New Year's Thoughts - Hyperinflation and Dhimmitude

Folks,

I hope you've been able to keep up with your reading of Catawissa Gazetteer's economic commentary. If not, then perhaps Dr. Jerry Pournelle's commentary at the Chaos Manor web site is more to the point:

Hyperinflation and Dhimmitude

"Do not be deceived: God cannot be mocked. A man reaps what he sows." Galatians 6:7

Thursday, December 30, 2010

For those interested in the Weimar inflation, the classic Adam Fergusson When Money Dies: The Nightmare of Deficit Spending, Devaluation and Hyperinflation in Weimar Germany (1975) is available after being years out of print. (Book) (Kindle). There's a review in today's Wall Street Journal under the title "A Flock of Black Swans" (Link). The review title is misleading: it wasn't a flock of black swans that brought about the situation in which a 3 pfennig postage stamp was overprinted to 3 mird millionen marks. (In 1914 the mark was worth about 4 marks to the dollar, and of course in those times mail in the US was one cent for post cards, and 3 cents for first class mail. There were generally two mail deliveries per day to city households.)

It is true that Germany was hit with a series of unfortunate events. To begin with they lost the war, but when they sued for peace and agreed to the armistice instead of Wilson's 14 points they got something else, with the British blockade of all shipping, neutral or belligerent, continuing until the Treaty of Versailles was accepted. The war had been financed by deficit financing to begin with; and the consequences of losing it were severe, leading to even more deficits including the Reparations imposed by the Treaty of Versailles. Keynes book on the Economic Consequences of the Peace details some of those consequences. One ought also to be aware of a book by Étienne Mantoux which criticised the impact of Keynes. The Carthaginian Peace: or the Economic Consequences of Mr. Keynes argues that many of the Versailles Reparations were not paid and the enforcement was sporadic and timid. One telling line in Mantoux's book: when the Parisians saw the German troops marching in to occupy Paris, their reaction was "and we were told they were starving".)

The point is that many of the Black Swans that caused the disasters of German currency collapse were in fact predictable and predicted. Financing a country by running the printing presses ruins the middle classes, wipes out all those who live on pensions and fixed incomes, wipes out savings accounts, and brings about desperate conditions among the very people we usually rely on to preserve law and order. In China there was enormous inflation and currency collapse that greatly aided Mao in his takeover from the Guo Min Dang of Generalissimo Chiang. Once again this was predictable and predicted.

If there is one thing predictable from the deficit financing and the swelling pension burdens of US government, it is that there must be considerable inflation. Whether it will reach the mad levels of Weimar is doubtful, but we are regulating ourselves to death while financing the unemployment with deficit financing. That can't continue, and as Herb Stein (Ben Stein's father) once observed, if something can't go on forever it will stop. When the crunch comes I suppose we will call it a flock of black swans. Meanwhile, we finance unemployment with deficit spending, and the Republicans would like us to think that the compromises with the Lame Duck Congress were somehow victories for sanity. One hopes there are a few in the Tea Party who know better. Perhaps it is time for more primary challenges. Eventually the Creeps will catch on. If something can't go on forever, it will stop.

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One of the great ironies of life is that Israel got the only part of the Middle East that is not sitting on oil. They conquered Sinai which might, but gave it back in a swap of land for peace. They certainly lost the land; how much peace that bought is still under discussion.

They have, however, found a lot of natural gas off their Mediterranean coast. Technically there ought to be some off the coast of Gaza, which would finance a lot of recovery for Gaza; but one suspects that if Gaza is able to develop those fields, they will use it to buy rockets to aim at Israel and the Israeli natural gas drilling platforms. The old story of Jacob and Benjy who hate each other, so when the angel offers Jacob one wish, anything he wants on the condition that Benjy will get twice as much, Jacob wishes to be blind in one eye comes to mind.

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And Europe is showing us the delightful benefits of diversity: the Danish secret police arrested a group planning an Mumbai style attack on a Danish newspaper office to avenge the five year old insult of publishing cartoons of Muhammad. Perhaps the Danes can retaliate by strip searching everyone in Copenhagen including little girls and grandmothers.