In today's debt crisis, Germany is the US of 1931

[CHIMO]

A country faces an economic and political abyss: the government is on the brink of bankruptcy and pursues fierce austerity policies; public employees take huge pay cuts and taxes are drastically increased; the economy slumps and unemployment rates explode; people fight each other on the street while banks collapse and international capital flees the country. Greece in 2011? No, Germany in 1931.

The government's head is not Lucas Papademos, but Heinrich Brüning. The "hunger-chancellor" cuts government spending by decree, ignoring parliament while GDP falls without limit. Two years later Hitler will be in power, eight years later the second world war will begin. Today's political situation is still different, but the economic parallels are frightening.

Like in today's crisis countries, Germany's key problem in 1931 was foreign debts. The US was Germany's biggest creditor, Germany's debts were denominated in US dollars. Since the mid-1920s, its government had borrowed huge sums abroad to service reparation payments vis-à-vis France and Great Britain. Foreign credit also financed Germany's roaring twenties – the economic boom after the 1923 hyperinflation. Like Spain, Ireland and Greece today, Germany's 1920s upswing was caused by a credit bubble.

The bubble burst when US financial markets collapsed in 1929. US investors and banks were hit hard, lost confidence and reduced their risks – especially their investments in European assets. Credit flows into Germany, Austria and Hungary came to a sudden halt. US investors did not want Reichsmark – Germany's own currency – but dollars, a currency the German Reichsbank could not print. The dollar withdrawal out of Germany – especially out of German bank deposits – led to the quick depletion of the Reichsbank's currency reserves.

http://www.guardian.co.uk/global/2011/nov/24/debt-crisis-germany-1931#

[alittlelark]

1. This shit is what I have been saying for 6 years.

My Stanford MBA spouse still doesn't get it.

[fasttense]

2. Hmm, maybe.

His analysis is a bit off.

1st off the Smoot-Hawley-tariff is a favorite wiping boy of the radical right. The tariff only affected imports which were less than 5% of total US GDP in 1930. So any affect the tariff might have had was very minimal because the US imported so little.

And he is missing a major event in German society - the return of a large number of veterans from the war. These returning vets had no jobs to come home to and sided with the working class to fight off the economic elites.

Greece today has no returning Army. But one country does - The U.S.

If austerity in the US gets worse, expect a German style result.