What I really like to do is talk about books. I read a lot of them, but I mostly don’t interact with others who are reading the same books, so I find myself keeping my own counsel. And every once in a while it occurs to me: I have a blog. I can talk about books there all I want.
I recently finished rereading a book called When Money Dies by Adam Fergusson, first published in 1975. Its subtitle tells the grim story: The Nightmare of Deficit Spending, Devaluation, and Hyperinflation in Weimar Germany. It’s a history of that infamous period in Germany just after World War I when the government, to meet its ever-growing budgetary shortfalls, turned to the printing presses to create the cash to pay for everything. Both the economy and the society had collapsed by the end of 1923, helping to pave the way for Adolf Hitler and his Third Reich.

. . . so does virtue.
I bought this book in October 2010 in the wake of the Great Recession consequent on the subprime mortgage meltdown in the United States. In fiscal 2009 the U.S. federal budget deficit jumped over $1 trillion for the first time. Although I’m a Canadian, alarm bells started ringing in my mind. That deficit was largely financed by the creation of new money. With the advent of electronic payments, the printing press is no longer required in order to create new money ex nihilo; it was done through a dodge by the central bank called “quantitative easing,” a term that does little to suggest what it actually denotes. The effect is a large increase in the money supply while also holding interest rates at artificially low levels so that the increasing government debt can continue to be serviced affordably. Quantitative easing was declared to be an emergency measure undertaken in order to stabilize the economy by rescuing certain “too big to fail” Wall Street banks.
But the emergency has dragged on. Trillion-dollar deficits were run for the following 3 years before dropping below the $1-trillion mark in fiscal 2013. After touching a low point of about half a trillion dollars in 2015, they started marching back up, rocketing to over $3 trillion in fiscal 2020 in consequence of spending related to the coronavirus pandemic. A lot of that borrowing has been financed by the creation of new money. Earlier editions of Webster’s dictionary defined inflation as the expansion of the money supply, but the 11th edition of Merriam-Webster’s Collegiate Dictionary defines inflation thus:
a continuing rise in the general price level usu. attributed to an increase in the volume of money and credit relative to available goods and services
Webster’s tracks how the word is actually being used, and its use has changed. Now it is usually used to point to the rise in prices, with the notion of increase in the money supply being suggested as a probable cause. This weakening of the connection between inflation and the money supply I suspect has been deliberate. It has been promoted by those who benefit from inflation: namely the government and its most important clients. For inflation is a form of taxation, since it pays for government spending, but it is a form that is not widely understood, not arrived at by democratic means, and that is regressive in that it harms the poorest people the most.
I myself hold with the more conservative view that equates inflation with expansion of the money supply, without looking at “the general price level,” which is in any case a vague and elusive concept. If the beneficiaries of inflation can persuade us that the “rise in the general price level” has been low, then they can claim that inflation is low by this newer definition. The general price level is ostensibly tracked by a measurement called the consumer price index (CPI), which is currently, officially, somewhere over 5% in the U.S. The U.S. Federal Reserve’s official “target” for inflation is 2%; the official line is that the current period of higher inflation is “transitory,” relating to the readjustment of the economy as it works out the effects of measures taken during the pandemic. But there is strong reason to believe that inflation is actually much higher than 5%, and is furthermore not transitory but present for the long haul and set to keep increasing.
John Williams, a statistician and former U.S. government employee, maintains a website called Shadowstats.com, where he publishes a number of analyses of official economic data. Among the stats he follows is CPI, and he notes that government statisticians have made repeated adjustments to their formula for calculating CPI, all of which have had the effect of making the number appear to be lower than it appeared formerly. Accordingly, Williams shows what the CPI figures would be if they were still calculated as they were in 1990 or in 1980. If the calculation used in 1980 were still used today, current inflation would be running at about 18%. At that rate, prices double every 4 years.
Friends, that is a high rate of inflation. And if you do any shopping, such as for groceries, you know darn well that prices are rising much faster than the official rate of 5% a year.
