Monday, November 8, 2010

Good Times in the Weimar Republic


There were some good times in the Weimar Republic, Oh yes, there were some good times. The picture above shows a party during the early days. The boys were home from the war, and things were looking up.

As we mentioned yesterday, the Treaty of Versailles, which ended World War I, sought to "punish" Germany. There were a lot of different things, but one of the toughest is that Germany would be required to repay  pretty much the entire cost of the war. Many German men had been killed in the war, and the civilian manufacturing infrastructure had been decimated. So, the Germans were faced with an overwhelming debt, and little productive infrastructure. To explain the situation, I will give the following illustration. Lets say that the Weimar Republic has a bushel of wheat, worth 5 Marks. If they let the people in the country have it, they have nothing to pay their foreign creditors, and they default. If they use it to pay their foreign creditors, then people in the country would starve. Sort of like one of those No Win situations. However, the elites in Weimar had a brilliant idea. Keep the wheat, and print TEN German Marks. Use 5 of them to pay foreign creditors, and 5 to put back into the economy to try and get things back on track. It was the perfect solution. Creditors were paid, they kept the wheat, and there was 5 more marks floating around to "Stimulate" the economy. What could possible go wrong?

In a Completely Unrelated Story:


Last week Federal Reserve Chairman Ben Bernanke announced the Fed's new "QE2", or Quantitative Easing   2 program. In it the Fed will provide "stimulus" to the economy by injecting $600 Billion (and perhaps up to $800 Billion) in new money into the economy. The money will be used to "invest" in securities like Treasuries.

You see, I guess it is getting a little tough to continue to find new buyers for treasury bills, and well, the government does not want to cut spending because the people expect their government programs, and they can not raise taxes, because people do not like taxes, so the brilliant solution is to solve the problem by simply printing the money. The plan worked great. The next day the stock market rallied almost 200 points. In fact it worked so well, there is now talk about the need for "QE3". The idea is that when we see the value of our 401K's go up, we will feel wealthy, and go out and start buying new iphones on our credit card, like in the good old days.

Back to the original picture. To the Weimar Republic, I say, "Party On, Weimar". I hear a faint response from Weimar, "Party On, America".

13 comments:

  1. The problem is that the Mark became worthless, just like the US Dollar is becoming worth less and less every day.

    So go ahead and give the money away to the rich and party on.

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  2. Does anyone know about an idea to eliminate the national debt in 7 years by charging 1% on every transaction? I think a congressman from PA with a name I can't remember came up with it. I was glad to see someone is thinking about it. I thought it was a good idea since I'm not a big consumer.

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  3. I heard on the news today that the recent spike in gasoline prices is directly attributable to this latest meddling by the Fed.

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  4. My business is down 40% from last year. I don't intend to borrow any money. What for? To expand?Government stimulus targets the wrong end of the economy. Making it easier to borrow money shows they don't understand the problem. Sales are down. People are not spending. Business is not hiring. People are holding onto their money in anticipation of more of the same and a tax increase. Make it easier for the average Joe to spend some money by cutting taxes. The more he has in his pocket the more he will spend. The more he spends the more business volume (more jobs). This is much better than bleeding dry the remaining wage earners.
    John

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  5. America's best days are unfortunately gone forever. When the very business owners whom have been given and will be given even more large tax breaks have outsourced our mfg. jobs overseas what can one expect??
    Many people compare today's situation to 1982, NOT true. We had a recovery in early 83 because we had a manufacturing base to build up on--this is not the case today.
    The best one can hope for today is a job that is 40 hours a week with some benefits. Good luck on your employer offering you a decent pension plan. At least we don't have jobs like that where i come from.
    NAFTA, biggest mistake ever. Thanks a lot Bill Clinton and Newt Gingrich and the GOP congress.
    They sold us down the river and Ross Perot's warning was correct: "A big sucking sound of American mfg. jobs going overseas."
    God Bless Ross, wherever you are.
    Good Luck America.

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  6. Traumatized by the hyperinflation in the 1920s the European Bank, in which the Germans have a large influence, now refuses to print money. Instead nearly every country is rigorously downsizing in order to reduce the national debt. It is interesting to see the US and Europe take a completely different approach. I’m not sure which one is the best; there are as many economic theories as there are economists…

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  7. Outsourcing (not a factor in my work) is a result of bloated labor unions and oppressive government regulations. Given current demands both make on manufacturers it's no surprise.

    John

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  8. The hyper-inflation experience in Germany after WWI actually set the stage for Hitler to come into power..thereby indirectly causing WWII. I read once where a lady left a basket of German Marks outside the bakery to return to find the basket stolen and the Marks laying on the ground.

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  9. The USA is suffering one bad credit hangover.
    People need to live inside their means and its that simple.

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  10. I live near Austin, Texas and use it for my guide for the status on the economy at the people level. Austin is a Very liberal party town with a large number of wealthy (by Obama's measure)residebts who delight in each others company all the time. This is especially true on Friday and Saturday nights when they all head for the many high classed eateries.

    Last Saturday, we had friends in town an went out to eat but found the streets nearly empty and the busineses almost the same. It would seem that the economy has finally hit everyone, even Austin.

    Actually, it felt pretty good to move around town the same way we did in the sixties before "progress" overtook us and we became "wealthy".

    Good Times!

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  11. The only fair tax is a tax on consumption. Having said that, it matters not how much "they" raise with 1% tax as long as "they" continue to spend faster than it comes in.

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  12. Regarding In a Completely Unrelated Story:

    bazinga!

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  13. Joe,
    You made me look!

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