From ZeroHedge
Wars are always inflationary.
- This is a rule without exception.
- We will continue to see high inflation in the United States to the extent these current engagements remain unchecked or others are allowed to mushroom from them.
- When examples are given of runaway inflation, the hyperinflation of Weimar Germany following the First World War is the most often cited of the twentieth century. While it certainly was among the worst suffering nations, Germany was not alone. Every European country engaged in the continental war suffered massive inflation.
- When Germany entered the war in August 1914, the currency stood at 4.2 Reichsmarks to one U.S. dollar. In the wake of war and its aftermath, the German currency depreciated to a near infinite level of 4.2 trillion Reichsmarks to the U.S. dollar in December 1923, when a new currency was introduced, and hyperinflation eventually brought to heel. All of which came at great political and social cost.
- Russia, like Germany, saw its currency become worthless and its government violently overthrown.
- In the United States, the history is the same.
- Prices rose during the Revolutionary War between 350–700 percent depending on the colony and their own fiscal and monetary policies (there was no central government with tax-levying power).
- During the Civil War, prices rose by over 60 percent, and by much more in the South.
- Prices rose nearly 70 percent in the United States during World War I, and well over 50 percent during World War II.
- Price levels rose by 35 percent during the decade-long Vietnam War, but the real inflationary effects were delayed until the 1970s, when high inflation kicked in following the oil crises. Inflation lags monetary expansion by years.
- Today, the United States stands at a crossroad.
- While not technically at war, the country is deficit spending at war-time levels. It would be one thing if the fiscal and monetary position of the nation was healthy at the starting point. But it is not. The U.S. government has over $34 trillion in debt growing by the trillions just from debt-service (interest) costs. The government continues to deficit spend as if the party can go on forever. But it cannot. The risk of a widening war grows with each passing month.
- The U.S. government’s ability to finance a major conflict is slowly but surely being eroded as those foreign nations and other investors who would otherwise subscribe to our debt grow wary of fiscal disaster.
- The remaining option will be monetization of the debt (when the Federal Reserve steps in as buyer of last resort), galloping domestic inflation, and an eventual currency crisis.
Source: zerohedge.com
