$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.
Desperate governments that were facing bankruptcy and collapse began to look on all the assets of their citizens as belonging to the government, at least until the crisis passed. The German and Hungarian governments made it illegal for citizens to own foreign currency. Foreign currency that was found was confiscated for the government treasury. Gold coins and bullion were called in using forced sales; gold was a valuable asset for cash-strapped governments to use in their dealings with other countries. Governments paid broken-hearted gold owners stacks of practically-worthless paper money for their precious metal. Germany had sold some government bonds that were payable in gold. Holders of such bonds could have expected full value for their investment, but the German government simply forced them to accept gold script (another version of paper money). Naturally, the government did not dare treat foreign holders of its debt as shabbily as it treated citizens, but all holders of German, Hungarian and Austrian government debt lost a substantial portion of their investments.