Specter of 1923 Inflation Paralyzes Germans and Cripples Europe
Tweet
Share
E-mail
Members of the G8 will be meeting for talks this weekend in Washington, and the most likely topic of conversation is going to be how to finally end the crisis in the southern regions of the Eurozone. This week saw 'runs' on banks in Greece and Spain, and yields on government debt have ballooned compared to Northern Europe and the U.S..
The current leg of the European crisis is tied to political fallout in France and Greece. Anti-austerity candidates in both countries won office at the beginning of the month. The elections paint a clear picture of how austerity measures that were proposed by Germany will work. The short answer is that they won't work. More precisely, they won't get a chance to work because people in the affected regions have rejected them.
If they want to keep the Eurozone intact, it is becoming painfully obvious that the only remaining option the Germans have is to provide stimulus in place of austerity. Considering the relative success of stimulus in the US, it is surprising they have held out for so long. One has to wonder, what is holding the Germans back.
To really understand what is happening in Europe, it is important to take a look back and have a glace through the history books. One of the most notable events of the last century happened in 1923. That was the year Germany experienced hyper-inflation.
By late 1923, 2000 printing presses spit out money night and day, and the value of German's currency dropped to ridiculously low levels at break-neck speed. It got so bad, men would have to use wheelbarrows just to have enough money to go to the grocery store, so it was said. The massive inflation would later set the stage for WWII and all the horror that went along with it.
Because of this, Germans are simply unwilling to tolerate inflation even to this day. At the slightest hint of inflation, German newspapers are quick to show images of their money going up in flames. Just this month, Germany's largest newspaper, Bild, ran the headline "Inflation Alarm!" on the front-page.
JPMorgan analysts are now saying there is a 50 percent chance Greece will leave the Eurozone. If they do leave, analysts say it could cause contagion in the region and send economies in the area into a tailspin, although no one really knows for sure what will happen.
But, if anyone is expecting that the Germans will come to the rescue in Europe, they are gravely mistaken. It isn’t going to happen. It should happen, but frankly it will not. The Germans are paralyzed by their fears of inflation. It is part of their national psyche and this isn’t going to change overnight.
The current leg of the European crisis is tied to political fallout in France and Greece. Anti-austerity candidates in both countries won office at the beginning of the month. The elections paint a clear picture of how austerity measures that were proposed by Germany will work. The short answer is that they won't work. More precisely, they won't get a chance to work because people in the affected regions have rejected them.
If they want to keep the Eurozone intact, it is becoming painfully obvious that the only remaining option the Germans have is to provide stimulus in place of austerity. Considering the relative success of stimulus in the US, it is surprising they have held out for so long. One has to wonder, what is holding the Germans back.
To really understand what is happening in Europe, it is important to take a look back and have a glace through the history books. One of the most notable events of the last century happened in 1923. That was the year Germany experienced hyper-inflation.
By late 1923, 2000 printing presses spit out money night and day, and the value of German's currency dropped to ridiculously low levels at break-neck speed. It got so bad, men would have to use wheelbarrows just to have enough money to go to the grocery store, so it was said. The massive inflation would later set the stage for WWII and all the horror that went along with it.
Because of this, Germans are simply unwilling to tolerate inflation even to this day. At the slightest hint of inflation, German newspapers are quick to show images of their money going up in flames. Just this month, Germany's largest newspaper, Bild, ran the headline "Inflation Alarm!" on the front-page.
JPMorgan analysts are now saying there is a 50 percent chance Greece will leave the Eurozone. If they do leave, analysts say it could cause contagion in the region and send economies in the area into a tailspin, although no one really knows for sure what will happen.
But, if anyone is expecting that the Germans will come to the rescue in Europe, they are gravely mistaken. It isn’t going to happen. It should happen, but frankly it will not. The Germans are paralyzed by their fears of inflation. It is part of their national psyche and this isn’t going to change overnight.
Serious News for Serious Traders! Try StreetInsider.com Premium Free!
You May Also Be Interested In
- JPMorgan Starts SpaceX (SPCX) at Overweight
- Vertex to acquire Crinetics Pharmaceuticals for $10 billion
- Air France-KLM (AF:FP) (AFLYY) Placed on Positive Catalyst Watch at JPMorgan
Create E-mail Alert Related Categories
Insiders' BlogRelated Entities
JPMorganSign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!
