President Obama just announced another stimulus program, the previous spending having fallen far short of turning the economy around. Polls show that many Americans are opposed to deficit spending in efforts to get the economy moving again. After all, it was the Fed’s loose-money policies that caused the housing bubble.
While Establishment economists blame the present economic malaise specifically on the housing bubble, Austrian economists place the blame directly on the Fed. The Austrians assert that the Fed’s forcing artificially low interest rates on the economy resulted not only in the housing bubble but also misallocated resources, which basically became malinvestments that now have to be liquidated before the economy can turn around. If continued deficit spending results in those malinvestments not being liquidated, the recession continues and perhaps becomes America’s Second Great Depression.
Now, back to hyperinflation.
Many investors have turned to gold because they fear the inflationary effects of massive deficit spending. Of course, the most infamous inflationary debacle was Germany’s hyperinflation that culminated with total destruction of the German currency, the papiermark, in 1923.
Many Americans mistakenly think that the Germans suffered that debacle because they were unsophisticated people. Nothing could be further from the truth. Jim Powell, a policy adviser to the Future of Freedom Foundation and a senior fellow at the Cato Institute, discusses Germany’s experience with hyperinflation. It is an enlightening read for anyone who wants to thoroughly comprehend inflation. The essay is posted Campaign for Liberty and is titled Lessons for America from Germany’s Hyperinflation.
