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Saturday, January 17, 2009

Hyperinflation First, Then Global War

Watch the clip from Ron Paul explaining the consequences of destroying a currency...

Then read this book: The War of the World by Nial Ferguson.

Ferguson develops a theory to explain the brutal violence of the 20th century. He postulates that ethnic unrest is prone to break out during periods of economic volatility and uncertainty. Severe economic distress has the tendency to suddenly unravel even advanced processes of ethnic assimilation which then rapidly escalate into full-scale conflict. The catalyst for catastrophe is always the decline of great economic and political powers and more importantly the emergence of new powers.

One of many examples analyzed by Ferguson is the Second World War where empires in decline clashed with those on the rise while the global economy convulsed wildly.

Fast forward to the present. The "descent of the West" is now obvious. New economic and political blocs such as China and India are struggling define their global identities. A truly massive philosophical, ideological and religious struggle has gone from a 'cold war' to controlled 'hot war' on a global scale pitting Individualism against Collectivism, Science against Religion, and Christianity against Islam.

The current global economic instability will almost certainly be the final spark to set the entire world aflame.

"According to historian Professor Niall Ferguson, we need to rethink our understanding of the 20th century. There were not, he says, two world wars and a ‘cold’ war, but a single Hundred Years' War. It was not nationalism that powered these conflicts, but empires. The driving force was not class or socialism – race was. And finally, it was not the West that triumphed; in fact, power slowly and steadily migrated towards the new empires of the East." -The War of the World

Channel 4 showed The War of the World: A new history of the 20th Century in June - July 2006:


Irrational Doomsday Blog said...

That's maybe a little too pessimistic even for me. I can see significant conflict down the road, but WWIII seems unlikely.

Then again if you would have asked me 2 years ago how likely the subprime crisis spreading would be, I'd say unlikely.

If you asked me 6 months ago whether it would spread to the degree that it would threaten general financial collapse, I'd say unlikely.

If you asked me when Lehman went down whether the Fed and government would put the currency at risk to try to stop this...I'd say unlikely.

Kosta said...

I love your blog but Ron Paul is wrong. He makes the claim that Hyperinflation in Germany led to the rise of Hitler. This is unfounded. As Ron Paul points out in his video, Germany suffered hyperinflation in 1923. Hitler rose to power in 1933, 10 years later. Do you honestly believe that the monetary policy of the Weimar Republic resulted in the ascension of the Hitler 10 years later.

Without getting into the entire history of the period, would you not think that the Great Depression, which started in 1929, was a more proximal cause of Hitler's rise?

The Weimar hyperinflation example does not support the idea of global war.

Rolf said...

"Do you honestly believe that the monetary policy of the Weimar Republic resulted in the ascension of the Hitler 10 years later."

As German historian I'm sad to say it did indeed.
The German middle class lost about everything and felt deeply betrayed by the new powers. It were these people who later made the way for the Nazis.
By the way, Hitlers first attempt to get to power was in November 1923, and it was broadly sympathized.(

Lisa said...

There were many factors present enabling Hitler's rise to power, but the main one was philosophical. To name one factor, (hyperinflation), is a misapplication of cause and effect. The following sentence is an example of this: Hyperinflation, causing people to chuck morality and humanity out the window, resulted in the murder of millions.

wunsacon said...

I've seen only a few clips of old news-reel advertising for/from the Nazis. One of the talking points was that there were "36 different political parties!" in Germany.

Apparently, like the way people can't pick a mutual fund if there are too many choices, the complexity of the political landscape was daunting for many Germans. They wanted something more simplistic, more decisive, a less-talk-more-action "real leader". In that difficult time, the people looked upon democratic discourse as an obstacle.

When I saw those couple of clips, it immediately reminded me of today's:
- complaints about "dysfunctional Congress",
- complaints about "the American Left is too disorganized" and don't have their act together like the Republicans,
- the inclination many have to see the US President exercise more power,
- some friends' occasional utterance of a longing for a "benevolent dictator",
- Nixon's behavior and his assertion that something isn't illegal if the President does it,
- George-the-Decider's signing statements and other behavior.

Related article:

Unless you assume Americans are "superior" (genetically or for whatever other reason) to other humans, then you have to consider the possibility that Americans would act like Germans if put into similarly difficult economic and political circumstances.

Anonymous said...

Ron Paul's view, (I can't see the video-stallitefeed not fast enough where I live) means that global warfare is a long way off.
We have had this debate ad mauseam. There will be no hyperinflation any time soon !

Mark said...

