Opponents of European Central Bank intervention to bail out the eurozone consistently cite Germany's experiences with hyperinflation in the early 1920s as a reason that the bank can not or should not go ahead with such a plan.
But let's set the record straight—there are very few parallels between today's events and those that caused hyperinflation.
Hyperinflation in Germany after World War I was the product of poor government policy during the war, collapse of the political system, and competition between the public and private sector for a limited quantity of goods. A basic rundown of these policies:
The German government financed its military operations in WWI completely through borrowing. Even by 1919 this caused the mark to depreciate to 20% of its prewar value, according to scholar Gerhard Rempel.
WWI severely diminished Germany's productive capacity, and the overwhelming demand from both the public (because of reparations demanded by the Allies) and private sectors drove prices to dizzying heights. Rempel writes, "Germany lost 13 per cent of her territory, 10 per cent of her population, 15 per cent of arable land, 75 per cent of iron and 68 per cent of zinc ore, 26 per cent of her coal resources, the entire Alsatian potash and textile industries, and the communications system built around Alsace-Lorraine and Upper Silesia," not to mention losses of human capital and transport vehicles.
With staggering foreign debts that had to be paid off in gold (in particular, the reparations that had to be paid under the Treaty of Versailles), the new government thought that it would not have the capacity to pay back their creditors without massive exports. Government leaders also thought they would never accomplish this without massive depreciation of the mark, and so pursued radically inflationary policies on purpose.
From German Financier Carl Melchior in 1921 (via Pragmatic Capitalism):
“We can get through the first two or three years with the aid of foreign loans. By the end of that time foreign nations will have realized that these large payments can only be made by huge German exports and these exports will ruin the trade in England and America so that creditors themselves will come to us to request modification.”
Inflation was already out of control by modern standards when the war ended and the government actively sought to pursue policy that would further diminish the value of its currency.
The London Stock Exchange is becoming the lender of last resort for many banks in Italy as concerns over the country’s debt levels squeeze liquidity out of the Italian financial market.
With cash increasingly hard to come by, Italy’s banks are turning to CC&G, the exchange’s Italian clearinghouse, for short-term lending. That includes some of the country’s largest financial institutions, including Unicredit and Mediobanca, according to a person close to the situation.
While just two banks received short-term capital from CC&G in 2009, that number has now risen to 15 — half of them Italian and the rest European financial institutions that trade in the country.
Under terms of the deals, the clearinghouse, which acts as a middleman to guarantee trades between financial parties, is offering money to both Italian and European banks with a presence in Italy for up to three days.
The money, which comes from collateral that traders must put up to complete financial transactions, is deposited with the banks to cover shortfalls in liquidity. CC&G earns a profit by charging banks interest on the money that they borrow.
Previously, banks had used the so-called repo market, where banks lend capital to each other on a short-term basis, to meet their financing requirements. But fears about Italy’s ability to repay its debts has pushed up borrowing costs and reduced the ability of banks to access that market.
A spokesman for the exchange said the company was in close discussions with the Italian central bank about any potential problems in the country’s financial sector, and used stringent risk management to decide whether to give banks access to capital.
CC&G also doesn’t technically lend money to banks, but instead deposits the cash with them on a short-term basis. Under Italian law, this distinction makes CC&G a depositor with the banks, and places it ahead of other creditors looking to get their money back if any financial institution should fail.
The legal distinction may still leave CC&G exposed if a lender defaults. And analysts question the sustainability of lending to struggling banks. That’s particularly true as the collateral offered to institutions as short-term financing is often provided by the same bank’s separate trading operations.
Paul Rowady, senior analyst at financial consultancy TABB Group in Chicago, said the global squeeze on liquidity was forcing institutions to look elsewhere, including to clearinghouses, to meet their short-term financing commitments.
He added that central clearing parties might feel secure in lending to banks because it was on a short-term basis and they were eager for extra revenue.
“Financial entities are making money in new and different ways,” he said. “Just because times are bad doesn’t mean they’re not looking for profits.”
And Italy’s turmoil has been good business for the London Stock Exchange. According to the exchange, CC&G reported a 209 percent jump in income to £54.3 million, or $83.6 million, during the first half of the year, compared with the same period in 2010.
The Italian business now represents 14 percent of the exchange’s overall income, compared with just 5 percent in the first half of 2010.
In our ever-so-humble opinion, this should be added near the top of the list of crisis canaries-in-the-coal-mine as the cracks of desperation appear more and more across the largest and most-levered financial firms in the world.
carpet cleaning atlantacarpet cleaning atlantacarpet cleaning atlantacarpet cleaning atlanta
carpet cleaning atlanta carpet cleaning atlanta carpet cleaning atlanta carpet cleaning atlanta carpet cleaning atlanta carpet cleaning atlanta carpet cleaning atlanta carpet cleaning atlanta carpet cleaning atlanta carpet cleaning atlanta carpet cleaning atlanta carpet cleaning atlanta carpet cleaning atlanta carpet cleaning atlanta
Opponents of European Central Bank intervention to bail out the eurozone consistently cite Germany's experiences with hyperinflation in the early 1920s as a reason that the bank can not or should not go ahead with such a plan.
But let's set the record straight—there are very few parallels between today's events and those that caused hyperinflation.
