Lawrence J. Kramer

Why Our Credit Crunch Mirrors the Weimar Hyperinflation from 1919-1923

I think the numbered paragraphs are excellent and important, but much of the preamble is paranoid nonsense. There has been no transfer of wealth. The bankers who have been "helped" have seen their personal fortunes decimated. All they have left are their jobs. That puts them ahead of a lot of people, but "transfer of wealth"? Ask Hank Greenberg or Dick Fuld or Lloyd Blankfein or Jamie Dimon how much wealth has been transferred to them. Short-sellers have cleaned up, but not on bail-out money. Everyone else has been beaten up pretty badly.

None of this makes the historical lessons of Weimar inapposite. It's just sad to see the matter wrapped in the sort of conspiratorial silliness that makes people stop reading before they get to the stuff that matters.

Stripped of unimportant talk about what motivates individual actors, the material problem is that we bought more than we could pay for and now have to default on our bills. We have to. There is no choice, as we don't have anything to sell to pay what we owe. We tried pretending that our real estate was worth more than it is, but that didn't work. Dollar-denominated obligations will be settled at less than par in real terms because there isn't enough of value to settle them in full. Inflation is merely the mechanism by which that default occurs naturally.

If there were no stimulus, no "runaway spending," the trade deficit would still be there, and the debts would still be coming due and we would not be able to pay them except by printing dollars. Without the stimulus, though, the Chinese and OPEC would simply stop taking our dollars sooner, as they would have less business to lose. They wil continue to supply us for so long as they can pretend they are getting paid. If we don't buy, the music stops now. If we do buy, it stops later. In the scheme of things, there's not much difference.

Our standard of living has long been subsidized by the poverty of others. That may or may not have to be the case, but foreign suppliers seem no more eager to elevate their workers and consumers than we are to demand that they do so. In a globalized world, the economies of the U.S. and India should be as much alike as those of New York and Iowa - different, but not very different. Is there enough productive capacity for that to be the case? If yes, can we get there? If the answer - to either question - is "no," then what? I mean, if our hyperinflated currency won't employ those call centers, what will?