Hyperinflation in Weimar had something to do with the crushing debt levels imposed at the end of WWI. It was certainly one cause of Hitlers rise, but there were others.
Times were different and as Fritz Fischer showed in Greif nach der Weltmacht, the Kaiser's government started the war to achieve a global power position. New empires tend to be aggressive, and China might be, but it is probably not inevitable, nor is it yet proven that China can survive at this size without breaking up. The rapid rise may be built on sand.

As for the descent of the West - how's that again? In the early 1980s we were told about the inevitable economic dominance of Japan, but it didn't actually turn out that way. For Asia to rise does not mean the west hast to fall - it is a relative change which should be all to the good - eliminating poverty elsewhere should not make us feel poorer.

Robert E. said...

Hyperinflation did lead to Hitler. It took 10 years but the resentment of Germany vis a vis the peace treaty at Versailles and what it did to German currency is a fact. Paul is correct, something I wish he was not. Also, no one talks about what money is in this country. No one. Everyone assumes they know but this is not the case. Delve into the root cause of why the US is tanking because the info will blow you away.

Anonymous said...

China is not a "new" empire, but rather an old one, making a comeback.
They consider themselves the center of the world, the Middle kingdom, and do not wish to expand anything other than their reputation and influence.
That is, territorial expansion is not their deal, and they have all the time in the world (and then some, the Chinese might add). They are a fifth of humanity: China would be more likely to fall into Civil War (ie with Taiwan) than launch a War of Aggression against eg Russia or japan or the USA.
Of course all bets off if USA stupid enough to actively intervene in a chinese Civil War.

Kosta said...

Rolf: there were a lot of events that led to the rise of Hitler, including hyperinflation, but do you really think that an event in 1923 was the pivotal cause of his rise in 1933?

I'll grant that in 1923 the middle class was impoverished and felt betrayed, but was there a plausible outcome from the end of WWI and the crushing reparations that followed which would not have left the middle class impoverished and feeling betrayed? The hyperinflation itself is not critical.

Sure, Hitler attempted a putsch in 1923, but if failed, so clearly hyperinflation is not sufficient on its own to cause Hitler's rise to power. Meanwhile, in Italy to the south, Mussolini did take dictatorial power, in a environment bereft of hyperinflation. So clearly, hyperinflation is not necessary for a fascism to take control.

A problem with the claim that hyperinflation led to the rise of Hitler is that the Wiemar republic recovered from this period. The hyperinflation may have left the country vulnerable to future extremism, but having recovered, sustained growth would have prevented Hitler's rise. Rather, subsequent events had to occur for Hitler to attain power.

A much more proximal cause of Hitler's rise was the Great Depression. The combination of being cut off from American loans and "slavish adherence ... to the gold standard" leading to the collapse of the Creditanstalt in Vienna (1) led to a sharp downturn in Germany, and a rise in unemployment from about 2 million in 1926 to 6 million in 1932 (2). That was a much more important cause of Hitler's rise, providing both an opportunity for him to take power and the subsequent credibility as the economy inevitably recovered while under his stewardship (3).

Robert E: Obviously hyperinflation did lead to Hitler, because hyperinflation occurred before Hitler's rise, but by the same argument, the cultural explosion during the Wiemar Republic's Golden age (the "decadence" of Berlin's cabarets and such) also led to Hitler, as they occurred before Hitler (I'm not entirely facetious here, as Nazism was also a conservative reaction to this liberalism). However, it is hard to make the causal relationship between an economic policy/crisis in 1923 and politician's rise in 1933 especially when there are intervening periods of recovery and economic weakness (namely the Great Depression).

Moreover, as you yourself point out, a root cause of Germany's resentment was the Versailles treatment. That resentment had broader implications than just the currency, so focusing on the hyperinflation is misleading.



(3) Germany's economic recovery in 1933 was inevitable under any halfway competent administration as the world economy was recovering and some sort of spillover was inevitable.

Chimera said...

This one of the most interesting post Ninja published.

I don't know whether world war or Hyperinflation are related, or whether Mr Paul is wrong (I prefer this guy than most politicians around); but Mr Ferguson basic thesis makes much sense.

Anonymous said...

..."slavish adherence ... to the gold standard" leading to the collapse of the Creditanstalt in Vienna ....
Whose opinion ? Honest money never could and never did cause any collapse anywhere at any time. If you make such a statetement, you have to prove your point and I so not believe you can.

Kosta said...
This comment has been removed by the author.
Kosta said...
This comment has been removed by the author.
Kosta said...


You asked about whose opinion? Please go back and reread my comment. I referenced "slavish adherence" with (1) So the opinion is from wikipedia, your mileage may vary.

