German hyperinflation

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pages: 665 words: 146,542

Money: 5,000 Years of Debt and Power by Michel Aglietta

bank run, banking crisis, Basel III, Berlin Wall, bitcoin, blockchain, Bretton Woods, British Empire, business cycle, capital asset pricing model, capital controls, cashless society, central bank independence, collapse of Lehman Brothers, collective bargaining, corporate governance, David Graeber, debt deflation, dematerialisation, Deng Xiaoping, double entry bookkeeping, energy transition, eurozone crisis, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, floating exchange rates, forward guidance, Francis Fukuyama: the end of history, full employment, German hyperinflation, income inequality, inflation targeting, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invention of writing, invisible hand, joint-stock company, Kenneth Arrow, Kickstarter, liquidity trap, margin call, means of production, money market fund, moral hazard, Nash equilibrium, Network effects, Northern Rock, oil shock, planetary scale, plutocrats, Plutocrats, price stability, purchasing power parity, quantitative easing, race to the bottom, reserve currency, secular stagnation, seigniorage, shareholder value, special drawing rights, special economic zone, stochastic process, the payments system, the scientific method, too big to fail, trade route, transaction costs, transcontinental railway, Washington Consensus

Following this same theoretical schema, let us now discuss some of the famous episodes of hyperinflation: Germany in 1922–23, China in 1947–48 and the Latin American hyperinflation of the 1980s. The German Hyperinflation of 1922–23 After World War One, metal convertibility disappeared more or less quickly in the belligerent countries, depending on the degree of damage they had sustained. The worst-affected country was Germany, which was subjected to the Treaty of Versailles’s absurd tribute payments (‘reparations’).17 Added to the massive destruction resulting from the war and the amputation of both its colonies and part of its own territory, these payments would destroy Wilhelmine society, excite civil war and unleash hyperinflation.18 As we indicated in our theoretical discussion above, German hyperinflation developed through two phases. The first phase ran from 1920 to the summer of 1922. This period can be broken down into sub-periods, each of which was characterised by a political event that altered confidence in money (Table 5.1).

See also absolute liquidity livre tournois, 109, 110, 112t, 113, 115, 198, 206 local complementary currencies, 171–3, 176–7 Locke, John, 124, 125, 128, 129, 150, 167, 204 logic of equivalence, 61, 68, 71, 72 long-term international interdependencies, under gold standard, 300f long-term investment, 179, 182, 298–301, 303 long-term rates, 268, 281, 301–2 longue durée cycles, 6, 83, 114 low-carbon investment, 181–2 Lowndes, William, 124 low-value (retail) payments, 152 Lucas, Robert, 26, 27–8 M Maastricht Treaty, 361, 363, 364 MacKinley tariffs, 305 macroprudential policy, 268–76 Madison, James, 133 maravedí, 109, 198 marginal utility, 21, 53 mark, 227 market as coordinating convention, 21 definition, 31 equilibrium of, 15 as self-organising entity, 21, 23, 25, 26 slavery as foundation of, 71 as substitute for social bonds, 12 market bankers, structural enrichment of, 121b market coordination, 8, 16, 19, 25, 31, 34 market economics, theory of, 14, 17 market efficiency, 247, 349 market exchanges, 38, 188 market period, 12–13, 44, 47, 48 market recognition, 38 market societies, 35, 38 Markowitz, Harry, 24, 25, 26 Marshall Plan, 318–19 Marx, Karl, 37n22, 45n26, 68, 71, 135 Mauss, Marcel, 66, 67 Méline tariffs, 305 Menger, Carl, 57 mercantilism, 128 merchant banks, 117–19, 120, 123, 198–9, 200 metal monies, 04, 43t, 47, 77b, 87, 90, 92, 98, 104, 105, 108–9, 110, 115, 116t, 119, 122, 134, 135, 136, 139, 150, 191–5, 198, 202 methodical (routine) confidence, 58, 69–70, 75, 78b, 185, 186, 187, 188t Mexican crisis (1994–95), 237, 238, 242, 243 Microsoft, 156 Middle Ages, monetary inventions of, 104–25 mimetic convergence, theorem of, 38–9 mimetic model, 35–9 minting, 79–80b, 89–93, 105, 106, 217 Mises, Ludwig von, 55 Mitterrand, François, 364 monetary abstraction, 56, 110, 148 monetary base, 236, 247, 256, 259–60, 322 monetary constraint, 44, 47, 54, 61, 139 monetary convention, 37, 38 monetary creation/money creation, 41, 42–4, 44t, 47, 57, 79b, 82, 83, 136, 206, 306, 321, 324, 394 monetary crises. See also financial crises as crises of confidence? 185–8 definition, 221 in dualist systems, 195–200 of first century BC, 102 German hyperinflation. See German hyperinflation in history, 7–8, 49, 191–243 history as traversed by, 185 importance of, 83 under influence of chrematism, 96 in metal-based systems of antiquity, 191–5 and monetary reform in England, 201–5 topology of, 188–90 monetary disorder, 93, 123, 125, 312 monetary doctrines, 7, 55, 62, 124, 125, 160, 161t, 162, 245, 246, 256–9, 365, 389 monetary economics, 28, 46 monetary expansion, 223, 225b, 226, 227, 318, 320–3 monetary innovations, 77b, 108, 109, 147, 156, 173, 183, 190, 201, 209, 325 monetary mutations, 109, 112, 113, 114t, 115, 120, 122, 197 monetary order, 8, 51, 53–4, 55, 56, 57, 58, 61, 69, 72, 73, 78b, 80b, 83, 93, 95, 124, 126, 144, 146, 185, 213, 246, 287, 297, 307n5, 314, 316–18, 329, 365 monetary policies, 7, 84, 90, 91, 102, 113, 145, 151, 153, 157, 160, 161, 162–3, 178, 183, 195, 197, 233–4, 238, 240, 242, 245, 246, 248, 249, 251, 254, 255, 260, 261, 262, 263, 265, 267, 268, 271, 272–3, 274–8, 279, 318, 320, 327, 334, 341, 345, 352, 364, 370, 379, 383, 389, 390 monetary policy doctrines, 256–9 monetary pretenders, 49 monetary reform, 90–1, 94, 96, 98, 100, 104, 124, 185, 190, 193, 195, 200, 201–9, 220, 223, 229, 230, 234, 235 monetary regimes and financial structures, 160t monetary regulation in Argentina, 235 under capitalism, 245–87 in classical era, 249–53 in Europe of postwar ‘golden age’, 159 national monetary regulation of fiduciary money, 253–6 re-establishment of, 229 monetary revolution, 135 monetary rituals, 62 monetary theory of value, 86 money.

