$1.77 Every Year For Life: What Inflation Can Do To Your Finances: Lessons from Germany and its neighbors during the post-World War I inflation. This series of articles is not intended to imply that the U.S. is likely to encounter a hyperinflationary crisis. However, America has experienced bouts of serious inflation in the past and could easily do so again. The extreme conditions that occurred in Germany help to illustrate the mechanisms of inflation better than a more benign course of currency devaluation could do.
Middle class people who had invested their hard-earned money in the stock market often had to sell their stock to buy coal and groceries. To make matters worse, even though the stock represented real value–shares in real companies producing real goods–the prices of stock varied wildly during the inflationary period. In November 1922, stock in German companies was sold for a price that worked out to be only 10% of what the stock had been worth before the war. It happened because of another bizarre result of hyperinflation: a shortage of currency. Odd as it may seem, with government printing presses running day and night to turn out Reichsmarks, Germany had many cash shortages during the years of inflation. Prices were rising so fast that there was not enough money in circulation to pay workers or settle business debts. Anytime money was scarce, regardless of whether it was denominated in hundreds of marks (in the early days of inflation) or hundreds of millions of marks, businesses and individuals who needed cash would sell stocks, forcing prices down far below their true value. So people who had been wise enough to buy stock in companies instead of government bonds still had to sell at the right time to profit from their wisdom. If they couldn’t afford to wait they often sold their investments for a fraction of what they should have received.