Question

How did Germany come into the trap of’ Hyper Inflation’ situation after World War II? How were they saved?

Answer 1

Hint: A rapid, excessive and out of control, general price increases in the economy is known as hyperinflation. The Weimar government's main crisis occurred in 1923 after the Germans missed a reparations payment late in 1922. This set off a chain of events that included occupation, hyperinflation and rebellions.

Complete answer:
While Germany was experiencing economic difficulty in the early 1920s, there were a series of riots, rebellions, and political assassinations. The Spartacus League, a left-wing communist party, and the Free Corps, a right-wing organization, formed two main rebel factions.

Germany came into the trap of’ Hyper Inflation’ situation after World War II –
>Germany had largely financed the war with loans and had to pay war reparations in gold.
>At a time when resources were scarce, this diminished gold reserves.
>In 1932, when Germany refused to pay, the French occupied the Ruhr, Germany's most important industrial sector, to collect their coal.
Germany replied with passive resistance and indiscriminate printing of paper currency.
>The value of the German mark declined as a result of an excess of printed money in circulation.
>As the value of the mark fell, so did the cost of commodities.
>The image of Germany dragging cartloads of money bills to purchase a loaf of bread went viral.
>This crisis was labelled as "hyperinflation," a condition in which prices skyrocket.
>Due to the impact of the war and the growing government debt, Germany was already experiencing significant levels of inflation. The government just printed additional money to compensate the striking workers. This influx of cash resulted in hyperinflation, as prices soared in tandem with the amount of money generated.

They were saved –
- The Americans eventually interfered and pulled Germany out of the problem by enacting ‘The Dawes Plan,' which revised the conditions of separation to reduce Germany's financial load.
- On November 15, 1923, important efforts were made to put an end to the Weimar Republic's nightmare of hyperinflation: the Reichsbank, Germany's central bank, stopped monetizing government debt, and a new medium of exchange, the Rentenmark, was introduced alongside the Papermark (in German: Papiermark).

Note: In 1923, as the value of the German mark dropped, resulting in chronic inflation, the United States aided Germany by establishing the Dawes Plan, which amended compensation clauses to relieve Germany of financial obligations. According to this arrangement, American investment banks advanced money to Germany.