Memories of Weimar still haunt the eurozone today. The European Central Bank, widely considered to be the only institution with the firepower to stem the euro crisis, is somewhat restrained by the legacy of the German Bundesbank.
The Bundesbank – established in 1957 (well after Weimar) – for years before joining the euro was extremely conservative in expanding the money supply because of what happened during the Weimar years. And 90 years later, Germans are reminded of the perils of the printing press, whether or not the comparison is truly apt.
Adam Fergusson authored a book on the subject, entitled When Money Dies – and many consider it to be the definitive work on the Weimar hyperinflation.
We summarized the key elements of Fergusson’s book…
The inflation’s roots were in World War One, which Germany financed with outsized budget deficits
Germany hoped that it would quickly win the war and reap bounty from the nations it conquered, which – to the government – justified the use of the printing press to fund it:
It may have been true — there is no reason to doubt it — that a short, sharp war and a speedy victory in 1914 had been both hoped for and expected. Together with the prospect of eventual war indemnities extorted from the Entente, this would possibly have justified taking temporary liberties, even outrageous ones, with the known laws of finance.. .that was indeed how it did begin: in part the natural result of having a self- willed Army itching for war and a Federal Parliament which, though with limited power over the country’s constituent states, still had to find the money to pay for it. [Read More...]