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As one of the “losers” in World War I, Germany was forced to pay exorbitant reparations to the “winners,” primarily France and Belgium, for the damage done to those countries. The reparations payments, which were putative more than anything, resulted in an adverse balance of payments in Germany. The Weimar government, as well as German corporations, had difficulties obtaining credit abroad to fund industries that could inject money into the economy needed to make the payments, which combined with a loss of territory under the Treaty of Versailles, meant that Germany needed to import more raw materials to keep its industry going. The result was a further devaluation of the Reichsmark. As with the domestic debts it incurred from the war, the German government saw devaluation of the currency as a viable option, but the reality was that it gave itself little room for economic maneuvering. <ref> Laidler, David E., and George W. Stadler. “Monetary Explanations of the Weimar Republic’s Hyperinflation: Some Neglected Contributions in Contemporary German Literature.” <i>Journal of Money</i> 30 (1998) p. 819-20</ref>
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The fiscal corner that the Weimar government found itself in as the result of wartime debts incurred by and reparations forced upon the previous government, was further exacerbated by its own leaders’ inability to grasp the complexity of the situation that was rapidly unfolding. The Weimar government became extremely myopic and was plagued with what seemed to be eternal gridlock in the halls of the Reichstag (the German parliament). The left and right wing parties were nearly equal in the Reichstag in 1921. To many people today, this may seem like the optimal form of “checks and balances,” but in early 1920s Germany it resulted in political stalemate where neither side was willingly to give ground. Among some of the most fundamental issues that neither side could agree upon was the need to raise taxes for social services, such as the payment of military pensions for veterans.
===The End of the Cycle and Its Results===
[[File: Freikorps.jpg|400px460px|thumbnail|left|Freikorps Preparing for Action on the Streets of Germany in the 1920s]]
Although Germany’s bout with hyperinflation was a gradual process and took a while to peak, it ended rather quickly. After numerous failed attempts to alleviate the process, the Weimar government introduced a new currency known as the Rentenmark in 1923. Unlike the Reichsmark, which was not backed by gold or any other tangible asset, the Rentenmark was back by real estate. When the Rentenmark was first introduced in October 1923, one bill was worth an astonishing one trillion Reichsmarks! <ref> Widdig, p. 11</ref> Although the Weimar government was able to effectively end the hyperinflation by the end of the year, the damage had already been done to the German economy, political system, and greater society.