Inflation
Money
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Category: 2015, Economics
Jan, 5, 2016

When someone reaches my age there are stories to tell about the good old days. There are also stories about the bad times and the lessons to be learned from them. Unfortunately it is a basic human tendency not to learn from other people’s mistakes, or from history because we all live with a built in arrogance that we are different and the none of the bad things that happen to others apply to us.

Here is a short vignette that is worth repeating. I have told this story often over the last 60 years but today it will call attention to something that you may find strange and bordering the insane.

Hungary was defeated in World War 2 having been allied with the Germans. Russian forces occupied Hungary and moved everything that was movable or could be stolen back to Mother Russia. I have seen them remove hinges from doors, because in primitive Russia hinges were crude and doors did not close well.

As a result of this massive looting Hungary was economically destroyed and the currency was worthless. Inflation was beyond belief. Just imagine that the money printed lost its value by the hour. I went to a restaurant and the menu was written on a blackboard and while we ate the prices were changed about every 15 minutes. People needed to get paid daily and they received so much paper money that they needed shopping bags to carry their daily wages when they went shopping for daily necessities.

I bought a pair of nice boots. The price was 7.5 grams of gold.  The clerk told me that based on the current exchange rate I owed them 2 million forints for the boots plus 20% making the total 2.4 million forints.  The 20% was added to the price to allow the storeowner reach the black market where he could exchange the money for gold coins. As you may guess million forint bank notes were quite common by then. I still have some to remind me of those days.

The government used several neat tricks to devalue the money. On Friday evening, after the Post Offices shut down, they would announce that as of Monday morning you had to paste a postage stamp of equal value on each bank note to be worth it face value. This was 50% devaluation.  Soon the public caught on and every Friday evening people bought postal money orders that the government had to deliver the following week at the newly inflated rate.

The black market in gold flourished. The price of gold increased as rapidly as the value of the printed money depreciated. It was slow at first but then it accelerated finally to an unbelievable speed. The forint was in full collapse. Between the end of 1945 and July 1946, Hungary went through the worst inflation ever recorded. In 1944, the highest denomination was 1,000 pengő. By the end of 1945, it was 10,000,000 pengő. The highest denomination in mid-1946 was 100,000,000,000,000,000,000 pengő. ] The value of the pengő was adjusted each day, by radio announcement. On 1 January 1946 one pengő equaled one pengő. By late July, one pengő equaled 2,000,000,000,000,000,000,000 or 2×1021 (2 sextillion) pengő. When the pengő was replaced in August 1946 by the forint, the total value of all Hungarian banknotes in circulation amounted to 1/1,000 of one US dollar. It is the most severe known incident of inflation recorded, peaking at 1.3 × 1016 percent per month (prices double every 15 hours). The overall impact of hyperinflation: On 18 August 1946, 400,000,000,000,000,000,000,000,000,000 or 4×1029 (four hundred quadrilliard on the long scale used in Hungary; four hundred octillion on short scale) pengő became 1 forint.

Then one morning a miracle occurred. The government announced that as of that morning a new currency had been issued. The conversion rate was like 400,000,000,000,000,000,000,000,000,000 to one. The new forint, however, was not just paper money. Each forint was backed by gold and US dollars. Hungary overnight returned to sanity.

You may now ask how did the Hungarian Government get the gold and Dollars to support their new currency? They did it by buying gold and dollars on the black market with the money they have printed. They distributed the worthless Forints through the black market and in the process secured the foundation for a gold and dollar backed currency.

How does this story apply to us in the 21st Century America?  Look at the US Dollar. It is, what experts call: fiat money. It is not backed by any commodity, gold or silver. It is not worth more than the paper it s printed on. It has been backed by the agreement of most of the world’s governments that all oil bought or sold must be for US dollars. This means everyone who needs to buy oil has to first send us some of their goodies in exchange for our dollars so that they can go out and buy oil. These petrodollars have been a strong foundation for the dollar for the last 60 years. You have read many recent announcements that many of the oil producers now don’t accept dollars for their oil anymore.

This means that the dollar is getting to be worth less and less. Oil and merchandise producers who have been happy to accept our paper money for their goodies are now dumping more and more of the dollars. They are careful, however, not to dump it too fast, because if they do, the trillions of dollars they hold may become worthless too fast. They are taking their time and are using their dollar holding to buy goodies from us and others to get rid of the dollars.

Which brings us to the real insanity. Do you know who creates and prints the dollars? It is printed and created by a private corporation who refuses to disclose how much they are printing and where they are sending the money. So how do you and me get the money? This private corporation buys US Treasury bonds with the dollars they print. This way the US Govt. and the banks get the dollar bills that you and I are using.  Did you realize that you and I and the US Govt. has to pay interest to this private corporation for the privilege of using the paper money printed by them?

The last President who understood this farce and tried to put an end to it was JFK. He ordered the Treasury Department to start printing our own money backed by the silver holdings of the US. Do you remember seeing paper money in the 60s that stated it was backed by silver? As soon as JFK was assassinated silver backed dollar production instantly stopped. There are many conspiracy theorists who still believe that this private corporation may have been involved in the assassination.

Perhaps now you will understand why this old Hungarian feels so concerned about the survival of this country. When the Hungarian government secretly used fiat money to by gold it was to secure survival of Hungary. What is the purpose behind destroying the value of the dollar and thus create a potential worldwide depression and chaos never before experienced by mankind? Is it just plain ignorance or is it more sinister? Most importantly: what can you do for yourself, your family, your community, your nation now that you better understand what is going on?

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