The results of this search end up polarising around some new shared belief, whose grounding is often external to the former monetary space; often, this means a foreign currency, which becomes the new unit of measurement. Hence, mimicry is the general logic in play in extreme monetary crises, at the critical moment in which the official currency is rejected. We will go on to show how the collective rejection of the national currency climaxed in the German hyperinflation of 1923. We can thus outline a correspondence between the forms of confidence and the rules that constitute money as the system of coordinating market exchanges. Forms of confidence Rules of systems of payments Methodical Circulation of debts, transfer of risks Hierarchical Clearing and settlement Ethical Preservation of the unit of account THE TOPOLOGY OF MONETARY CRISES: CENTRALISATION AND FRAGMENTATION Money is the pivot of a system of debts, in which it is itself the highest debt.


pages: 597 words: 172,130

The Alchemists: Three Central Bankers and a World on Fire by Neil Irwin

"Robert Solow", Ayatollah Khomeini, bank run, banking crisis, Berlin Wall, Bernie Sanders, break the buck, Bretton Woods, business climate, business cycle, capital controls, central bank independence, centre right, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, currency peg, eurozone crisis, financial innovation, Flash crash, George Akerlof, German hyperinflation, Google Earth, hiring and firing, inflation targeting, Isaac Newton, Julian Assange, low cost airline, market bubble, market design, money market fund, moral hazard, mortgage debt, new economy, Northern Rock, Paul Samuelson, price stability, quantitative easing, rent control, reserve currency, Robert Shiller, Robert Shiller, rolodex, Ronald Reagan, savings glut, Socratic dialogue, sovereign wealth fund, The Great Moderation, too big to fail, union organizing, WikiLeaks, yield curve, Yom Kippur War

See Draghi, Mario; Trichet, Jean-Claude effectiveness of, 286–87, 295, 317 errors and fiscal crisis, 135–37, 212–13, 303–5 Geithner on bolder moves, 219, 226, 324 and Greek debt restructuring, 312–16 to Greek financial crisis, 209–13, 215–19 interest rate cuts (2011), 344, 353 interest rate hike (2008), 137, 160 interest rate hike (2011), 303–4 internal devaluation, 302–3 Ireland bailout, 283–84, 292–94 lack of coordination problem, 158–61 oversight of foreign banks, 216, 283–86, 294–96 tight money approach, 208–9 wall of money approach (2011), 350–53 European Commission, 75 European Economic Community, 74–75 European financial crises British pound devaluation (1992), 72–73 German hyperinflation (1914–1918), 47–53 German hyperinflation, pre–Nazi era, 50–53, 60 Panic of 1866 (England), 26–28, 31–34 Stockholms Banco rise and fall, 17–24 of 2007–2012. See European financial crisis (2007–2012); Eurozone countries; individual countries European financial crisis (2007–2012). See also individual countries beginning of, 1–8, 111–12 BNP Paribas collapse, 1–4, 111 British crisis, 236–46, 251–52, 332–36 Federal Reserve interventions, 131–32, 153–55, 226–27, 229, 349–50 global interventions, 128–32, 161–63, 349–50 Greece crisis, 201–23, 285–91, 306–16 Iceland crisis, 284 Ireland crisis, 158–59, 283–84, 292–95 Italy crisis, 316–17, 316–23 mortgage-backed securities exposure, 129, 145, 159 Northern Rock PLC crisis, 125–28 Portugal crisis, 296–98 remedies.

See Mortgage-backed securities risk related to, 102 Hoover, Herbert, 58 House Committee on Financial Services, 169–71 Household debt, increase in (2005), 100–101 Housing prices central bankers fears (2005), 104–8 end of boom, signs of, 106 housing price increase (2005), 99–100, 103–4 Japan, price run-up (1990s), 85–86 Hubbard, Glenn, 117 Hu Jintao, 347, 363 Hurley, John, 158 Hutchinson, Kay Bailey, 196, 198–99 Hyun Song Shin, 107–8, 129 Iceland financial crisis, 284 Ichimada, Hisato, 86 Independent Community Bankers of America, 178–79, 196 Inflation European countries, varying rates of, 75 German hyperinflation (1914–1918), 47–53 German hyperinflation, pre–Nazi era, 11, 50–53 Great Britain (2010–2011), 245, 251–52, 334 Greece (2000s), 203–4 low, negative effects, 260, 270 low U.S. levels (2010), 260 price increases, self-perpetuation of, 65–66, 134–35 Stockholms Banco creation of, 22–23 United States 1970’s. See Inflation (1971–1979) Inflation (1971–1979), 62–71 Carter-era actions, 67–71 central bank ineffectiveness, 65–67 Ford era actions, 67 gold standard abandoned, 62–64 money supply/interest rate increase as remedy, 69–71 Nixon-era actions, 62–67 price increases, extent of, 65–68 Volker and end of, 67–71 Ingves, Stefan, 152, 161 Insolvency, versus illiquidity, 41 Institute of International Finance (IFF), 287, 312–15 Interest rate charges, Bagehot’s dictum, 33, 149 Interest rate cuts Bank of Japan (1990s), 86–87 Bernanke options for, 163 ECB under Draghi, 344, 352 end of inflation of 1970s, 71 by Federal Reserve, 128, 163 global coordination of (2008), 161–63 goal-based actions, Fed plan (2012), 385–87 in Great Depression, 56 Greenspan era, 99 ineffectiveness, rationale for, 378–79, 386–87 zero-interest-rate policy, 87–88, 90–91 Interest rate increases debt dynamics, 205 ECB (2008), 137, 160 ECB (2011), 303–4 to end inflation of 1970s, 69–71 Internal devaluation, 302–3 International Monetary Fund (IMF) European Financial Stability Facility funding, 230 and Greek bailout, 205–6, 211–12, 215–17, 285–86, 310–11 and Greek debt restructuring, 312–16 Ireland bailout, 283–84, 294 Strauss-Kahn resignation, 308 Investment bank failures Bear Stearns, 133–34 emergency 13(3) provision, 133–34 Lehman Brothers, 139–42 Ireland, economic success, era of, 283 Ireland financial crisis, 283–84, 292–95 bailouts, 283–84, 287, 294–96 banks, government guarantee (2008), 158–59, 283 deficit reduction, 284–85, 294, 353 elements of, 217, 292–94 Irish Nationwide Building Society, 294 Issing, Otmar, 74 Italy Berlusconi successor.

