods and services.) Through irresponsible use of the magic checkbook, you have obligated yourself to funding a free-for-all of entitlements such as Social Security, Medicare, and the military-industrial complex being the largest by far. Politically, it may be almost impossible to cut any of these three categories of spending to the extent necessary to arrest the dollar’s drop in purchasing power.

The world has seen all this before, and not just in less developed nations like Zimbabwe. The US will find itself in the same trap as experienced by Germany’s Weimar Republic following World War I. The Reichsbank, Germany’s central bank, printed papiermarks to placate powerful constituencies within Germany. As the Reichsbank printed more money, the purchasing power of papiermarks dropped. And herein lay the trap. Rising prices led powerful constituencies to demand increases in pay and benefits. Industrial labor unions, government civil servants, welfare recipients, old age pensioners whose life savings were being decimated—all demanded more money. Strikes and violence became endemic. So, the Reichsbank printed more money … which, of course, simply led to higher prices and another round of payment increases … which led to even higher prices until the papiermark became worth more as wallpaper than money.

Why did the Weimar Republic government continue to increase payments, and why did the Reichsbank continue to print papiermarks? Many sophisticated answers have been advanced, such as that the government and the Reichsbank deliberately destroyed the papiermark in a roundabout plot to thwart the financial terms of the Versailles Treaty in which a defeated Germany was ordered to pay reparations to the Allied powers. But the simplest answer is that both believed that there was no other choice than to increase payments and print money in a crisis. It was felt that powerful constituencies must be placated in the short run.

But short run tactics just made things worse. There was neither the political will nor the economic understanding of the need to end excessive spending and currency debasement and endure the pain thereby induced.

The US and the UK: A Lack of Political Will and Economic Understanding
I fear that the same is true today. In fact, the seeming lack of adverse consequences (all in the long term) and advantages of money printing in the short term have led to a knee-jerk response by the US Treasury and the Federal Reserve Bank to increase the money supply and lower interest rates in the face of any economic problem, even higher prices themselves. For example, just look to Britain. Its energy shortages have caused prices to rise. The government’s response has been to pledge payouts to households! That’s right. No pledge to dismantle barriers to increased energy production … just a pledge to increase the government’s deficit, which requires more money printing! As the saying goes, you can’t make this stuff up.

One thing is certain, however. What Britain can do, the US can and will do in spades. Hyperinflation is a real possibility. Remember, the Reichsbank in Weimar Republic Germany actually had to print physical money. The US Federal Reserve Bank need only click a few buttons on a computer. As prices rise, powerful groups demand more money. Police, firemen, road workers, etc. Demand that they not suffer a lowering of their lifestyle. Since government is spending someone else’s money, it accedes to these demands.

Back to our British example. The exchange value of the pound has been plummeting in currency markets, leading to serious consequences. The Bank of England was forced to raise interest rates and now government debt has become unaffordable. So, the Bank, as handmaiden to the government, has applied the only politically permissible remedy that it knows: its computers’ money printer is forced into overdrive, just to keep up.

Hjalmar Horace Greeley Schacht

What Happens on the Ground
Where does government get its money? State and local governments get money from state and local taxes. So captive property owners get increased tax bills to pay for maintaining public school teachers, police, etc. Social Security recipients must be compensated, of course, so payroll taxes are increased, which depresses business. American products become less competitive on the national and world market.

The price spirals continue to destroy all in their path until the dollar loses all purchasing power and society descends into chaos. And not one politician in a thousand understands what happened, or if he does understand, does not have the political will to do anything about it—i.e., reduce public spending, liquidate the Fed, and tie the dollar to our still significant gold reserves. It can be done.

Written by Patrick Barron for The Mises Institute ~ November 9, 2022

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Please allow me to introduce myself; I am Jeffrey Bennett, President of Kettle Moraine, Ltd., the parent of Sierra Madre Precious Metals. I have been married for 52 years with two children and four grand-children, a veteran of Viet Nam, student of history (both American and film), and was host for fifteen years of Perspectives on America on the alternative airwaves, covering such subjects as, health and wellness, news, political satire, education and editorial commentary on current events through the teaching of history, and Protecting Your Wealth. In early 2018, I took a several month hiatus to complete some family business but returned to airwaves April 17, 2018). At the age of ten, I sat in a bank-vault in the Citizens Bank of Mukwanago, Wisconsin with my grandfather going through bags of old American Peace dollars, hand-selecting each coin as dated rolls of 20 coins were carefully put together and rolled. Learning of the history of these beautiful pieces of Americana, I asked my grand-father, "Why are we doing this?" to which he replied, "Because someday they are going to do the same thing with the silver in our money that, that (S.O.B.) Roosevelt did with gold in 1933." It took only six-years for his prediction to come to pass at the hands of a disciple of Roosevelt's... and what will a Federal Reserve 'dollar' purchase today - and what will that old 90% Silver Peace Dollar purchase? Although at the age of ten, there was little understanding of the meaning of it all, over the next half-century I became well-versed on the subject matter. During this summer of my education, I began to purchase silver coins as a collector and some small, international gold coins two years later - not an easy feat in the shadow of the Roosevelt confiscatory policies of 1933. Although those policies remained in effect until the mid-1970's, it was not until 1991 that I found that one could make a living providing precious metals and collectible, historic numismatic coins to a willing and concerned clientele. It was also during that year, that I began a relationship with one of the first Trust companies to give the public access to gold and silver as part of an Individual Retirement Account (IRA) - and Kettle Moraine, Ltd., founded in 1995, but have ceased providing service due the the intense change-over of the provider. In November 2011, after a 15 month broadcast on another network, I returned to the airwaves with my then revamped program, Life, Liberty & All That Jazz, and for over a quarter-century, I have been proud to serve the family of listeners of my numerous broadcast programs for physically-held precious metals for investors and collectors alike. On March 23, 2020 I launched my brand new - appropriately named program, The Edge of Darkness on the Republic Broadcasting Network, and thus continue to  remain available to our long time clients and their families. Ah yes - find out what "inter-generational" wealth provision has done for our clients over the past three decades. Don't buy the sizzle of that steak until you understand the cost! In other words, don't buy the bull being dispensed by the 'rare coin' pitchmen until you understand the full story. We, at Sierra Madre Precious Metals, will be proud to serve your needs.
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