Skip to comments.MAULDIN: Germany Has Waved The White Flag And Will Allow Printing And Inflation
Posted on 05/13/2012 7:12:50 AM PDT by blam
MAULDIN: Germany Has Waved The White Flag And Will Allow Printing And Inflation
John Mauldin, Thoughts From The Frontline
May 12, 2012, 5:39 PM
A common mistake that people make when trying to design something completely foolproof is to underestimate the ingenuity of complete fools.
- Douglas Adams, The Hitchhiker's Guide to the Galaxy
(Adams must have been a poor designer, a good designer designs for complete fools.)
For quite some time in this letter I have been making the case that for the eurozone to survive, the European Central Bank would have to print more money than any of us can now imagine. That the sentiment among European leaders was that they were prepared for such a move was clear except for Germany, which is haunted by fears of a return to the days of the Weimar Republic and hyperinflation.
When Germany agreed to a fixed monetary union and a European Central Bank, it was with the clear understanding that it would be run along the lines of the German central bank, the Bundesbank. The members of the Bundesbank and the German members of the ECB were most outspoken about the need for a conservative monetary policy that would keep a clamp on inflation.
However, as I have previously noted, the Bundesbank was a toothless tiger. Germany has two votes out of 23 on the ECB, and the loud drumbeat from most of Europe, which is experiencing the difficulty of austerity accompanied by too much debt, is for a far more accommodating ECB.
The simple fact is that Mario Draghi, the Italian president of the ECB, created 1 trillion euros to help fund European banks, which promptly turned around and bought their respective countrys' sovereign debt.
(Excerpt) Read more at businessinsider.com ...
Heck, I thought we were blazing the trail...political forces are the only reason we haven't tanked yet.
I foolishly thought Germany would never cave, so this is a surprise to me.
Precious metals should do well this week, I would think.
Short be good for another 100 points on the DOW on Monday
Precious metals never do well, it's just that fiat currencies often do poorly.
At the end of the day, regardless of the price of an ounce of gold as expressed in fiat currency, that gold will still buy you about the same number of Snickers bars.
This doesn't mean that it's a bad idea to buy metals. For one thing they can offer protection against the ravages of inflation - but even more importantly they can enable you to pay off today's debts with tomorrow's vastly cheaper dollars.
Interesting question. I think at some early point it will be implemeted - because it HAS to.
A short history:
1914 - 1921. - When the war broke out in 1914, the German Central Bank suspended redeemability of its notes in gold, so there was no legal limit as to how many notes it could print. The government did not want to upset people with heavy taxes. Instead it borrowed huge amounts of money which were to be paid by the enemy after Germany had won the war, Much of the borrowing was discounted and monetized by the Reichsbank, i.e. printing press money - thence, "Katie bar the door".
Snips from Wiki on Germany's solution to the hyperinflation of the '20s. Note the last two paragraphs (my emphasis):
"In August 1923, Karl Helfferich proposed a plan to issue a new currency (roggenmark) backed by mortgage bonds indexed to market prices (in paper Marks) of rye grain. . . . The Agriculture Minister Hans Luther proposed a different plan which substituted gold for rye and a new currency, the Rentenmark, backed by bonds indexed to market prices (in paper Marks) of gold.
. . . This rentenmark plan was adopted in monetary reform decrees on October 1315, 1923 that set up a new bank, the Rentenbank . . .
After November 12, 1923, . . . the old central bank, was not allowed to discount any further government Treasury bills, which meant the corresponding issue of paper marks also ceased. Discounting of commercial trade bills was allowed and the amount of Rentenmarks expanded, but the issue was strictly controlled to conform to current commercial and government transactions. The new Rentenbank refused credit to the government and to speculators who were not able to borrow Rentenmarks, because Rentenmarks were not legal tender. . . .
By November 30, 1923, there were 500 million Rentenmarks in circulation, which increased to 1000 million by January 1, 1924, and again to 1,800 million Rentenmarks by July 1924. Meanwhile, the old paper Marks continued in circulation. The total paper Marks increased to 1,211 quintillion in July 1924 and continued to fall in value to one third of their conversion value in Rentenmarks.
The monetary law of August 30, 1924 permitted exchange of each old paper 1,000,000,000,000 Mark note for one new Reichsmark, equivalent in value to one Rentenmark. (with 4.2 marks to the US dollar (at $20 gold) Do the math. It hurts my mind when I try.).
Germany's wholesale price index:
July 1922 100.6
Jan 1923 2,785.0
July 1923 194,000.0
Nov 1923 726,000,000,000.0
IMO, we're about at Aug 1922
Forex: EUR/USD below 1.2900 as fears grow of Greece leaving euro
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