March 16, 2013 | 0 comments
October 31, 2012 | 15 comments
July 30, 2012 | 17 comments
April 17, 2012 | 24 comments
September 23, 2011 | 18 comments
It’s been tried before and found ruinous — from our new May issue.
(Page 2 of 2)
To meet the needs of expanding economies, the gold standard that by necessity most nations adopted after the war imposed a system of exchange rates that raised a constant threat of devaluation and inflationary price spirals. So today, the dollar held by American foreign trade partners from China to Dubai has been systematically devalued by successive administrations through budget deficits and trade account losses. Now, as then, Mr. Bernanke is devaluing Mr. Obama’s debt obligations by buying U.S. Treasury bonds with new printed currency.
But also now, as then, markets tend to adjust when one nation is a chronic profligate. Back then, faced with complaints that British and French loans from Wall Street were hampering their revivals, President Calvin Coolidge laconically observed: “They hired the money, didn’t they?” More recently, the estimable Paul Volcker, head of Mr. Obama’s Economic Recovery Advisory Board, could counter Chinese complaints that their dollar holdings were being evaporated only slightly less laconically: “They hold all these dollars because they chose to buy the dollars, and they didn’t want to sell the dollars because they didn’t want to depreciate their currency. It was a very simple calculation on their part, so they shouldn’t come around blaming it all on us.”
So it was in 1927 when the four central bank wizards met in secret for five days at a palatial estate on Long Island. The postwar boom was asphyxiating, especially in Europe and perhaps fatally in Weimar Germany. The three European central bankers desperately needed more gold in their vaults to fluff up the amount of liquidity needed to keep economic growth expanding. Strong agreed to cut U.S. interest rates; that’s what friends do. In response, investors moved their capital to the higher yields in Europe and gold accompanied it. Frenetic activity resumed and banks scrambled to lend more to cover growing debt burdens. The countdown to the 1929 crash was under way. There were credit swap agreements that no one could understand. There was Ivar Krueger, who built a Bernie Madoff scam selling Swedish match franchises. With each bank failure and industrial bankruptcy, governments demanded that the four central bankers and their compatriots provide ever more liquidity in volumes no economic tax base could ever redeem.
TO UNDERSTAND IN DETAIL what was happening then and its impact on current events, there are two authoritative books to read in sequence on what happened next. Lords of Finance (Pen guin) by former World Bank analyst and hedge fund manager Liaquat Ahamed chronicles with a slow- motion fascination how the four, as he says, “broke the world.”
Adam Tooze, a Cambridge economic historian, delved deeply into German civil and financial archives to document how Schacht was able to negotiate the shifting political ice floes between Weimar chaos and Hitlerian horror. In his book, The Wages of Destruc tion (Penguin/Allen Lane), he documents how Schacht was able to bounce back from dismissal from the Reichsbank in 1930 as the systemic global crash washed the Weimar experiment away. Yet he regained the Reichsbank chair in 1933 in a regime he had sneered at. He returned to power, in effect, by participating in an even greater fraud. Even Adolf Hitler, who boasted of his uninterest in economics, justified putting him into the bank and then making him head of the overall economy, citing Schacht’s “consummate skill in swindling other people.” All Hitler wanted was money for guns and the appearance that jobs were being created. Until Hermann Goering ousted him on the eve of war in 1939, Schacht pumped things up with a will. As Ahamed reports:
Displaying the inventive genius that distinguished him as the most creative central banker of his era, immediately upon taking office, Schacht threw the whole baggage of orthodox economics overboard. He embarked on a massive program of public works financed by borrowing from the central bank and printing money. It was a remarkable experiment in what would come to be known as Keynesian economics even before Maynard Keynes had fully elaborated his ideas. Over the next few years, as the German economy experienced an enormous injection of purchasing power, it underwent a remarkable rebound.
But as Tooze documents, much of that rebound was a façade. Dramatic photos notwithstanding, the network of autobahn superhighways never produced that many jobs. Germany’s agriculture remained stunted and its lack of crucial industrial resources made manufacturers increasingly vulnerable to foreign suppliers who demanded more foreign exchange than Schacht could earn. In the end, Tooze argues, Hitler faced the necessity of conquering new territories throughout Europe in order to forestall an economic day of reckoning just months in the offing.
One comes away from these books with two troubling questions: Just how responsible are Schacht and the three other central bank wizards for the slippery slide into World War II? And how likely are President Obama’s three wizards—Summers, Geithner, and Bernanke—to be successful trying much the same remedy today? No less than Chairman Volcker, who after all knows how the Fed should do its job in a crisis, confesses alarm. He warned recently, “We’re in a government-dependent financial system; I never thought I would live to see the day.…We’ve got to fight to get away from that.”
The ghost of Hjalmar Schacht must smile.
A man of faith in a godless age is hitting Americans where it hurts.
Mr. and Mrs. American Spectator Reader, let P.J. O’Rourke talk sense to your kids.
In Britain, defending your property can get you life.
The debacle of this president’s administration is both a cause and a symptom of the decline of American values. Unless Congress impeaches him, that decline will go on unchecked. An eminent jurist surveys the damage and assesses the chances for the recovery of our culture.
It won’t take long for conservatives to scratch this presidential wannabe off their 2008 scorecard.
The American Christmas, like the songs that celebrate it, makes room for everybody under the rainbow. Is that why so many people seem to be hostile to it?
Was the President done in by the economy, or by the politics of the economy?