Hyperinflation

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Recommended: Hyperinflation in Germany 1920s

Hyperinflation
The author examined the case study presented in the critical thinking exercise, When Money Loses Its Meaning. The case study describes the hyperinflation disaster in Germany during the 1920’s. In addition, the case study describes similar situations in other countries to include Bolivia in the 1980’s, Hungary after World War II, and Yugoslavia in the 1990’s. In this paper, the author will discuss the reasons behind Germany’s hyperinflation disaster, the prospect of hyperinflation in the United States, and the role of the Federal Reserve in controlling inflation.
Germany’s Hyperinflation Disaster The official money in Germany became worthless in the 1920’s because of hyperinflation. According to Barnes (2009), hyperinflation occurs not only because a government prints unbacked money but also because citizens are no longer willing to hold money for fear of it losing its value (para. 4). Through a series of events, this is precisely the hyperinflation scenario that occurred in Germany in the 1920’s. First, Germany financed its war efforts in World War I by issuing bonds and printing money, on the premise that the countries it conquered would pay off the debts (Gethard, 2011, para. 5). However, Germany’s plans to repay its debts did not come to fruition. With the signing of the Treaty of Versailles, Germany was required to pay reparations to the Allies (Gethard, 2011, para. 6). With an already declining German mark, Germany defaulted on its reparation payments in the winter of 1922 to 1923, resulting in France and Belgium taking “over the Ruhr, Germany’s industrial powerhouse” (Gethard, 2011, para. 7). Germany then encouraged its workers to strike and supported them by printing even more money (Gethard, 2011, para. 8).
Because Germany printed massive amounts of money, a rapid devaluation of the German mark occurred (Barnes, 2009, para. 7).

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