Pianos were also popular, Bavarian authorities reported, even among those who didn’t play. Workers rushed to spend their paychecks the moment they received them. Bankers became accustomed to doing business in trillion-mark notes; one clerk wrote that inscribing all those zeros “made work much slower and I lost any feeling of relationship to the money I was handling so much of. It had no reality at all, it was just paper.” German hyperinflation wiped out the savings of an entire generation of what had been an increasingly prosperous merchant class. A waiter interviewed by Ernest Hemingway said that a year earlier he had saved up enough money to buy a tavern; by that time, in 1923, “that money wouldn’t buy four bottles of champagne.” A British social worker in 1922 wrote that “in well-furnished houses there are chairs devoid of leather which has been used for shoes, curtains without linings which have been turned into garments for the children.


pages: 365 words: 88,125

23 Things They Don't Tell You About Capitalism by Ha-Joon Chang

"Robert Solow", affirmative action, Asian financial crisis, bank run, banking crisis, basic income, Berlin Wall, Bernie Madoff, borderless world, Carmen Reinhart, central bank independence, collateralized debt obligation, colonial rule, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, deskilling, ending welfare as we know it, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, full employment, German hyperinflation, Gini coefficient, hiring and firing, Hyman Minsky, income inequality, income per capita, invisible hand, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, labour market flexibility, light touch regulation, Long Term Capital Management, low skilled workers, manufacturing employment, market fundamentalism, means of production, Mexican peso crisis / tequila crisis, microcredit, Myron Scholes, North Sea oil, offshore financial centre, old-boy network, post-industrial society, price stability, profit maximization, profit motive, purchasing power parity, rent control, shareholder value, short selling, Skype, structural adjustment programs, the market place, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, Toyota Production System, trade liberalization, trickle-down economics, women in the workforce, working poor, zero-sum game

German inflation got completely out of control after the occupation of the Ruhr, with prices rising by another 10 billion times (yes, billion, not thousand or even million) until November 1923, when Rentenmark, the new currency, was introduced. The German hyperinflation has left big and long-lasting marks on the evolution of German, and world, history. Some claim, with justification, that the experience of hyperinflation laid the grounds for the rise of the Nazis by discrediting the liberal institutions of the Weimar Republic. Those who take this view are then implicitly saying that the 1920s German hyperinflation was one of the main causes of the Second World War. The German trauma from the hyperinflation was such that the Bundesbank, the West German central bank after the Second World War, was famous for its excessive aversion to loose monetary policy. Even after the birth of the European single currency, the euro, and the consequent de facto abolition of national central banks in the Eurozone countries, Germany’s influence has made the European Central Bank (ECB) stick to tight monetary policy even in the face of persistently high unemployment, until the 2008 world financial crisis forced it to join other central banks around the world in an unprecedented relaxation of monetary policy.

Even after the birth of the European single currency, the euro, and the consequent de facto abolition of national central banks in the Eurozone countries, Germany’s influence has made the European Central Bank (ECB) stick to tight monetary policy even in the face of persistently high unemployment, until the 2008 world financial crisis forced it to join other central banks around the world in an unprecedented relaxation of monetary policy. Thus, when talking about the consequences of the German hyperinflation, we are talking about a shockwave lasting nearly a century after the event and affecting not just German, but other European, and world, histories. How bad is inflation? Germany is not the only country that has experienced hyperinflation. In the financial press Argentina has become a byword for hyperinflation in modern times, but the highest rate of inflation it experienced was only around 20,000 per cent.

Worse than the German one was the Hungarian inflation right after the Second World War and that in Zimbabwe in 2008 in the last days of President Robert Mugabe’s dictatorship (now he shares power with the former opposition). Hyperinflation undermines the very basis of capitalism, by turning market prices into meaningless noises. At the height of the Hungarian inflation in 1946, prices doubled every fifteen hours, while prices doubled every four days in the worst days of the German hyperinflation of 1923. Price signals should not be absolute guides, as I argue throughout this book, but it is impossible to have a decent economy when prices rise at such rates. Moreover, hyperinflation is often the result or the cause of political disasters, such as Adolf Hitler or Robert Mugabe. It is totally understandable why people desperately want to avoid hyperinflation. However, not all inflation is hyperinflation.


pages: 381 words: 101,559

Currency Wars: The Making of the Next Gobal Crisis by James Rickards

Asian financial crisis, bank run, Benoit Mandelbrot, Berlin Wall, Big bang: deregulation of the City of London, Black Swan, borderless world, Bretton Woods, BRICs, British Empire, business climate, buy and hold, capital controls, Carmen Reinhart, Cass Sunstein, collateralized debt obligation, complexity theory, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, Deng Xiaoping, diversification, diversified portfolio, Fall of the Berlin Wall, family office, financial innovation, floating exchange rates, full employment, game design, German hyperinflation, Gini coefficient, global rebalancing, global reserve currency, high net worth, income inequality, interest rate derivative, John Meriwether, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, Mexican peso crisis / tequila crisis, money market fund, money: store of value / unit of account / medium of exchange, Myron Scholes, Network effects, New Journalism, Nixon shock, offshore financial centre, oil shock, one-China policy, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, private sector deleveraging, quantitative easing, race to the bottom, RAND corporation, rent-seeking, reserve currency, Ronald Reagan, sovereign wealth fund, special drawing rights, special economic zone, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, time value of money, too big to fail, value at risk, War on Poverty, Washington Consensus, zero-sum game

In round after round of devaluation and default, the major economies of the world raced to the bottom, causing massive trade disruption, lost output and wealth destruction along the way. The volatile and self-defeating nature of the international monetary system during that period makes Currency War I the ultimate cautionary tale for today as the world again confronts the challenge of massive unpayable debt. Currency War I began in 1921 in Weimar Germany when the Reichsbank, Germany’s central bank, set about to destroy the value of the German mark through massive money printing and hyperinflation. Presided over by Reichsbank head Dr. Rudolf von Havenstein, a Prussian lawyer-turned-banker, the inflation proceeded primarily through the Reichsbank’s purchases of bills from the German government to supply the government with the money needed to fund budget deficits and government spending. This was one of the most destructive and pervasive monetary debasements ever seen in a major developed economy.

