The objective of this analysis is to demonstrate using a post-Keynesian flow of funds analytical framework that, in conformity with the “Germany view”, the terms of reparations included in the Treaty of Versailles set the conditions for hyperinflation in Weimar Germany. Also, it seeks to show that hyperinflation in Weimar Germany is fully consistent with the existence of significant and on-going imbalances in both the current account and the fiscal situation.Fictional Reserve Banking
Hyperinflation in Weimar Germany: New Perspective on the “German View” using a Post-Keynesian Flow of Funds Framework
Joseph Laliberté
Some of this material will be used for a future publication. Comments most welcome.
4 comments:
So what is a nutshell MMT analysis of Weimar hyperinflation ?
If sovereign currency issuance is the key to MMT, why did Weimar 1920's Germany have a problem ?
Did someone else own their currency ? NO
Could they "print" in the MMT way ?
YES
So why did MMT not save Weimar ?
So what is a nutshell MMT analysis of Weimar hyperinflation ?
Currency collapse was a symptom of supply shock from lost output (losing a war kind of sucks) plus foreign-denominated debt (war reparations, losing really sucks).
The only way around hyperinflation for post-WWI Weimar was to increase taxation to pay for the war reparations, which, IIRC, were to be pain in gold. That was not feasible politically. Germany had to choose among default (impractical), financial destitution through austerity ( unpopular) or hyperinflation (messy). It choose the later due to the conditions imposed. Much like what is happening in the EZ now, where the solution is imposed financial destitution to pay "reparations" to the financial sector, which is to say, most the banks of the core, especially Germany. After Weimar, Germany is inflation-phobic, so the only choices are default and leave EZ or financial destitution through austerity.
googleheim,
start with a weak currency. Print cast quantities of that currency to buy foreign currency, endlessly, day after day, until the exchange rate collapses.
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