Posted on 04/15/2009 5:45:14 AM PDT by SeekAndFind
bfl
How accurate is this article?
I was under the impression a major component of Germany’s economic problems after The Great War were the reparations payments imposed by the Treaty of Versailles; this article seems to make no mention of them at all.
Cuz, the wolf is in the hen house, drowsy, and just getting ready to wake up and start chomping a new a$$ on the US economy.
I'm waiting for the Bushbots to show up and bleat that these wars were necessary to "keep us safe," just like the creation of the Department of Homeland Security, an agency now being used against "right-wing extremists" (conservative activists).
Good point - I don’t know. The author seems to mix fact and fiction.
EG, his talk of “mark-to-market” is nonsense.
ping
Those payments were, indeed, a small part of the problem an, of course, got all of the blame from the politicians who needed something foreign-caused to focus on.
Weimar led directly to Hitler. I think that is inherent in the German financial situation in 1919 and after.
In the aftermath, there was starvation, recriminations and chaos, compunded by punitive demands from the victorious powers for reparations that the new, unstable government had no ability to pay on time.
The answer is when in article 1 the author desribed post WW I Germany as the biggest debtor nation in the world.
He explains that Germany had assumed huge internal debts fighting the war, but England had accrued even larger debts during the same period.
He fails to make clear that it was the astonishing, open ended, unpayable debts piled on by the victors in 1919 that made Germany far and away the biggest debtor nation the world has ever seen.
Their burden of debt to GNP makes America’s debt today seem like pin money and perhaps explaining that would have weakened his comparison.
You have to pay for government, even republican government, or it grows endlessly and you pay much more in the long run.
Well, I’ve been a professional economist, an amateur history buff, and an avid follower of the recent crises from economic, financial, historical and geopolitical perspectives. The parallel to Weimar Germany is just wrong. There is a much much stronger historical parallel - the British Empire a century ago.
In 1900, Britain was the world’s lone superpower, based on the massive power of its industrial economy, as a massive net industrial exporter and net lender. Its empire controlled massive swaths of land in Africa, North America, Australia and Asia. London was the world’s financial center, and the system of global trade was centered on the pound sterling - giving British subjects the most desired currency in the world and the most favorable position for access to strategic natural resources. But there were vulnerabilities - the cost of militarily protecting its position was growing while dozens of small threats ganged up strategically against the giant. Up and coming competitors and recent entrants into the industrial revolution seemed poised to take its position - most notably Germany and the US. Then came WW1 and the Great Depression. The world expected the impossible - that Britain’s industrial power and its pound sterling would be able to save the world. But it couldn’t - the policy required to maintain the global system of London-based, Pound-focused trade and finance was the exact opposite of that required to prop up British production and employment. Britain became a net importer from the US during the wars, and a net borrower to pay for its war and economic recovery efforts. The global system collapsed in the 1930s, currency crises reduced the value of the pound, the empire began to unwind, and Britain was saved only by the power of the US, which emerged from WW2 and finally from the cold war at the top of the power pyramid.
On to Washington and New York. With the destruction in Europe in WW2 and the loss of London and the Pound in the 1930s as the anchor of international finance & trade, the US and the Dollar took their place. First at Bretton Woods, the US promised convertibility to gold in exchange for the Dollar as the global standard. But the cost of the Marshall Plan, the Cold War, and the Great Society cost the US too much gold to maintain convertibility. Nixon cancelled gold convertability, and Nixon & Kissinger (with help from Volcker) protected the dollar’s supreme position with a promise of US trade deficits (to provide foreigners a way to earn dollars and grow their economies), US budget deficits (to provide foreigners a safe place to invest those dollars), and growing imports of foreign energy (to increase demand by making the Dollar the currency used to buy oil). The unsustainability of the bargain was clear by Nixon economist’s comment to objectors that “if it can’t go on forever, it will stop.” Since 1973 - for 35 years - the US has gone from a net exporter and net lender to a net importer & net borrower, and its future liabilities are unsustainable at current levels.
Today, the dollar is still the global standard, but based on several vulnerable supports: the positioin of US treasury bonds as both a safe and profitable investment; the ability of the US economy to maintain its levels of net importing and net borrowing; its position as the medium of international trade for oil; the percention that the Fed can maintain its independence from US politicians, so that Fed policy does not hurt foreign dollar-holders. If any one of those supports gives, they all collapse, leading to something very similar to mid-20th-century Britain or worse.
“Those payments were, indeed, a small part of the problem”
JM Keynes became famous for his book “The Economic Consequences of the Peace” where he demonstrated that the reparations payments were impossible for the German people to fulfil. The reparations were small in the same sense that Katrina was a rain storm.
Good post, and a cheery forecast indeed. What will the next reserve currency be?
bttt
Probably unknownable. Some serious people are quitely rumbling again about SDRs and about return to gold and about some other type of commodity backing (like energy commodities!). Change in the system is inevitable in the long term (”if it can’t go on forever, it will stop”), although collapse in the short-to-mid term is not.
That being said, remember how we got out of the 1970s... we had just changed the system, still had not built the kinds of deficits required (sounds absurdist, doesn’t it?), domestic inflation had grown into the double-digits and (in combination with overseas devaluation) were seeing clear threats of a devaluation / spiraling-inflation crisis. Then Volcker came back into the picture - fully aware that the big problem was not the price of milk in New York, but the faith in London & Tokyo in the Fed’s ability to act independently to provide them a global currency - and he beat the US economy down into a double-dip, multi-year, worst-since-1930s recession. That’s why I don’t know any simple way to get to an easy recovery - not a single “recovery scenario” includes an fully-developed exit strategy, and the only ones that factor in both domestic and international considerations lead to a wide variety of types of protracted pain. Extreme uncertainty, although we can rule out a return to a happy stupor.
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