An in depth analysis of WHY YOU ARE WRONG
Friday, November 28, 2008
Sorry, they pulled that one since they want you to see the full film.
I've put a lot of videos and links about America's debt and financial condition in this post. I think that only by understanding this condition fully can one see the connection between America today and that of Weimar Germany.
Most people, to the extent they know anything about the Weimar Republic know only a few things-- it was a period of interesting art, Mann, Kandinsky, Klee, Grosz; -- something about carts of money to buy loaves of bread-- and finally, that it was shortly followed by the Third Reich.
Here is an extended quote from the book, The Age Of Inflation. The roots of Germany's problems began with the promises of Bismark's welfare state and the way Germany financed the costs of WWI.
"Like all the other banks, it offered assistance to the central government in financing the war effort. Since taxes are always unpopular, the German government preferred to borrow the needed amounts of money rather than raise its taxes substantially. To this end it was readily assisted by the Reichsbank, which discounted most treasury obligations.
A growing percentage of government debt thus found its way into the vaults of the central bank and an equivalent amount of printing press money into people's cash holdings. In short, the central bank was monetizing the growing government debt.
By the end of the war the amount of money in circulation had risen fourfold and prices some 140 percent. Yet the German mark had suffered no more than the British pound, was somewhat weaker than the American dollar but stronger than the French franc. Five years later, in December 1923, the Reichsbank had issued 496.5 quintillion marks, each of which had fallen to one-trillionth of its 1914 gold value.
How stupendous! Practically every economic good and service was costing trillions of marks. The American dollar was quoted at 4.2 trillion marks, the American penny at 42 billion marks. How could a European nation that prided itself on its high levels of education and scholarly knowledge suffer such a thorough destruction of its money? Who would inflict on a great nation such evil which had ominous economic, social, and political ramifications not only for Germany but for the whole world? Was it the victors of World War I who, in diabolical revenge, devastated the vanquished country through ruinous financial manipulation and plunder? Every mark was printed by Germans and issued by a central bank that was governed by Germans under a government that was purely German. It was German political parties, such as the Socialists, the Catholic Centre Party, and the Democrats, forming various coalition governments, that were solely responsible for the policies they conducted. Of course, admission of responsibility for any calamity cannot be expected from any political party."
This was just the start of the problem. Germany was already deep in debt but it didn't feel like it could handle the sharp recession all the industrial countries had as they demobilized. To put off this pain and potential instability, they began to spend more and more. Many, many people, soldiers, farmers, workers and businesses needed help.
"Immediately after the war the German government, under the leadership of the Socialist Party, embarked upon heavy expenditures for health, education, and welfare. The demands on the treasury were extremely heavy anyway because of demobilization expenses, the demands of the Armistice, the disorders of the revolution, and the staggering deficits of the nationalized industries, especially the railroads, postal services, telephone, and telegraph. Public administration by the new men raised to power by the revolution, nevertheless, was extravagant, as the resources made available by the creation of new money were apparently unlimited. A number of measures for the nationalization of certain industries (e.g., the coal, electrical, and potash industries) were introduced, but failed to become law. The eight-hour day was enacted, and labor unions were given many legal immunities and privileges. In fact, a system of labor councils was set up which authorized the workers in each enterprise to elect representatives who shared in the management of the company! While government expenditures rose by leaps and bounds, the revenue suffered a gradual decline until, in October 1923, only 0.8 percent of government expenses were covered by tax revenues. For the period from 1914 to 1923 scarcely fifteen percent of the expenses were covered by means of taxes. In the final phase of the inflation the German government experienced a complete atrophy of the fiscal system."
The immediate effects of their actions weren't clear to most and the monetary authorities went to great lengths to tell people that the inflation people saw in their daily lives wasn't really there.
The other thing that reminds one of this time was not just that Germany was up to it's eyeballs in debt but that this debt was largely owed to foreigners who had once considered it a good credit. They continued to lend and only slowly realized their mistake. When they did, the Mark dropped like a stone and the real pain began.