Economic historians customarily treat the 1921–1924 hyperinflation of the Weimar Republic separately from the worldwide beggar-thy-neighbor competitive devaluations of 1931–1936, but this ignores the continuity of competitive devaluations in the interwar period. The Weimar hyperinflation actually achieved a number of important political goals, a fact that had repercussions throughout the 1920s and 1930s. Hyperinflation unified the German people in opposition to “foreign speculators” and it forced France to show its hand in the Ruhr Valley, thus creating a case for German rearmament. Hyperinflation also evoked some sympathy from England and the United States for alleviation of the harshest demands for reparations emanating from the Versailles Treaty. While the collapse of the mark was not directly linked to the value of reparations payments, Germany could at least argue that its economy had collapsed because of hyperinflation, justifying some form of reparations relief. The currency collapse also strengthened the hand of German industrialists who controlled hard assets in contrast to those relying solely on financial assets.

These industrialists emerged from the hyperinflation more powerful than before because of their ability to hoard hard currency abroad and buy up assets of failed enterprises on the cheap at home. Finally, the hyperinflation showed that countries could, in effect, play with fire when it came to paper currencies, knowing that a simple resort to the gold standard or some other tangible asset such as land could restore order when conditions seemed opportune—exactly what Germany did. This is not to argue that German hyperinflation in 1922 was a carefully thought-out plan, only that hyperinflation can be used as a policy lever. Hyperinflation produces fairly predictable sets of winners and losers and prompts certain behaviors and therefore can be used politically to rearrange social and economic relations among debtors, creditors, labor and capital, while gold is kept available to clean up the wreckage if necessary.


Triumph of the Optimists: 101 Years of Global Investment Returns by Elroy Dimson, Paul Marsh, Mike Staunton

asset allocation, banking crisis, Berlin Wall, Bretton Woods, British Empire, buy and hold, capital asset pricing model, capital controls, central bank independence, colonial rule, corporate governance, correlation coefficient, cuban missile crisis, discounted cash flows, diversification, diversified portfolio, dividend-yielding stocks, equity premium, Eugene Fama: efficient market hypothesis, European colonialism, fixed income, floating exchange rates, German hyperinflation, index fund, information asymmetry, joint-stock company, negative equity, new economy, oil shock, passive investing, purchasing power parity, random walk, risk tolerance, risk/return, selection bias, shareholder value, Sharpe ratio, stocks for the long run, survivorship bias, technology bubble, transaction costs, yield curve

During this period, 300 paper mills and 150 printing works with 2,000 presses worked day and night to keep up with the demand for banknotes (Stolper, Hauser and Borchardt, 1967). There were further staggering rises in inflation until end-1923, when the German government ceased printing money. In 1923, the inflation rate was 209 billion percent. If we were to include 1922 and particularly 1923 in our calculations, the German arithmetic mean annual inflation rate over the 101 years from 1900–2000 would exceed two billion percent. The German hyperinflation had devastating consequences, wiping out all internal debts almost overnight, and ruining a substantial proportion of Germany’s middle class. Savings, bank balances, mortgages, annuities, pensions, bills, bonds, and other paper investments all became worthless. This episode remains as a dreadful warning that government bonds and even bills can, under extreme circumstances, experience a real return of -100 percent.

Chapter 5 Inflation, interest rates and bill returns 67 Figure 5-3: International inflation: first half of twentieth century versus subsequent fifty-one years Inflation rate (percent per year) 12 Before 1950 10.5 1950–2000 10 8.0 8 7.9 4 4.0 2 1.5 1.7 1.9 2.0 2.0 5.4 4.1 2.1 4.4 4.0 2.9 2.3 6.7 6.3 5.9 5.5 6 11.6 7.7 7.4 6.1 11.4 2.4 2.6 4.6 5.4 5.2 4.0 3.7 2.8 2.8 0 Swi SAf Swe UK Neth Can Aus US Ire Den Spa AVG Bel Ger Fra Jap Ita Between 1919 and 1925, four other countries outside our sample, Austria, Hungary, Poland, and Russia, also experienced hyperinflation, although not quite on the German scale. The second Hungarian hyperinflation of 1945–46, however, dwarfed even Germany’s, with a compound rate of 19,800 percent per month. In more recent memory, there have been very high rates of inflation in several South American and African countries, Israel, and various former members of the Soviet Union. Within our sample, the maximum inflation rate column in Table 5-1 shows that, although only Germany experienced true hyperinflation, very high inflation rates occurred in several other countries.

The geometric mean column shows the annualized real return from a policy of investing in short-dated government bills (or equivalent securities) throughout the entire period. The four countries already identified as having the worst inflationary experiences, France, Germany, Italy, and Japan, all experienced negative real returns from bill investments. From the table, it appears as though Italy experienced the lowest real return of -4.1 percent per year, but the German experience was worse. All investors in shortdated German debt experienced a total loss of -100 percent in the hyperinflation of 1922–23, and we have excluded these years from the means and standard deviations in Table 5-2. The minimum value column in Table 5-2 shows the lowest real interest rate experienced in each country, that is, the worst year in real terms for bill investment. While the German experience of 1923 heads the list, Italy experienced a real rate of -77 percent in 1944, and Japan had a real rate of -75 percent in 1946, while French bill investors lost 42 percent in real terms, also in 1946.


pages: 576 words: 105,655

Austerity: The History of a Dangerous Idea by Mark Blyth

"Robert Solow", accounting loophole / creative accounting, balance sheet recession, bank run, banking crisis, Black Swan, Bretton Woods, business cycle, buy and hold, capital controls, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, collateralized debt obligation, correlation does not imply causation, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, debt deflation, deindustrialization, disintermediation, diversification, en.wikipedia.org, ending welfare as we know it, Eugene Fama: efficient market hypothesis, eurozone crisis, financial repression, fixed income, floating exchange rates, Fractional reserve banking, full employment, German hyperinflation, Gini coefficient, global reserve currency, Growth in a Time of Debt, Hyman Minsky, income inequality, information asymmetry, interest rate swap, invisible hand, Irish property bubble, Joseph Schumpeter, Kenneth Rogoff, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, Long Term Capital Management, market bubble, market clearing, Martin Wolf, money market fund, moral hazard, mortgage debt, mortgage tax deduction, Occupy movement, offshore financial centre, paradox of thrift, Philip Mirowski, price stability, quantitative easing, rent-seeking, reserve currency, road to serfdom, savings glut, short selling, structural adjustment programs, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, unorthodox policies, value at risk, Washington Consensus, zero-sum game

