IT'S HAPPENING AGAIN

RE: "Gold:Hyperinflation, Millions, Billions, Trillions. and Then. . . " by John Ing

RE: "Hyperingflation History: La Terrur by John Rubino, Jan. 12, 2010

Ing: "Most investors today are now familiar with the lessons of the Great Depression. But few are so sanguine about the lessons of the 20s and the Weimar Republic's hyperinflation. History is full of examples of countries that failed to pay their debts, opting instead for hyperinflation to pay their bills. Inflation simply reduces the value of debt, hurting creditors and postpone the inevitable adjustment. History also shows that deficit spending and printing money is so addictive and politically expedient that governments rarely manage to reverse the downward spiral.

In the last century there were over 25 episodes of hyperinflation with most occurring in the half century. While many know of the Weimar Republic hyperinflation, few recall the French hyperinflation in the 1800s, nor of China's from 1935 to 1949. Ukraine faced hyperinflation in 1994.

While France's fiat money inflation lasted for nearly ten years, it required another 40 years to bring about a full recovery. Napoleon Bonaparte took over the bankrupt government and its immense debt. At his first cabinet meeting, Napoleon declared that he would be pay cash or pay nothing. In 1797, Napoleon wrote , "While I live I will never resort to redeemable paper". He never did, and Bonaparte confiscated all the gold and France was forced to live within its means.

Rubino, French hyperinflation:"The tale begins [circa1790] with the newly-formed National Assembly wresting power from the French monarchy. Inheriting a financial mess, and worried about invasion from ticked-off neighboring monarchies, it responds as governments tend to do, with a military buildup and massive public spending on bread and buildings. To pay its bills, the Assembly expropriates the lands and estates of the French church and tries to monetize them. But…"

The Assembly realized the sale of Church lands would not provide enough funds to cover their needs.

The Assembly authorized printing of 400 million livres of assignats [notes bearing 3%interest], believing the notes would pay the state's creditors, allow citizens to purchase properties and stimulate industry and commerce. Warnings from the conservative members that the new currency would depreciate existing currency and would soon would require new issuances were brushed aside in the rush to prosperity.

True to form the new assignats depreciated the value of the money, 5%, then later 7% against the benchmark gold.

When several months later the government was again short of funds, they authorized 800 million more livres of assignats. This time they reduced the interest payments and made the paper legal tender for all debts and purchases.

The result:depreciation of existing money, rising prices, feverish speculation, inordinate consumption and declining saving.

Fourteen months following the original issue, they issued 600 million more and 6 months later an additional 300 million more at the end of that year the market value had fallen 66%. One year later they issued 600 million more and 4 months later they confiscated the estates of those who had led France.

1793 was the year of La Terrur. Having failed to create Utopia, they began terrorizing the populace into accepting the assignat at par and producing and selling at a loss to be patriotic. They created the Committee of Public Safety [a euphemism not unlike the names our government prefers] which engaged in terror, expropriation and murder.

They passed price controls on grain and laws prohibiting the sale or trade of assignats for less than face value, a progressive income tax and repudiated the interest payments on the assignats. Buying, selling or trading specie of gold and silver was prohibited, price controls were extended to cover food, wood and coal.

1200 million more in assignats were issued in 1793; 3000 million in 1794. 1975 brought 33,000 million more. When the new government came in the Fall of 1795, the purchasing power of the assignats was almost nothing. 600 francs of assignats traded for 1 gold franc.

The new assembly still inflated, issuing a new assignat worth 30 old assignat, depreciating the value down to 3%.

Enter ' hard money' Napoleon who said " I will pay cash for everything", hence the end of French hyperinflation and LaTerreur.

This same story keeps repeating through history as if man cannot learn. It is repeating today in America with our fractional reserve banking and deficit spending. Is it too late to stop it? Probably. History shows that things have to terribly bad before change can come.

With Love and Kindness,

THE HATMAN