2010-12-20safehaven.com

VERY interesting bit on this piece on how the US's manipulation of the value of silver in the 1930s essentially induced the deflationary-hyperinflationary crisis that allowed Communism to come to power in China. (The rest is a more or less standard piece on gold and the current slouching-toward-hyperinflation situation in the US and our imbalance with China.)

We also looked at the Chinese hyperinflation period from 1935 to 1947 which helped topple the Chinese leader Chiang Kai-Shek. Like other economies, the Chinese yuan was once based on a silver standard, the US was not. Indeed, the yuan is the Chinese word for a silver coin minted by the Spaniards. Consider what happened. To help out the silver producers, President Roosevelt introduced the Silver Purchase Act in 1934 which boosted the silver price. The Chinese screamed. The Americans countered that the appreciation of the yuan would benefit the Chinese by increasing their purchasing power. Of course, silver prices soared and China's currency rose in value with an outflow of silver. China's economy soon fell apart and despite pleas to scrap the Treasury's silver purchase program, America refused and China was forced to abandon the silver standard in 1935. China then nationalised its banks. Chaos ensued as Chiang Kai-Shek flooded the country with paper yuan in order to pay for the war with the Japanese as well as Chairman Mao's Communists. Hyperinflation followed. In June 1937, 3.41 yuan was worth $1.00, but by May 1944 it took 23,280,000 yuan to be worth $1. Déjà Vu?


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