If you’re very wealthy, high inflation is a nuisance but you’re able to bear it. But the lower your income, the more of a challenge it presents and the more quickly it erodes your standard of living. How often do you get pay raises? How big are they? The difference between those figures and the true inflation rate is the measure of how quickly you are being impoverished. If you live on a fixed income, such as a pension, then you feel the bite of inflation more acutely than anyone else.
All right, so inflation is high. Sooner or later the central bank will step in and do something about it, right? They’ll abandon the “transitory” script and do what needs to be done. I’m afraid that this is wishful thinking. When inflation last surged this high in the U.S., in the 1970s, then Fed chairman Paul Volcker made the difficult decision to bring it under control, and he did this by raising interest rates very high. In March 1980 he set the so-called Fed funds rate at 20%. That was the price that banks had to pay to borrow money from the Federal Reserve—everyone else had to pay more. I remember watching a TV newscast at the time in which it was reported that the banks in Washington State had set their loan interest rates above the rate that their criminal code defined as usury. It was a shock to the system: people stopped borrowing and started saving, the value of the dollar went up, and inflation came down. There was a lot of economic and social chaos, but Volcker and the other authorities regarded it as worth it in order to put an end to “double-digit inflation.” That’s right: double-digit inflation—the CPI in 1980 was sitting at around 13%, 5% less than what it is today, according to John Williams.
But at that time, the government and society in general was much less in debt than they are today. Today, even a small upward nudge in interest rates will create much larger interest payments for big debtors such as the federal government. Pushing interest rates up to Volcker territory would bankrupt the government, diverting all its revenue into interest payments and away from programs. According to the U.S. Debt Clock, the U.S. federal debt is now closing in on $29 trillion. A 1% interest payment on that comes to $290 billion—a lot of money even by today’s standards.
No, the government needs interest rates to be low, and to stay that way. The government will continue to make its payments by creating new money, just as the Weimar Republic did in Germany in the 1920s. Back then, the government and all other economic authorities denied that the skyrocketing prices were caused by the printing of money; they insisted that other things were causing the price rises and that they printing of money was needed in order to keep up.
Nowadays the authorities are blaming the coronavirus pandemic for the inflation: disruptions in supply chains, labor shortages, and so on. They need a narrative that allows them to keep printing money and to forestall panic. But the ever-increasing inflation means that the panic sooner or later will come, and with it a great deal of suffering and social unrest.
One of the best aspects of Fergusson’s book is that he includes extracts of diaries of people going through the hyperinflations in Germany and also in Austria, which suffered its own version at around the same time. The following was written by Frau Eisenmenger, an Austrian housewife, on January 2, 1924:
All who were not clever enough to hoard the forbidden stable currencies or gold have suffered losses. We belong to the new poor. The middle class has been reduced to the proletariat. More fighting—daily, repeated, exasperated, demoralizing, offensive and defensive fighting of man against man. I feel that my strength is deserting me. I cannot go on.
If you’re a normal middle-class person, what kinds of events would cause you to write such words?
Frau Eisenmenger refers to those “clever enough to hoard the forbidden stable currencies or gold.” These were the ones who, by defying the orders of their own government, were able to put by savings that enabled them to survive the impending collapse. When the U.S. dollar collapses, what other currencies will be “stable” enough to protect one’s savings? Almost all currencies are now backed by U.S. dollars more than by gold; if the dollar falls then so will these currencies to a greater or lesser extent.
That leaves gold itself, and its cousin, silver, the “poor man’s gold,” which has been a monetary metal for longer than gold has. These metals will be money when all the paper and digital currencies succumb to the impending inflationary and hyperinflationary turmoil. Those who are “clever enough” will be acquiring them now, while they still can.
This is my main takeaway from a second reading of When Money Dies, and I wanted to share that with you, dear reader, in the hope that you may benefit from it. The book itself is well worth a read. The apostle Paul informs us that the love of money is the root of all evil. That may be so, but When Money Dies shows us that if we don’t love money well enough to preserve its value, then great evil surely follows.