Other Mittel-European countries, such as Austria, Hungary, and Poland, experienced hyperinflationary episodes at the same time, and none of these episodes was due to the enactment of Keynesian policies. Their common origins lay instead in the fact that World War I had been financed through debt rather than through taxes, which lowered postwar exchange rates and made imports more expensive, which in turn fostered inflation. The inflation pent-up from that earlier period ebbed and flowed for almost a decade. Second, though the German hyperinflation was caused by government policy, it was intimately bound up with the desire of the German government to break the economic stranglehold of the war reparations that it owed to France under the Treaty of Versailles. France wanted Germany to pay off its war reparation in either gold-backed marks or foreign currencies. But for Germany to earn foreign currency when its own exchange rate was falling required more and more marks, further stoking inflation.

As Fred Block put it with justified irony, “The American contribution to … the problem was to lend Germany huge sums of capital, which were then used to finance reparations payments.”13 If you think this sounds a little like continually giving the European periphery loans that those countries can never hope to pay back because of their already high debt burdens, again, you would not be completely wrong. The whole system stayed afloat, after the German hyperinflation of 1923, for about four years, until United States capital exports slowed down as a result of the Wall Street boom of 1928 and the subsequent crash of 1929.14 Alarmed by the booming stock market, the US Federal Reserve raised interest rates in 1928 to cool domestic demand. This had the effect of reversing the flow of capital to Europe as US capital came home to take advantage of these higher interest rates, which unexpectedly further stoked the stock market boom.15 After all, why put your money in Germany when you can make 15 percent buying shares in an investment trust and 7 percent in a bank deposit in the USA?

Defending the Franc—But Not France: French Austerity Policies 1919–1939 Despite being on the victorious side in the First World War, France, among all the Allied powers, suffered the most wartime destruction of persons, property, and wealth. So much so that getting the Germans to pay for all the damage constituted a significant part of forward budgetary planning. That the Germans did not want to pay and, after the hyperinflation, basically didn’t pay, was to prove a significant problem for the French economy going forward. The boom-slump-stabilization pattern that characterized the world economy in the early 1920s hit France in a peculiar way. By relying on German reparations to supply a large portion of their budget, when payments were not forthcoming, the resulting budget deficits had to be met with higher interest rates to attract capital.


pages: 376 words: 109,092

Paper Promises by Philip Coggan

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, balance sheet recession, bank run, banking crisis, barriers to entry, Berlin Wall, Bernie Madoff, Black Swan, Bretton Woods, British Empire, business cycle, call centre, capital controls, Carmen Reinhart, carried interest, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, debt deflation, delayed gratification, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, falling living standards, fear of failure, financial innovation, financial repression, fixed income, floating exchange rates, full employment, German hyperinflation, global reserve currency, hiring and firing, Hyman Minsky, income inequality, inflation targeting, Isaac Newton, John Meriwether, joint-stock company, Kenneth Rogoff, Kickstarter, labour market flexibility, light touch regulation, Long Term Capital Management, manufacturing employment, market bubble, market clearing, Martin Wolf, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Myron Scholes, negative equity, Nick Leeson, Northern Rock, oil shale / tar sands, paradox of thrift, peak oil, pension reform, plutocrats, Plutocrats, Ponzi scheme, price stability, principal–agent problem, purchasing power parity, quantitative easing, QWERTY keyboard, railway mania, regulatory arbitrage, reserve currency, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, time value of money, too big to fail, trade route, tulip mania, value at risk, Washington Consensus, women in the workforce, zero-sum game

Sometimes the inflation cure can be worse than the disease. One reason why Bryan lost the 1896 election was that his campaign had little appeal to industrial workers for whom higher food prices meant a lower standard of living; outside the South (then a Democratic stronghold) Bryan carried only one city with more than 100,000 inhabitants. Inflation penalizes the thrifty. In the chaos that followed the end of the First World War, German hyperinflation, designed to erode the burden of the reparations imposed by the Treaty of Versailles, destroyed the savings of the middle class and paved the way for the rise of Hitler. Even bankers become less concerned with the idea of sound money when their own survival is at stake. They are quick to call for governments and central banks to cut interest rates and to create as much new money as is needed to stabilize the financial system.

Schacht’s plan, which had echoes of the French revolutionary issue of assignats, declared that the new currency was backed by the value of German land. This was a wholly illusory promise, but in the short term, it didn’t matter; the Rentenmark was an acceptable means of exchange. In its own way, though, it set a precedent. Paper money did not have to be backed by gold for citizens to believe in it. In the short term, however, German hyperinflation only increased the belief that politicians were not to be trusted with paper money, any more than an alcoholic should be left in charge of the drinks cabinet. It was time to return to the eternal verities of the gold standard, to reassert the rights of creditors. If the gold standard was to be restored, the key country was Britain. Even though the country’s wealth had declined drastically, it was still Europe’s most significant financial power.

