The Trouble Ahead

The Trap Is Set for Economic Collapse

By Andy Snyder

The inflation debate continues...

Will prices keep rising? Is it already over?

What should we do about it?

Most folks wise enough to pay attention know you can't pull the economy in one direction without something else being pushed in another.

Record-low interest rates, free money and trillions in freshly printed cash are certainly yanking us around.

History begs to tell us that trouble will eventually head our way.

But what will the next stage look like?

We got into it a bit on Friday. But today, we take a deeper dive.

It's an economic tale that may sound a lot like what's happening today... but this one is 400 years old.

In fact, this is a tale of what many believe to be the first major economic collapse. It's not something that gets talked about often, but it's eerily similar to what's happening today.

It's called "Kipper and Wipper."

And it slammed the German states in the early 1620s.

Cutting Corners

We could write essay after essay on the cause and effect of the meltdown that led to the fall of the Kingdom of Germany. But we don't need to. It's all really quite simple.

The many states (there were nearly 2,000 of them) and the many rulers of the region were preparing for battle. The Thirty Years' War was getting hot.

As all power-hungry rulers are wont to do, the royalty funded their war by taking from the commoners.

In this case, they didn't levy taxes or sell some bonds. They were much more covert. They aimed at the currency...

You see, rulers of the time weren't quite devious enough to figure out the idea of a fiat currency. They could only dream of issuing money backed by nothing more than their word (oh the wars they could have started). Their money wasn't even backed by silver or gold.

It was silver and gold.

German currency at the time was no more complex than a precisely measured chunk of precious metal, mainly silver.

Unlike in the modern monetary system, rulers couldn't simply dump new bills into the economy. They couldn't fund a war by printing money to fund their own debt (what's happening all over the world today). Instead, if they wanted to add to the money supply, they had to add to the silver supply. Not an easy feat today... and even harder in 1620.

But the rulers were in power because they were smart and cunning. They quickly realized they could trim just a wee piece of silver from each coin and melt it into more coins.

Voila... the first form of quantitative easing.

It's Happening Again

As the furor of war grew, more and more states in the region got in the game. They funded their fight by squaring the edges of their coins.

Soon, a sort of carry trade not all that different from what we see today erupted. Savvy traders would take debased coins from one country and convert them into good coins from the next. Then they'd haul the good coins back home and sell them for a premium, loading up on more bad coins.

The cycle worked great... until it didn't.

Soon enough, the rich got much richer and the poor got much poorer.

Countries raced to devalue their currencies faster than others. Inflation began to soar. Angry mobs took to the streets.

The folks who were hurt the most weren't the rulers who eventually lost power. No, it was the everyday folks who relied on the economy to survive... those who couldn't sustain themselves and were dependent on ordinary wages.

Their income didn't change, but the value of the coins they received on payday did. They could no longer afford food, and they didn't have the land or the know-how to grow food on their own.

Countless people suffered - all because their rulers had bills to pay.

Our point here is quite simple. What happened during the Kipper and Wipper (which literally translates, by the way, to "tipper and seesaw" - a reference to what coin dealers were doing with their scales) crisis is not all that different from what we're seeing around the globe today.

Countries are racing to debase their money. They're racing to undercut the values of their trade partners' currencies. And they're printing bad money to pay for good work.

If the input is the same... the output must also be the same. To believe anything else is plain ignorant.

As investors, we must understand our not-so-modern past. If we don't, we'll fall into the same traps and wind up in the same situations. Economic collapse is not something reserved for the history books.

Look around. See what's happening. It's eerily similar to what happened some 400 years ago.

Killing the currency is not a new concept.

It's been making folks poorer for centuries.

Be well,

Andy