The Weimar thesis is absolutely correct. The Weimar Republic’s turbo-inflation was a direct result of the German financing of World War I. Whereas the British were able to externalize their war debt (and also bundle the debt of their allies France and Russia) by selling bonds on the New York market, the Germans were frozen out of that market. The Germans wound up “selling” their staggering war debt to themselves, mostly in the form of short-term two to five year notes. Having lost the war, there was nobody around who wanted to buy their notes and as a result, the Weimar Republic had to monetize the notes as they came due in the early 1920’s. And so they inflated the currency to write it off the books; signs of this inflation were apparent in the German economy as early as 1916.
When our average annual deficit was around $400 billion, there was enough excess capital on the world markets to absorb that much debt, and China, Japan and Saudi Arabia were purchasers. However, when 0bama’s congress quadrupled the annual deficit to $1.6 Trillion, there wasn’t enough money in the world to absorb the debt. Thus, we had to “sell” it to ourselves, thus internalizing and now monetizing it.
In other words, over the last five years we went from the British model of finance to the German one. And it is no coincidence that we have QE2 ending shortly before we reached the debt limit, and it’s no coincidence that QE3 is beginning as we begin another round of “borrowing” now that the government has several trillion dollars more to play with. Also, if you look at the amounts of money involved in the various QE versions, it happens to coincide with the amount of money needed to cover the deficits that the foreign markets won’t or can’t absorb.
The only advantage we have over Weimar is that with the advent of electronic transactions, we don’t actually use the paper anymore so you can keep the wheelbarrow in the garage and not take it to the bank.
Most folk do not realize that the debacle is already accelerating; and from a point where the present dollar is worth only a tad more than a 1930 penny. (See Gold & Money In America, II.)
William Flax