Tuesday, October 5, 2010

Billionaire Beggars

“Billionaire Beggars” It may sound funny / crazy / or even stupid term, but looking into speed at which liquidity is flowing into the system with no control whatsoever, this term will become reality one day in near future. May be as early as next (5-10 Years). Unless Central banks act aggressively in reverse direction than their current approach.

I heard story of one such “case study” from an old respectable man last Sunday  here in Milwaukee at Coin exhibition. He and his wife sell world paper currency as a side business. Old man is highly knowledgeable in history, currencies and economics, and very kind to share his knowledge. According to him “Every currency note has a story”. 

This time around we bought currency notes of 5 Million-Deutsch Mark during Weimar Republic and asked him story behind it. He said, “This is a 1923 Vaimar Republick note” pointing to his wife he continued, “ Her father was in Germany during those days (1918 – 1923). He was paid twice a day with notes that may fit in a large suitcase. With those notes they used to stand in line for bread and soup. By the time they enter in queue till they reach the window, prices used to increase.” He added that “There used to be around 60 Printing presses all over the Germany that run 24*7 to print money”.

In short “Billionaire Beggar was reality of those days” As if one don’t have job, even if he possess a billion Deutsch Mark cash, he is not able to buy anything with it since 1 pound of bread would cost 3 billion by Nov 1923. And there was Inflation rate of 29,500% making price double every 3.7 days. So with just 1 Billion-Deutsch mark in hand and no Job, one is both Billionaire and Beggar.

As you can see in image, Inflation in the Weimar Republic made it cheaper for this woman to burn money than firewood to keep her home warm.

When I asked him that is that not the same thing we are doing now a days (Printing Money like crazy) and will there be similar results in his opinion? With a big pause he said, “I hope we are not. But I am worried that we actually are. Nixon just declared that currency is not backed by anything and we accepted the dollar the way it is… And see what’s happening today… And you know who wins at the end? …… It’s Farmer. As you have to give your everything to him… If you are left with anything ”.

So definitely it’s a big time possibility that we are about to enter in that era. Let’s see this time how high the price of bread goes. Also this era will be slightly different as it will be global synchronous phenomena.

However on very interesting note, Germany who has this history of hyper inflation is now very worried about stimulus and it’s impact and is 1st to at lease speak about unwinding stimulus and introducing austerity. It will be interesting to see if Germany can learn from history and avoid repeating it. Or will eventually join the flow…

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