9 August 2010

Lord of Finace

 In Liaquat Ahmad’s “Lord of Finance” we learn how economic problems in Europe rapidly became destabilising political problems which only caused greater economic problems.  Defeated in the Reichstag, he had Von Hindenburg dissolve it and hold new elections in September 1930, two years early. The results came as an ugly shock. In a campaign dominated by the deteriorating economy, Hit¬ler appealed across class lines, promising to reunite the nation, rebuild its prosperity, restore its position in the world, and purge the country of prof¬iteers. He put a lid on some of his more extreme anti-Jewish rhetoric. Speaking at giant open-air rallies, many in sports stadiums lit by arrays of blazing torches, he mesmerized the tens of thousands who attended these events with his oratory. Meanwhile in the streets, his jack-booted para¬military thugs, armed with truncheons and knuckledusters, clashed vio¬lently with Communists and Socialists. The Nazis won 6.4 million votes, and vaulted into second place in the Reichstag with I07 seats.
 
The election panicked the financial markets; an estimated $380 million, about half of Germany's reserves, bolted. To halt the flight, the Reichsbank was forced to raise its rates, so that while in New York and Paris these stood at 2 percent, and in London at 3 percent, in Germany they went up to 5 percent. With prices falling at a rate of 7 percent per year, it meant that the effective cost of money had risen to 12 percent, gravely exacerbat¬ing the economic weakness.

As the economy lost ground, unemployment climbed, and the budget deficit widened, Bruning focused on balancing the budget. Unemployment benefits were restricted; salaries of all high federal and state officials, in¬cluding the president's, were slashed by 20 percent. Wages of lower-level officials were cut 6 percent; income taxes were raised, taxes on beer and tobacco increased, and new levies imposed on warehouses and mineral water. All of these measures made the Depression worse. Those who fail to learn the lessons of history are doomed to repeat them.