Germany’s obsession with anti-inflation policies inspired by the Hyperinflation of the 1920s is so misguided that it is not threatening to collapse all of Europe. Former ECB banker Lorenzo Bini Smaghi has now even called to rescue the Italian banks with European taxpayers’ money. He is correct in warning that the insistence of Germany on the prohibition of state funding bailouts could evolve into a threat to the entire European financial system. The ECB is desperately trying to support the euro, but a strong currency only promotes deflation – not recovery.
The German hypeinflation was the
result of a collapse in confidence because of the 1918 Communist
revolution in Germany. Nobody would lend the government money after they
invited the Russian communists to take over Germany. This had NOTHING
to do with printing money. That was the result of the collapse in
confidence, not the original cause.
This misguided interpretation of the German hyperinflation is causing
the exact same response. People are hoarding cash, not investment, and
banks are collapsing. Deutsche Bank says it need 150 billion euros. This
is a full blown sovereign debt crisis that will tear Europe apart.
Negative interest rates are accelerating the process.
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