The US was running a trade surplus and accumulating gold, but it was not required to adjust its policy by raising its prices to make its goods less competitive. All the adjustment was forced on to the deficit countries, a process that will seem familiar to modern-day residents of Greece and Ireland. In 1924, a deal had been made on reparations, a running sore throughout the early 1920s. Under US leadership, German reparations payments had been lowered and extended. As the German economy stabilized after hyperinflation, US banks became willing to lend to Germany. In effect, money was being recycled round the system; US banks lent to Germany, which allowed the Germans to pay the reparations bill, allowing Britain and France to meet their US war debts. But from 1928 onwards, this lending slowed and then ceased. Initially, higher US interest rates meant that American banks wanted to keep their capital at home; then the 1929 Wall Street crash and subsequent crisis made them afraid to lend abroad, and Germany lost a key source of financing.


pages: 708 words: 196,859

Lords of Finance: The Bankers Who Broke the World by Liaquat Ahamed

Albert Einstein, anti-communist, bank run, banking crisis, Bretton Woods, British Empire, business cycle, capital controls, central bank independence, centre right, credit crunch, currency manipulation / currency intervention, Etonian, full employment, German hyperinflation, index card, invisible hand, Lao Tzu, large denomination, Long Term Capital Management, margin call, market bubble, Mexican peso crisis / tequila crisis, mobile money, money market fund, moral hazard, new economy, open economy, plutocrats, Plutocrats, price stability, purchasing power parity, pushing on a string, rolodex, the market place

But instead of trying to rebuild its finances, the German government adopted a policy of systematic inflation, in part to meet reparations, and thus launched itself on that voyage of fantasy into the outer realms of the monetary universe. FIGURE 1 Britain and France lay somewhere in between. During the war, France had expanded its currency by 350 percent, pushing up prices equivalently. After the war, the Banque de France avoided German-style hyperinflation and currency collapse by putting a lid on the issue of new currency. However, France continued to flirt with disaster by running budget deficits of $500 million and was saved once again only by the remarkable thriftiness of its people. While there was a group within the Banque who harbored the fantasy of reversing the more than threefold price increase and returning the franc to gold at its prewar parity, most rational observers agreed that when France returned to the gold standard, it would have to be at a radically lower exchange rate—and even that still seemed many years away.

Without such a discipline to protect them, central banks would inevitably come under constant pressure to help finance their governments in much the same way that they had done during the war with all the inflationary consequences that were still all too apparent. The link with gold was the only sure defense against such a downward spiral in the value of money. His reaction to the Tract was colored by his personal dealings with Keynes. After the war, Norman, agreeing with much of Keynes’s argument on reparations, had consulted him at the height of the German hyperinflation. But Keynes’s vocal opposition to the war-debt settlement with the United States, which Norman had been responsible for engineering, created a rift. Norman, acutely sensitive to public criticism, harbored grudges for a long time—“the most vindictive man I have ever known,” according to one close friend. Thereafter, though their social circles overlapped somewhat and though Keynes, for all his youthful iconoclasm, was already widely recognized as the most brilliant monetary economist of his generation, Norman studiously ignored him professionally, and refused ever to invite him to advise the Bank.

Though only an observer, without any official status, Logan had done more than almost anyone else to keep the United States engaged in Continental affairs and was viewed as the unofficial U.S. ambassador to Europe. As the committee began its deliberations, it found itself facing two tasks. The first was to persuade the French to accede to a lower payment schedule, at least temporarily, to which they would only agree if stringent foreign controls were imposed on the management of German finances. The French saw German hyperinflation as part of a deliberate campaign by its officials to wreck their own economy and thus prevent reparations from being paid. Some mechanism for preventing any future sabotage of Germany’s finances had to be put in place. The second task was therefore to persuade the Germans to accept such an imposition. The first task became much easier when within a week of the delegation’s arrival, France was plunged into its own financial crisis.


pages: 275 words: 82,640

Money Mischief: Episodes in Monetary History by Milton Friedman

Bretton Woods, British Empire, business cycle, currency peg, double entry bookkeeping, fiat currency, financial innovation, fixed income, floating exchange rates, full employment, German hyperinflation, income per capita, law of one price, money market fund, oil shock, price anchoring, price stability, transaction costs

There also still existed old czarist paper rubles. Since there was small prospect that a czar would return to redeem the promise printed on the czarist rubles, it is remarkable that they were still being accepted as substitute currency and had retained their purchasing power. They retained their value precisely because no new czarist rubles could be created, and hence the quantity available to circulate was fixed. During the German hyperinflation after World War I, currencies of foreign countries served as a substitute currency. After World War II, the Allied occupational authorities exercised sufficiently rigid control over monetary matters, in the course of trying to enforce price and wage controls, that it was difficult to use foreign currency. Nonetheless, the pressure for a substitute currency was so great that cigarettes and cognac emerged as substitute currencies and attained an economic value far in excess of their value purely as goods to be consumed.

The quantity of commodity money is subject to similar physical limits, though it has at times grown more rapidly than output in general, as the examples of the flood of precious metals from the New World in the sixteenth and seventeenth centuries and of gold in the nineteenth century illustrate. The modern forms of money—paper and bookkeeping entries—are subject to no such physical limits. During the German hyperinflation after World War I, hand-to-hand money increased at the average rate of more than 300 percent a month for more than a year, and so did prices. During the Hungarian hyperinflation after World War II, hand-to-hand money increased at the average rate of more than 12,000 percent a month for a year, and prices at the even higher rate of nearly 20,000 percent a month (see Cagan 1956, p. 26). During the moderate inflation in the United States from 1969 to 1979, the quantity of money increased at the average rate of 9 percent a year and prices at the average rate of 7 percent a year.


pages: 471 words: 124,585

The Ascent of Money: A Financial History of the World by Niall Ferguson

Admiral Zheng, Andrei Shleifer, Asian financial crisis, asset allocation, asset-backed security, Atahualpa, bank run, banking crisis, banks create money, Black Swan, Black-Scholes formula, Bonfire of the Vanities, Bretton Woods, BRICs, British Empire, business cycle, capital asset pricing model, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, collateralized debt obligation, colonial exploitation, commoditize, Corn Laws, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, deglobalization, diversification, diversified portfolio, double entry bookkeeping, Edmond Halley, Edward Glaeser, Edward Lloyd's coffeehouse, financial innovation, financial intermediation, fixed income, floating exchange rates, Fractional reserve banking, Francisco Pizarro, full employment, German hyperinflation, Hernando de Soto, high net worth, hindsight bias, Home mortgage interest deduction, Hyman Minsky, income inequality, information asymmetry, interest rate swap, Intergovernmental Panel on Climate Change (IPCC), Isaac Newton, iterative process, John Meriwether, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labour mobility, Landlord’s Game, liberal capitalism, London Interbank Offered Rate, Long Term Capital Management, market bubble, market fundamentalism, means of production, Mikhail Gorbachev, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, Naomi Klein, negative equity, Nelson Mandela, Nick Leeson, Northern Rock, Parag Khanna, pension reform, price anchoring, price stability, principal–agent problem, probability theory / Blaise Pascal / Pierre de Fermat, profit motive, quantitative hedge fund, RAND corporation, random walk, rent control, rent-seeking, reserve currency, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, seigniorage, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spice trade, stocks for the long run, structural adjustment programs, technology bubble, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Bayes, Thomas Malthus, Thorstein Veblen, too big to fail, transaction costs, undersea cable, value at risk, Washington Consensus, Yom Kippur War