Hyperinflation in Germany after World War I was the product of poor government policy during the war, collapse of the political system, and competition between the public and private sector for a limited quantity of goods. A basic rundown of these policies:
The German government financed its military operations in WWI completely through borrowing. Even by 1919 this caused the mark to depreciate to 20% of its prewar value, according to scholar Gerhard Rempel.
WWI severely diminished Germany's productive capacity, and the overwhelming demand from both the public (because of reparations demanded by the Allies) and private sectors drove prices to dizzying heights. Rempel writes, "Germany lost 13 per cent of her territory, 10 per cent of her population, 15 per cent of arable land, 75 per cent of iron and 68 per cent of zinc ore, 26 per cent of her coal resources, the entire Alsatian potash and textile industries, and the communications system built around Alsace-Lorraine and Upper Silesia," not to mention losses of human capital and transport vehicles.
With staggering foreign debts that had to be paid off in gold (in particular, the reparations that had to be paid under the Treaty of Versailles), the new government thought that it would not have the capacity to pay back their creditors without massive exports. Government leaders also thought they would never accomplish this without massive depreciation of the mark, and so pursued radically inflationary policies on purpose.
From German Financier Carl Melchior in 1921 (via Pragmatic Capitalism):
“We can get through the first two or three years with the aid of foreign loans. By the end of that time foreign nations will have realized that these large payments can only be made by huge German exports and these exports will ruin the trade in England and America so that creditors themselves will come to us to request modification.”
Inflation was already out of control by modern standards when the war ended and the government actively sought to pursue policy that would further diminish the value of its currency.
The London Stock Exchange is becoming the lender of last resort for many banks in Italy as concerns over the country’s debt levels squeeze liquidity out of the Italian financial market.
With cash increasingly hard to come by, Italy’s banks are turning to CC&G, the exchange’s Italian clearinghouse, for short-term lending. That includes some of the country’s largest financial institutions, including Unicredit and Mediobanca, according to a person close to the situation.
While just two banks received short-term capital from CC&G in 2009, that number has now risen to 15 — half of them Italian and the rest European financial institutions that trade in the country.
Under terms of the deals, the clearinghouse, which acts as a middleman to guarantee trades between financial parties, is offering money to both Italian and European banks with a presence in Italy for up to three days.
The money, which comes from collateral that traders must put up to complete financial transactions, is deposited with the banks to cover shortfalls in liquidity. CC&G earns a profit by charging banks interest on the money that they borrow.
Previously, banks had used the so-called repo market, where banks lend capital to each other on a short-term basis, to meet their financing requirements. But fears about Italy’s ability to repay its debts has pushed up borrowing costs and reduced the ability of banks to access that market.
A spokesman for the exchange said the company was in close discussions with the Italian central bank about any potential problems in the country’s financial sector, and used stringent risk management to decide whether to give banks access to capital.
CC&G also doesn’t technically lend money to banks, but instead deposits the cash with them on a short-term basis. Under Italian law, this distinction makes CC&G a depositor with the banks, and places it ahead of other creditors looking to get their money back if any financial institution should fail.
The legal distinction may still leave CC&G exposed if a lender defaults. And analysts question the sustainability of lending to struggling banks. That’s particularly true as the collateral offered to institutions as short-term financing is often provided by the same bank’s separate trading operations.
Paul Rowady, senior analyst at financial consultancy TABB Group in Chicago, said the global squeeze on liquidity was forcing institutions to look elsewhere, including to clearinghouses, to meet their short-term financing commitments.
He added that central clearing parties might feel secure in lending to banks because it was on a short-term basis and they were eager for extra revenue.
“Financial entities are making money in new and different ways,” he said. “Just because times are bad doesn’t mean they’re not looking for profits.”
And Italy’s turmoil has been good business for the London Stock Exchange. According to the exchange, CC&G reported a 209 percent jump in income to £54.3 million, or $83.6 million, during the first half of the year, compared with the same period in 2010.
The Italian business now represents 14 percent of the exchange’s overall income, compared with just 5 percent in the first half of 2010.
In our ever-so-humble opinion, this should be added near the top of the list of crisis canaries-in-the-coal-mine as the cracks of desperation appear more and more across the largest and most-levered financial firms in the world.
http://forum.mu-kaimas.lt/index.php?action=profile;u=38563;sa=summary http://forum.phuketnext.com/index.php?action=profile;u=35200;sa=summary http://femflex.net/forum/index.php?action=profile;u=129964;sa=summary http://3bindustries.com/support/index.php?action=profile;u=744001;sa=summary http://alabamafishingbuddy.com/forums/index.php?action=profile;u=14831;sa=summary http://anubis-tattoo.com/www/index.php?action=profile;u=47489;sa=summary http://anyveteran.org/smf/index.php?action=profile;u=47124;sa=summary http://arizona.ghostlygateway.co.uk/forums/index.php?action=profile;area=summary;u=48819 http://board.psd-dreams.net/index.php?action=profile;area=summary;u=6885 http://canoenglish.com/forum/index.php?action=profile;u=5598;sa=summary http://chudahs-corner.com/forum/index.php?action=profile;u=41251;sa=summary
No comments:
Post a Comment