This week Fed Chairman Ben Bernanke gave a speech to bankers full of double-talk, wait & see, and the sun will come out tomorrow bet your bottomed out dollar… His speech so stirred the economy, Wall Street continues to slide downward. He could take a lesson from Hjalmar Schacht, the managing director of the Darmstadt & National Bank of Germany (the equivalent to Bernanke & the Fed) in 1923 at the pinnacle of the Hyper-Inflation.
Germany as well as many other European countries of the same period were experiencing some of the most severe hyper-inflation of the 20th century. Schacht was appointed President of the Reichsbank and took the bull by the horns working with Hans Luther of the Finance Ministry, they devised a plan to exchange the near worthless German Mark for the new Rentenmark. This old Mark was traded at a ratio of 1 trillion to one of the new Rentenmark.
The next part of the plan was to stop printing the old and start with the new currency based on pre-WW1 values of the gold mark. Here is where the plan took bold vision, Germany didn’t have the gold to back the new currency. What they did hold was mostly debt, in the form of mortgages on property and bonds on German industry. Yet, they refused to print beyond what was needed to keep the currency value at the gold mark level.
This worked and with in a few months the economy was stabilized averting riots & Hitlers first attempt to march on Berlin seizing power. The Rentenmark would remain in service until 1948. It all started with one man, a singular vision & the purpose to see it through. As a side note of bureaucracy, Schacht worked with a staff of one in a converted janitors closet with a desk, chair and most importantly a phone.
The Gold-Standard may not be in the US future but Bernanke could learn a lesson from history using similar principles to shore up the Dollar & salvage the US economy. Until then our best advice is to back your own finances with rare coins and precious metals in a personal Tangible Asset Portfolio.