Moreover, those in charge of Weimar economic policy in the early 1920s felt they had little incentive to stabilize German fiscal and monetary policy, even when an opportunity presented itself in the middle of 1920.59 A common calculation among Germany’s financial elites was that runaway currency depreciation would force the Allied powers into revising the reparations settlement, since the effect would be to cheapen German exports relative to American, British and French manufactures. It was true, as far as it went, that the downward slide of the mark boosted German exports. What the Germans overlooked was that the inflation-induced boom of 1920-22, at a time when the US and UK economies were in the depths of a post-war recession, caused an even bigger surge in imports, thus negating the economic pressure they had hoped to exert. At the heart of the German hyperinflation was a miscalculation. When the French cottoned on to the insincerity of official German pledges to fulfil their reparations commitments, they drew the conclusion that reparations would have to be collected by force and invaded the industrial Ruhr region. The Germans reacted by proclaiming a general strike (‘passive resistance’), which they financed with yet more paper money. The hyperinflationary endgame had now arrived.

‘Inflation is a crowd phenomenon in the strictest and most concrete sense of the word,’ Elias Canetti later wrote of his experiences as a young man in inflation-stricken Frankfurt. ‘[It is] a witches’ sabbath of devaluation where men and the units of their money have the strongest effects on each other. The one stands for the other, men feeling themselves as “bad” as their money; and this becomes worse and worse. Together they are all at its mercy and all feel equally worthless.’60 The price of hyperinflation: a German billion mark note from November 1923 Worthlessness was the hyperinflation’s principal product. Not only was money rendered worthless; so too were all the forms of wealth and income fixed in terms of that money. That included bonds. The hyperinflation could not wipe out Germany’s external debt, which had been fixed in pre-war currency. But it could and did wipe out all the internal debt that had been accumulated during and after the war, levelling the debt mountain like some devastating economic earthquake.

Only entrepreneurs were in a position to insulate themselves by adjusting prices upwards, hoarding dollars, investing in ‘real assets’ (such as houses or factories) and paying off debts in depreciating banknotes. The enduring economic legacy of the hyperinflation was bad enough: weakened banks and chronically high interest rates, which now incorporated a substantial inflation risk premium. But it was the social and political consequences of the German hyperinflation that were the most grievous. The English economist John Maynard Keynes had theorized in 1923 that the ‘euthanasia of the rentier’ through inflation was preferable to mass unemployment through deflation - ‘because it is worse in an impoverished world to provoke unemployment than to disappoint the rentier’.61 Yet four years earlier, he himself had given a vivid account of the negative consequences of inflation: By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.


pages: 497 words: 153,755

The Power of Gold: The History of an Obsession by Peter L. Bernstein

Albert Einstein, Atahualpa, Bretton Woods, British Empire, business cycle, California gold rush, central bank independence, double entry bookkeeping, Edward Glaeser, Everybody Ought to Be Rich, falling living standards, financial innovation, floating exchange rates, Francisco Pizarro, German hyperinflation, Hernando de Soto, Isaac Newton, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, large denomination, liquidity trap, long peace, money: store of value / unit of account / medium of exchange, old-boy network, Paul Samuelson, price stability, profit motive, random walk, rising living standards, Ronald Reagan, seigniorage, the market place, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, trade route

It made no sense to keep shipping one-dollar bills when ten-dollar bills would buy what one-dollar bills had once bought, and the ten-dollar bills would take up one-tenth the cargo space-and in time one-hundred-dollar notes could replace ten-dollar notes. Yet the currency orders never kept pace with the inflation. The planes continued to be crammed with excessive amounts of low-denomination notes occupying cargo space desperately needed for food, oil, weapons, and ammunition. Similar myopia in adjusting denominations to price increases explains the stories about people running around with wheelbarrows full of currency in the German hyperinflation of the 1920s. About one thousand years after Qin, during the reign of Hien Tsung (806-821), a severe shortage of copper induced the emperor to use sheets of paper for money in place of bronze coins. If there was no point in making payments with useful stuff, the emperor reasoned, why not go all the way and adopt paper? This newfangled idea appears to have been more of a historical accident than a stroke of financial genius, but the long perspective of history suggests that Hien Tsung's inadvertent innovation should join printing, gunpowder, and the compass among China's most enduring contributions to the civilization of the world.

Although Norman spoke fluent French, he insisted on speaking English at his meetings with Moreau; this meant that Moreau always had to have an interpreter present. Norman, who had spent one period of his youth in Germany, was always partial to Germans and antagonistic toward the French; his warm friendship with the Reichsbank president, Hjalmar Horace Greeley Schacht, only added to the friction between him and Moreau. Schacht was a powerful and brilliant financier who had been primarily responsible for ending the wild German hyperinflation of the early 1920s. In the later 1930s, he was both President of the Reichsbank and Minister of Economics under Hitler, but rivalry with Hermann Goering led to his dismissal in 1939. He was imprisoned after the assassination attempt on Hitler on July 20, 1944, and also faced the war crimes tribunal in Nurnberg after World War 11-where he was acquitted. He died in 1970, at the age of 93. At their first confrontation a month after Moreau's appointment, Norman made no effort to disguise his dislike for the French, although he did emphasize that most of his animosity was directed at the politicians.


pages: 194 words: 59,336

The Simple Path to Wealth: Your Road Map to Financial Independence and a Rich, Free Life by J L Collins

"side hustle", asset allocation, Bernie Madoff, buy and hold, compound rate of return, diversification, financial independence, full employment, German hyperinflation, index fund, money market fund, nuclear winter, passive income, payday loans, risk tolerance, Vanguard fund, yield curve

