The Weimar Experience Can’t Happen Here, Right?

Posted: Dec 03 2010     By: Eric De Groot      Post Edited: December 3, 2010 at 9:13 pm
Filed under: In The News

The headlines tend to suggest that the Fed’s $9 trillion bailout has been motivated by the restoration of the employment picture. This is not so. The bailout has been motivated by social consequences related to the cascading defaults within OTC derivative markets. Make no mistake, this is the motivating factor behind Fed policies. But what are the risks to quantitative easing (QE) to infinity?
An understanding of life during periods of aggressive currency devaluation comes from either present or past experience. It is the past experiences that if studied objectively allows people to prepare, survive, and profit. A difficult-to-find, and out of print book entitled, “The Penniless Billionaires (1981),” reviews some of history’s worst hyperinflations.

An excerpt published on www.coinflation.com provides a past life experience from an individual living within the Weimar Republic. We often cite and discuss the Weimar experience as a model for hyperinflation but rarely provide faces or “stories” of life to extricate us from denial.

The German Hyperinflation, 1922-1923
In the autumn of 1923, Lott Hendlich, a German widow in her fifties, returned to her native Frankfurt after an absence of more than four years in Switzerland. In 1919 she had gone to spend a few pleasant weeks in a Swiss village where her relatives lived. But almost immediately, Frau Hendlich broke her hip in a fall. During her long convalescence her chronic cough became worse, and the doctor attending her advised her that she was suffering from advanced tuberculosis. The months and years of her illness dragged on interminably even though her relatives were genuinely solicitous (they insisted on defraying all her expenses, including the fees of her doctor). At last, in September 1923, she was “cured” and considered well enough to return home. Her much longed-for homecoming soon became a nightmare.
In the stack of accumulated mail she found three letters from her bank; they delineated her ruin. The first–written in mid-1920 by a minor bank officer who had befriended her–advised her “to invest most of the funds in your rather substantial bank account” (amounting to over 600,000 marks, or the equivalent of more than $70,000 at the exchange rate prevailing in 1919). “It is my judgment,” the writer continued, “that the purchasing power of the mark will decline, and I suggest you try to guard against this through some suitable investment which we can discuss when you come into the bank.”
The next letter, dated in September 1922, and signed by another officer said, “It is no longer profitable for us to service such a small account as yours. Will you kindly withdraw your funds at the earliest opportunity?”
The third letter, dated several weeks before her return from Switzerland, announced, “Not having heard from you since our last communication, we have closed out your account. Since we no longer have on hand any small-denomination bank notes, we herein enclose a note for one million marks.”
With gathering panic Frau Hendlich looked at the envelope that had contained the letter and the million-mark note. She noticed that affixed to it there was a canceled postage stamp of one million marks. Her bank account–which four years before seemed large enough to provide her with a serene existence to the end of her days–had been utterly consumed by inflation and could no longer pay for an ordinary postage stamp. 

Who Needs Jobs When Wall Street Has the Fed?
On Friday December 3, 2010, 3:42 pm EST
Pay no attention to those 15.1 million unemployed people-Wall Street instead is more focused on the man behind the Fed curtain and what he’ll be doing to fire up the equity markets.
Friday’s significantly disappointing jobs report, which under normal circumstances would have sparked a significant selloff in the stock market, instead was greeted only with more expectations that Federal Reserve Chairman Ben Bernanke will continue aggressive monetary easing policies.
Stocks were down mildly through the day, but the 9.8 percent unemployment rate seemed to take a back seat to other issues.
In other words, it was business as usual for a market that has come to rely on the dual hopes of gradual improvements in economic data along with accommodative policy from the central bank-like the Great Oz orchestrating a recovery.
“Markets will interpret this negatively at first. They will focus on the chronic unemployment that is growing more pervasive in the US,” David Kotok, chairman and chief investment officer at Cumberland Advisors, wrote in an analysis for clients.
But “financial analysts will realize that this will extend the already ‘extended period’ of Fed QE for many more months,” he added, referring to the central bank’s quantitative easing plans. Finally, he noted that “expectations were jerked back to reality today” but that “we remain fully invested in the US stock market.”
Investors, indeed, looked to put a bright side on numbers that Paul Dales, US economist at Capital Economics in Toronto, said showed that “economic recovery is going nowhere at a time when companies are unwilling to boost hiring significantly.”
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In the News Today

Posted: Dec 03 2010     By: Jim Sinclair      Post Edited: December 3, 2010 at 10:20 pm
Filed under: In The News
Jim Sinclair’s Commentary
Do not take today’s close above $1,400 lightly. Gold is assuming an entirely new position of acceptance. Gold’s value will, without any doubt, reach and exceed $1650.

China Should Consider Increasing Gold Reserves to Boost Trade in the Yuan
By Bloomberg News – Dec 3, 2010
China should consider adding to its gold reserves as a long-term strategy to pave the way for the yuan’s internationalization, central bank adviser Xia Bin wrote in the China Business News today.
The country must revise its foreign-reserves management principle, Xia wrote. China is the world’s largest producer and second-biggest user of gold and has a world-record $2.65 trillion in foreign-exchange reserves.
Gold is set for a 10th annual increase, the longest winning streak since at least 1920, spurring central banks globally to add the metal to reserves. China is allowing greater use of its currency for cross-border transactions to reduce reliance on the dollar, after Premier Wen Jiabao said in March he is “worried” about holdings of assets denominated in the greenback.
“If China increases gold buying significantly to diversify their foreign exchange reserves, that could affect the market,” said Park Jong Beom, a trader at Tong Yang Futures Trading Co. in Seoul.
Gold for immediate delivery increased 0.4 percent to $1,390.32 an ounce at 12:49 p.m. in Shanghai, boosting this week’s gain to 2 percent, as China’s imports increased and a fall in the dollar boosted the appeal of the precious metal as an alternative asset.
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Jim Sinclair’s Commentary
You know what respect I have for Martin Armstrong as a broad market trend timer.
He is simply the best in modern times. Yes, he is a tad self-destructive but that does not detract from his genius. I have known MartinArmstrong since the late 60s and have yet to see him seriously wrong.
In Martin Armstrong’s last writing he said the following about gold. His history of accuracy demands that we all listen carefully to him, myself included.
“I have given a number for gold $5,000 that is very conservative. If we take U.S. gold reserves at 252 million ounces and we divide that amount into the national debt of 14 trillion that yields a staggering amount of $53,639 per ounce. Even taking the world official gold reserves divided into the US debt of 14 trillion we still get $15,873 per ounce.”
This makes my eight year price objective of $1,650 in January of 2011 look pitifully on the low side. Assuming Armstrong is right (as he has been for 40 years), the shorts of gold and gold shares are going to be destroyed.