Our Bangkok correspondent H. Numan extrapolates from our present fiscal woes to something more grievous and possibly terminal.
The nightmare of hyperinflation is coming
by H. Numan
He who doesn’t learn from history is doomed to do it all over again. We haven’t learned a lot from history, and are going to make the same mistakes. However, history never repeats itself. It’s always different. One of the reasons is that people tend to look at history, and think: ‘I wouldn’t have done that. How stupid!’ That’s looking back with 20/20 hindsight. You know the problem, and know what didn’t work back then. Most people think our ancestors were really stupid and they themselves are very smart. No, they weren’t, and you aren’t.
We’re about to make the same mistakes all over again. The current dogma is that Hitler was extreme right-wing and the treaty of Versailles was too harsh. Both assumptions are wrong. Disastrously wrong, as you will find out.
Let’s start with Hitler. He didn’t come out of thin air. He became politically active in 1919. Hitler wasn’t extreme right-wing; he was a socialist. His ideas, many of them, were mainstream in Germany at the time. The Germany army started planning rearmament right after (probably before) signing the treaty of Versailles. All Hitler did, once he gained power, was to speed it up and drop any pretenses. All Germans into a greater Germany (‘Heim ins Reich’) was something every German wanted, left and right. The German army was already planning to conquer the east in the future. That’s why they didn’t have a problem with Hitler’s Lebensraum policy. At first together with Poland, only later they switched to conquering Poland first. Before attacking the USSR, that is. Either way, large swaths of Poland were originally German. They would have reconquered it anyway. With or without Hitler.
Hitler himself was a racist communist. Not my words. His own words. He wrote in Mein Kampf, pages 406-407, that National Socialism differs from Communism only in its racism. Take away racial ideology from Nazism, and you’ve got communism.
Now the treaty of Versailles. World War One ended in three treaties: Versailles (Germany), Trianon (Austria-Hungary) and Lausanne (Ottoman empire). The treaties of Trianon and Lausanne were really harsh. They literally drew and quartered those empires into little pieces. Versailles was as lenient as it could be. Germany lost some territory, had to pay a steep penalty and was restricted in her armed forces. Compared with the other treaties almost a slap on the wrist. Don’t forget the Allies made huge sacrifices. Settling for anything less was not possible; their electorates would never have accepted that.
On the other hand — something not only the Germans tend to overlook — we have the treaty of Brest-Litovsk (March 3, 1918), which ended the war on the Eastern Front in favor of Germany. That was a real diktat. It was harsh to the max, so harsh that the USSR didn’t want to sign it. Kein Problem, said the German army. Then we simply go on. So they did, and added more demands. The USSR understood they had two options: take it or leave it. They took it. If you are merciless yourself, you can’t ask for mercy.
What you probably don’t know is that Germany, long before the war began, had the most developed welfare state of the time. Not only that, the German parliament was predominantly left-wing, with very strong labor and communist parties. They didn’t have any influence, mind you. Bismarck started with social laws, so they couldn’t. Not because Bismarck was a socialist, far from it. Better to give a little now instead of being forced to give more later on was his policy.
The German plan was to saddle the Allies with massive demands and make them pay for the war, plus a little extra. The problem was they lost that war. Experts have calculated they couldn’t make any profit out of the war. The costs were simply too high. Just like the Allies in the Versailles treaty, they would have to settle for something more realistic. However, that is moot. They lost. The result was a very expensive welfare state and massive war debts.
The new German republic had equal parliamentarian representation, with usually a left-wing majority. Many parties were represented, some big, most small. The result was many coalition governments that rarely lasted a full term (something like Italy today).
In 1923 the German socialist government intentionally created hyperinflation. The current dogma explains why: The treaty of Versailles was too harsh; they simply couldn’t pay otherwise. That is woefully naïve. The war debts had to be paid in gold or foreign currencies. Not in (paper) marks. Makes sense. Otherwise they could have sent the son of a ministerial janitor to pay for the entire war debt out of his allowance, and have him demand change.
The real reason was very different. By creating hyperinflation they could pay off all internal (not foreign!) debts at once. It socialized everything; everybody became equally poor. And best of all: hyperinflation comes with a get-out-of-jail-free card! You socialize your society, and nobody gets arrested. Two birds with one stone.
See the resemblance with today? All Western governments are either outright socialist or have a very strong socialist opposition. The directors of the central banks and the IMF are all socialists. Perhaps not all of them, but those who really matter are. Hyperinflation is not the first instrument they will use, and not only socialists created hyperinflation. However, hyperinflation does tend to rear its ugly head far more often in socialist states. Yes, even the Argentinean hyperinflation. That came as a response to the socialist Peron era. Mugabe? Supported by the Chinese from the moment he started. Socialists use it intentionally, non-socialists because they are either crooks and/or economic ignoramuses.
Most important for you to realize is that the current directors of the important central banks are socialists, like those in the Weimar Republic, and face almost exactly the same problems. Their solutions will be the same. Not because they lack intelligence, imagination or qualifications.
At this moment we are at the beginning of a world economic crisis surpassing the 1929 Crash by an order of magnitude. It’s bad, you think? You ain’t seen nothing yet, buddy! Please believe me: it will get a LOT worse this year and next year.
