What inflationary collapse could look like

Key Markets report for Thursday, July 10, 2025

All empires in history went through a similar life cycle that invariably ended in a collapse. Too much war abroad and too much repression at home ultimately depletes their host nations and their economies and the ultimate fallout usually involves an accelerating price inflation and the collapse of the currency. With respect to current conditions, we already have too much war around the world (and more on its way) and escalating repression at home, but somehow the system is schlepping along and for most people, nothing exceptional seems to be happening in their daily lives.

Merry Christmas! This year, everybody’s a billionaire!

The tough, but important lessons of history

This is why most people find themselves unprepared for the collapse when it happens. For this reason, I believe it’s useful to keep in mind the experience of Weimar Germany in 1922. Some version of Weimar’s unravelling is very likely in store for the EU and the UK. Weimar’s collapse accelerated in the summer of 1922, but its inflation cycle had started in the summer of 1914, with the start of World War I. At that time, Germany abandoned its gold standard and had to run up debt and expand its money supply . Germany’s price inflation didn’t increase in a linear fashion: instead, it increased and decreased over the years, much as the present inflation, which has been with us since 2022.

At first, the inflation was moderate and tolerable. Between 1914 and the end of the war in 1918, German domestic prices increased by just over 100% in spite of the fact that her money supply rose more than nine-fold and the government’s debt even more than that, since Germany’s tax receipts covered barely an eight of the cost of war. Therefore, some inflation was to be expected, but for a time it appeared that Germany was resilient enough to continue functioning as usual.

Suddenly and out of nowhere

Then things took a turn for the worse in 1919 and by the spring of 1920, German prices had reached seventeen times their prewar level. From there, prices stabilized and remained stable during fifteen months in 1920 and 1921. During that time there was therefore no price inflation at all, but the government sought to stimulate the economy with deficit spending and business credits at favorable rates. As a result, Germany’s money supply doubled again during this period of stable prices.

Here’s how the chroniclers of that era described conditions in Germany, as presented in Jens O. Parson’s “Dying of Money” (slightly shortened):

As the people and businesses were concerned, these were the good times and the government’s easy money spread through virtually all levels of the German economy. Industry and business felt prosperous again; exports were growing strongly and hordes of tourists from abroad flooded into Germany. Many great fortunes sprang up overnight. Berlin was one of the brightest capitals in the world in those days. Great mansions of the new rich grew like mushrooms in the suburbs. The cities, particularly in the eyes of the austere country folk, had an aimless and wanton youth and a cabaret life of an unprecedented splendor, dissolution, and unreality. Prodigality marked the affairs of both the government and the private citizen. When money was so easy to come by, one took less care to obtain real value for it, and frugality came to seem inconsequential.

Side by side with the wealth were the pockets of poverty. Greater numbers of people remained on the outside of the easy money, looking in but not able to enter. The crime rate soared. Although unemployment became virtually nonexistent and many of the workers were able to keep up with the inflation through their unions, their bargaining, and their cost-of-living escalator clauses, other workers fell behind the rising cost of living into real poverty. … Even while total production rose, each individual’s own efforts faltered and showed a measurable decline, and the quality of production deteriorated.

Accounts of the time tell of a progressive demoralization which crept over the common people, compounded of their weariness with the breakneck pace, to no visible purpose, and their fears from watching their own precarious positions slip while others grew so conspicuously rich. … Along with the paradoxical wealth and poverty, other characteristics were masked by the boom and less easy to see until after it had destroyed itself. One was the difference between mere feverish activity, which did certainly exist, and real prosperity which appeared, but only appeared, to be the same thing. There was no unemployment, but there was vast spurious employment—activity in unproductive or useless pursuits. The ratio of office and administrative workers to production workers rose out of all control. Paperwork and paperworkers proliferated. Government workers abounded…

The boom suspended the normal processes of natural selection by which the nonessential and ineffective otherwise would have been culled out. Practically all of this vanished after the inflation blew itself out. … Speculation alone, while adding nothing to Germany’s wealth, became one of its largest activities. The fever to join in turning a quick mark infected nearly all classes, and the effort expended in simply buying and selling the paper titles to wealth was enormous. … The volumes of turnover in securities on the Berlin Bourse became so high that the financial industry could not keep up with the paperwork, even with greatly swollen staffs of back-office employees, and the Bourse was obliged to close several days a week to work off the backlog.

Concentration of wealth and business was still another characteristic trend. The merger, the tender offer, the takeover bid, and the proxy fight were in vogue. Bank mergers were all the rage… Great ramshackle conglomerates of all manner of unconnected businesses were collected together by merger and acquisition. Armies of lawyers, brokers, accountants, businessmen, and technicians who spent their time pasting together these paper empires bolstered the lists of the more or less employed. The most fabulous of the conglomerates was the empire of Hugo Stinnes, [tycoon] which comprised hundreds of companies at its peak in coal, iron, steel, shipping, transport, paper, chemicals, newspapers, oil, films, banks, hotels, and more. Stinnes was Mr.Everything who had also begun to colonize abroad and is supposed to have contemplated organizing all German industry into a single super-conglomerate.

History never ended…

Much of the above should sound familiar today, including the comforting period of relative price stability which may suggest that everything is under control and we need not be overly concerned about future inflation. However, we should heed such lessons of history; the good times in the early 1920s Germany were only a temporary respite from an inflation that was inevitably going to collapse the whole system. After the 15 months of stability until July 1921, prices doubled in the next four months and then rose ten-fold in the year through the summer of 1922. Then from July 1922, prices rose ten-fold in only four months, and 200-fold in 11 months. Near the end of 1923, prices were quadrupling or more every week.

It was an inflation tsunami: all the marks that existed in the world in the summer of 1922 (190 billion) could not even buy a single newspaper or a bus ticket by November of 1923. I don’t know if the EU, UK and Japan today might face a similar fate as Weimar Germany did 102 years ago, but we should seriously consider the possibility that we’re living in that fleeting period of price stability that could give way to a violently accelerating inflation. If that’s the case, every reader of this newsletter should make sure they own some physical gold and silver, some bitcoin, a store of non-perishable food and an electricity generator at a minimum.

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Today’s trading signals

With yesterday’s closing prices we have the following changes for the Key Markets portfolio: