A loaf of bread in Berlin that cost around 160 deutschmarks (the German currency unit at the time) at the end of 1922 cost 200 Billion (with a “B”) deutschmarks by late 1923.
By November 1923, one US dollar was worth 4,210,500,000,000 deutschmarks. Prior to the German hyperinflation, the exchange rate varied from 4 to 8 deutschmarks per dollar.
There is a famous story about a person taking a wheelbarrow full of deutschmarks to the grocery store, and someone came by and dumped out the money and took only the wheelbarrow – so worthless had the currency become.
This was a result of Germany’s Hyperinflation that had its origins going back to WWI, as Germany started to print money to cover the costs of war and later to cover its massive war reparations and debts.
The hyperinflation brutalized the German economy, as savings were wiped out, consumers had no way to buy basic goods and services, massive shortages of everything became the norm, and unemployment rates surged.
Despite the extraordinary economic and political unrest, some people benefitted from the hyperinflation hugely because they played their cards right prior to the inflation.
Hugo Stinnes
One of those people was a man named Hugo Stinnes – who ended up as Germany’s richest man after the hyperinflation.
What Mr. Stinnes did was load up on hard assets and debt prior to the hyperinflation.
He was already rich, as his family owned a coal mine and other interests, but he loaded up on steel, shipping and cargo lines too – borrowing heavily to pay for everything.
After the hyperinflation, his “hard assets” held their value for the most part in real terms and shot through the roof in “nominal terms” (relative to the currency).
While at the same time, the debts he owed in terms of the currency plummeted in value (to the point of being almost worthless).
Hence, he was able to pay off his debts ridiculously easily while retaining his hard assets and becoming filthy rich.
Here is a great article describing hyperinflation and Mr. Stinnes. I think the author goes overboard in predicting a similar outcome for the United States, but the gist of his article is accurate and fascinating. AND – he makes a great case for “some inflation” here in the US – which seems all but inevitable at some point.
Long story short: I am making the same case I have been making over and over for buying real estate as an inflation hedge and taking on 30-year fixed-rate debt to do so.
This is because real estate is an excellent hard asset/inflation hedge and 30-year debt can actually be an “asset” in an inflationary environment as I explain in this blog: Inflation Makes Mortgages An Asset.
I frequently remind readers how real estate owners in the 1970s got rich by playing this game (paying off debt with far less valuable post-inflation dollars), but I love Mr. Stinne’s story because he took that approach to an extreme – and became one of the richest men in history as a result.
I should add that I am not advocating excessive speculation or overborrowing, as the economy will slow when inflation hits and it will be harder to make money to pay off debts – even if debts are devaluing. But – I am advocating prudent inflation hedging and debt management strategies that preserve enough wealth to ensure we can all still make our payments and become “mini-Mr-Stinnes.”
And – if anyone needs a mortgage in order to become a “mini-Mr-Stinnes,” I know just the place that can help. 😊
Take the next step towards finding your best mortgage.