Most service industries have been hit very hard by the Chinese Virus pandemic. I refuse to call it Corona, as it was
almost certainly created in a Chinese lab with lax quality and security controls. There are very strong indications it came from there, not from eating a bat. China is notorious for lack of security and quality — the only indestructible things they create are viruses. The Wuhan virus isn’t the first one coming from there. My I remind you of SARS? Even the Black Death originated in China. Of course we can’t blame the Chinese government for the latter.
Everything related to airplanes and flying worldwide is in deep trouble. Many airlines are on the brink of collapse or have already. Thai International will declare bankruptcy very soon. KLM isn’t doing that well either, though it will probably survive. The cruise industry will collapse later this year. Yes, the entire industry. The horeca (hotel, restaurant, cafe) industry is on the brink of collapse in most countries.
In Thailand it already has. Most hotels are closed permanently or at least are boarded up. Even if today the all-clear were to be given, it is highly doubtful it could recover. Many coach companies and tour companies have shut down or found something else to do. Recovery will take many years. And only if unrestricted travel is allowed — which won’t happen. Thailand is in a tough spot here: most tourists come from afar. Wearing a mask for 12+ hours nonstop plus a week (currently two weeks) of strict quarantine will not attract many holidaymakers.
The all-clear will definitely not be given. Not any time soon. Perhaps by the end of the year, at the very earliest. We sailed relatively unscathed through the first period, but the Indian variety changed that. Infections are now in the thousands, and deaths in the hundreds. Not as bad as in other counties, but still very bad. The government was planning to lessen the security measures, but now they’re strengthening them. Any idea of reopening before October is completely out of the question. Even that is wishful thinking, I’m afraid. More likely somewhere far into 2022.
In both the EU and in America we have socialist governments hell-bent on spending. Due to, among other things, the theories of (socialist!) John Maynard Keynes. Yes, in times of trouble it can be a good idea to toss in public money. However, that money must be paid back. Something most governments, certainly socialist governments, aren’t particularly keen on.
Now, that Keynes wasn’t a very good economist in my book. He invested himself heavily in … Weimar Germany. The hyperinflation came as a big surprise to him and wiped out most of his investments. Something you don’t expect from a professional economist. Certainly not of his standing. In Wikipedia he is praised. He didn’t lose any money in the Crash of 1929, after all. What they ignore is that he didn’t have any money left to lose. He had already lost it.
Both the US and EU governments want to spend enormous amounts of money on insane prestige projects. The Biden administration gives every US citizen a pittance to ease their suffering. While both Biden and the EU spend trillions on asylum seekers and the environment. Neither government is willing to scale down their prestige projects. Just like Weimar Germany.
Consumer prices are at the moment stable. However, prices of raw materials worldwide are rising. Timber, steel and grain prices in particular are on the rise. Not oil, but that comes mainly from worldwide lockdowns. You can’t travel by car or plane. Shipping is at an all-time low.
That will change, once the situation improves, later this year. By then consumers will go out and spend their money all at the same time. Which will create huge demand with little supply. That automatically creates high prices. Supply will stagnate, as the world economy has to restart. No government is capable of controlling prices, though all of them have tried that in the past.
The only way to postpone the inevitable is to print more money. Postpone, mind you. That’s all they can do. The crisis of 1929 in the US was not solved by the New Deal. It eased the suffering somewhat, at the price of a much longer crisis. In Germany at that time Heinrich Brüning was chancellor. His policy was the exact opposite of what Roosevelt did: stop government spending as much as possible, fire civil servants and reduce social welfare. Oh, before I forget: The German economic crisis started in 1923, not in 1929. That one only made their existing crisis much worse.
The electorate didn’t like that. Nor will the electorate today like it. No matter what, voters will invariably vote for (perceived) long-term less painful rather than for short-term painful solutions. Then and now. In both cases with good reason. Most people are poor. Yes, even you. Unless you make more than half million a year, you are not even middle-class. We poor have to accept what we are offered. We never get more, always less.
Governments rescuing the economy with public money can work, at the price of high inflation. You need very strong monetary frugal governments do to that and keep the situation under control. Even then, you spread out the misery over many more years. That’s why Brüning tried to rip off the band-aid in one go. And why he was voted out of office in mere months. He was very soon afterwards replaced by a (national) socialist named Hitler.
How was Hitler able to revive the economy? Simple. By stealing money. First from the Jews and his political opponents. Later on, by stealing it from other countries. The first victim was Austria. The next one Czechoslovakia. The rest is history.
Oh, another little gem for you. Big corporations did not support Hitler. His voters (the working class with jobs) did that. They had to pay for membership (naturally) and also for attending meetings, schooling and seminars. The Communists did not and could not do that. Their voter base was the working class without jobs. They had more supporters, but no money. Even though the fees the NSDAP levied that way were not high, it was more than enough to gain them political power.
Mind you, Hitler wasn’t crazy. He simply had no other options. First he (ab)used the money from the working class to get into power. To keep it, he had to conquer other nations. So he could keep paying for his welfare state. Until he ran out of other states or resources. He ran out of both.
It is possible wiser heads might prevail, though I doubt that very much. Later this year we’re going to see inflation rising. That is a certainty. Given the fact that we have very strong socialists in control of the economy in both the EU and the USA, the chances are extremely high that the coming high inflation will turn into hyperinflation. Especially with the Woke and ‘Reset the Economy’ movements so strong and vocal, that is almost inevitable.
— H. Numan