Nov 15, 2011
I cannot do true justice to the plight of the masses during the Great Inflation of the Weimar Republic. Nor can I give much informed insight to the scenes played out across the Zimbabwe countryside as that country plunged through the currency abyss. However, let me take this question as an opportunity to provide my best guess as to what would happen here on the wonderful shores of the USA if the dollar were to experience a sudden and violent devaluation.
Now if we awoke in a world where #atrilliondollarswillbuyyou trended by 8am, then I bet by 12 pm it would be joined by #teambigtitties, #itsrainingcrack, and #yeahbutatleastididntsaveit to round out the top twitter trends for that day, probably the following week and certainly much of the foreseeable future . Already today, it would be no shock to describe our society as one already predisposed to minimize savings in order to maximize consumption. If the concept of saving were actually to become value destructive, as it would be in the case of hyperinflation sown from the seeds of rapid currency devaluation, then I’m afraid we will finally bear witness to the dogs of consumption unleashed.
If the dollar were to quickly devalue,it would jolt the economy with a more than healthy dose of inflationary pressure. So much inflation that if left unchecked,the country would enter a hyper inflationary cycle. In a hyper-inflationary environment, price levels experience exponential-esque growth from the self-perpetuating effects of a mass currency sell-off. Like some others have posited, in this type of environment the only rational move is to flee the currency and into anything else that has some physical value. While the logical choice to many on Wall Street would be to buy gold or silver, we know better to think that that logic holds any jurisdiction over our lands, especially when it is plunged into chaos. If hyperinflation were to take hold, then the regular person will walk out their door, and find anything that isnt nailed into the ground to exchange for money.
And they would be right to do so. Our service-based economy leaves us precariously exposed to the dangerous effects of a currency devaluation as a significant share of our wealth is virtual, holding no more value than the ink on the paper its value is written on. In a bout of hyperinflation, much of our wealth would instantly disappear as a veritable tsunami of capital heads towards a proportionally much smaller physical asset base. Everything, on every shelf, in every store will be gone. From the hot pink Cadillac Escalade sitting at the back of the local GM dealership, to the unused bags of saline at a Beverly Hills surgical clinic, to the thousands of Blackberry Playbook’s gathering cobwebs in Best Buy’s Minnesota warehouse, they would all find themselves stowed away in barns and tucked inside school gyms across America. How bad will it be? So bad that even if you wanted to, you wouldn’t be able to find a copy of “Pauly Shore’s VHS Anthology”.
History has shown that hyperinflation is as destructive to society as a plague or natural disaster. The hyperinflation of the Weimar Republic is considered by many to be a root cause in the rise and acceptance of Nazism, and it still holds a place in the psyche of today’s German politicians. This was in the 1920s, and in an economy still brewing industrial might; one only to glance at our economy now and its fiat underpinnings to realize how much worse it would be if it were to occur again.