But I am being intentionally provocative here. The point I'm trying to make is that the Wiemar Republic's hyperinflation is a minor step in the road to Hitler's rise, while the Great Depression gave the opportunity to seize and consolidate power. If one wants to look at the economic reasons for his rise, one would be better served looking at the causes of the Great Depression. And the utility of the gold standard has relevance.

Nial Ferguson's thesis is very relevant. Economic instability could very well lead to global crisis. It behooves us to do our best to solve these economic problems before such a conflict emerges.

Looking back at history, the relevant lessons aren't drawn from the Wiemar Republic's response to a punitive Versailles treaty. Rather the causes and cures of the Great Depression offer much clearer prescriptive pathways for the future.

Now that we are in debt deflation, how do we arrest the economic decline and put us on stable grounds for further growth? That's the question, and yes, relevant historical lessons arise from the Great Depression, and the adherence to the gold standard during this time.

Tim said...

Anglosphere is definitely over. The real question is regarding where European Children will go? Europeans have been expanding century after century without consolidation. Ten Percent of the Worlds population controls massive tracks of land with outrageous weapons systems. Europeans have pretty much always been a minority on this planet. They are also extremely defense oriented. Russia and America account for by far most of the advanced on Earth.

Once Anglosphere collapses, The Europeans spread out all over the world will start forming new societies and consolidating. Anglosphere has a lot more debt than say Germany or Russia. My bet is a Russian/German Axis forms that sucks out all the smart Europeans from all over the world especially Anglosphere. Western Civilization then moves East to the Russian German Axis. That is my bet.

Everyone always talks about the East simply because we have so much debt from the West (mostly Anglo Debt). What is all the debt good for when you can never collect it without getting blown off the planet? And everyone is set on Asia ruling the world before it has even happened. Personally, as someone who is Asian (Chinese) and living in the West. I am interested what White people do. The big European consolidation will set the stage for the East and everyone else.

In spite of what the Pentagon says, China has a long ways to go militarily. Europeans have a dynamic gene pool that is unquantifiable. In 1998, Russia was supposedly done for. Putin and the Slavs came back from the dead. Pretty impressive considering Anglosphere was fighting him the whole way.

Anonymous said...

The word from an outstanding German professor at my alma mater, a woman who grew up as a young girl, in Berlin, before WWII: The Germans, and this woman's family was Prussian, with their own proud military history, absolutely did see the Treaty of Versailles as an onerous burden on Berliners and other Germans.

To a young girl in Berlin and her family, Hitler cleaned up Berlin from is depraved, x-rated status by jailing gypsies, pornographers, the low life criminals, and other byproducts of decadent Berlin life by cleaning up the streets and throwing criminals in concentration camps. Because Hitler was bringing crimes of all sorts off the streets and under control, the Berliners had very little insight into the real purpose of the concentration camps.

My professor was approached as a conduit for getting Jews out of Berlin and into Sweden, but her mother and father turned it down. Her family went on to suffer terribly in the fall of Berlin, but she herself married an American Army officer, emigrated to America. Her elderly mother, who spoke no English, came to visit and I was honored to meet her.

When she first arrived in America, she completed a PhD in German in Maryland and went on to become the first woman in her law school class at Washington University in St. Louis, while her husband was stationed in Korea.

Anonymous said...

Global war?
As the USA has spent 50% of its Fed Budget on its military ( and a chunk of the leftovers on cops and prisos) for fifty years, I wonder who's most likely to start it?

Anonymous said...

The German hyperinflation was not an isolated financial event. It was the result of the Versailles treaty. In that treaty, Germany was forced to pay more than its economy could produce. The German government tried to meet that obligation by printing money. The situation was similar in Hungary after WW2 and in former Yugoslavia in the 1990's. The hyperinflation in Zimbabwe is also partly due to the isolation the Mugabe regime has maneuvered itself into.

To sum up, hyperinflation is not a purely financial event. It is to a large extent caused by disappearing trust other countries place into the inflating nation.

None of these factors are present in the US right now. For that reason, I do not believe that hyperinflation is possible in the US. We will experience modest to a high inflation. But not hyperinflation.

Rolf said...

So you think the rest of the world is going to buy shady T-bonds forever???
I mean, come on, it's like saying the sun won't down.

dogismyth said...

Don't you know this is the age of deception? Ron Paul does not get my vote since he has yet to put his job on the line to fight the supposed evils amongst his partners in crime. Hitler does even compare to the likes of Bush, cheney and the jewish cabal that pull the puppet strings. Perhaps you should dig deeper to find the truth.

Anonymous said...

What is the "Dollar financial system of 1971" that he mentions at 1:39?

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