What is not so encouraging is that a deflationary depression like that of 1929 is only one of the two possible economic disasters that can destroy wealth on a major scale. The other is Hyperinflation. Here in the U.S., we haven’t had to deal with this monster since the Revolutionary War way back in 1776. But it destroyed Zimbabwe’s economy as recently as 2008. Hungary had the worst case of it in history when in July 1946, the peak inflation rate reached 41.9 quadrillion percent, and many credit the German hyperinflation of the 1920s with ushering the Nazis to power in the 1930s. Hyperinflation is very bad news—every bit as destructive as deflation—and it is exactly what it sounds like: Inflation running out of control. A little inflation can be a very healthy thing for an economy. It allows for prices and wages to expand. It keeps the economic wheels greased and running smoothly. It is the antidote to looming deflationary depressions.


pages: 473 words: 132,344

The Downfall of Money: Germany's Hyperinflation and the Destruction of the Middle Class by Frederick Taylor

Albert Einstein, anti-communist, banking crisis, Berlin Wall, British Empire, central bank independence, centre right, collective bargaining, falling living standards, fiat currency, fixed income, full employment, German hyperinflation, housing crisis, Internet Archive, Johann Wolfgang von Goethe, mittelstand, offshore financial centre, plutocrats, Plutocrats, quantitative easing, rent control, risk/return, strikebreaker, trade route, zero-sum game

10 Consequences 11 Putsch 12 The Rally 13 Goldilocks and the Mark 14 Boom 15 No More Heroes 16 Fear 17 Losers 18 Kicking Germany When She’s Down 19 Führer 20 ‘It Is Too Much’ 21 The Starving Billionaires 22 Desperate Measures 23 Everyone Wants a Dictator 24 Breaking the Fever 25 Bail-out Afterword Appendix Acknowledgements Image Section Bibliography Notes A Note on the Author By the Same Author Also by Frederick Taylor Introduction This book seeks to provide a narrative description of the origins, progression and effects of the German hyperinflation and to place this extraordinary phenomenon in the turbulent, ominous human context of the world in which it occurred. It is not by any means a book about economics in the narrow sense. The ills of the German currency between 1914 and 1924 arose out of, and then fed back into, the ills of the country itself. It contains elements of economic explanation, without which there would be no background to the story.


pages: 782 words: 187,875

Big Debt Crises by Ray Dalio

Asian financial crisis, asset-backed security, bank run, banking crisis, basic income, Ben Bernanke: helicopter money, break the buck, Bretton Woods, British Empire, business cycle, capital controls, central bank independence, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, declining real wages, European colonialism, fiat currency, financial innovation, German hyperinflation, housing crisis, implied volatility, intangible asset, Kickstarter, large denomination, manufacturing employment, margin call, market bubble, market fundamentalism, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Northern Rock, Ponzi scheme, price stability, private sector deleveraging, purchasing power parity, pushing on a string, quantitative easing, refrigerator car, reserve currency, short selling, sovereign wealth fund, too big to fail, transaction costs, universal basic income, value at risk, yield curve

PART 2: Detailed Case Studies German Debt Crisis and Hyperinflation (1918–1924) US Debt Crisis and Adjustment (1918–1924) US Debt Crisis and Adjustment (2007–2011) German Debt Crisis and Hyperinflation (1918-1924) * * * This section provides a detailed account of the most iconic inflationary depression cycle in history—the German debt crisis and hyperinflation that followed the end of World War I and carried into the mid-1920s, which set the stage for the economic and political changes of the 1930s. Much like my accounts of the 2008 US Financial Crisis and the 1930s Great Depression, this study goes through the particulars of the case in some detail with reference to the template laid out earlier in the “Archetypal Inflationary Depression.” Although the German hyperinflation took place almost a century ago, and amid exceptional political circumstances (Germany’s defeat in the First World War and the imposition of a huge reparation burden on it by the Allies), the basic dynamic of debt cycles, economic activity, and markets described in the template drove what happened.

A Template for Understanding BIG DEBT CRISES Ray Dalio Table of Contents A Template for Understanding Big Debt Crises Acknowledgements Introduction PART 1: The Archetypal Big Debt Cycle How I Think about Credit and Debt The Template for the Archetypal Long-Term/Big Debt Cycle Our Examination of the Cycle The Phases of the Classic Deflationary Debt Cycle The Early Part of the Cycle The Bubble The Top The “Depression” The “Beautiful Deleveraging” “Pushing on a String” Normalization Inflationary Depressions and Currency Crises The Phases of the Classic Inflationary Debt Cycle The Early Part of the Cycle The Bubble The Top and Currency Defense The Depression (Often When the Currency Is Let Go) Normalization The Spiral from a More Transitory Inflationary Depression to Hyperinflation War Economies In Summary PART 2: Detailed Case Studies German Debt Crisis and Hyperinflation (1918-1924) US Debt Crisis and Adjustment (1928–1937) US Debt Crisis and Adjustment (2007–2011) PART 3: Compendium of 48 Case Studies Glossary of Key Economic Terms Primarily Domestic Currency Debt Crises Non-Domestic Currency Debt Crises Appendix: Macroprudential Policies Acknowledgements I cannot adequately thank the many people at Bridgewater who have shared, and continue to share, my mission to understand the markets and to test that understanding in the real world.

However, a central bank can only credibly avoid monetizing debt if the government can pay its bills, so… …The German government took action to raise its revenues and cut its expenditures, making deep, extremely painful cuts. Similarly, the central bank capped the amount they would loan to businesses and raised borrowing rates. To further build faith in the new currency… …The central bank built up large reserves of foreign currency assets. They were able to do this by borrowing foreign exchange from the Allies and encouraging German citizens who had fled the currency during the hyperinflation to repatriate their savings. Earlier one-off measures (e.g., the short-lived currency peg, capital controls) hadn’t been enough—Germany needed a comprehensive and aggressive policy shift that abolished the currency, accepted hard backing, and placed extreme limits on monetization, credit creation, and government spending. It helped that years of economic crisis had made the public eager to find a currency that they could actually use.


pages: 267 words: 71,123

End This Depression Now! by Paul Krugman

airline deregulation, Asian financial crisis, asset-backed security, bank run, banking crisis, Bretton Woods, business cycle, capital asset pricing model, Carmen Reinhart, centre right, correlation does not imply causation, credit crunch, Credit Default Swap, currency manipulation / currency intervention, debt deflation, Eugene Fama: efficient market hypothesis, financial deregulation, financial innovation, Financial Instability Hypothesis, full employment, German hyperinflation, Gordon Gekko, Hyman Minsky, income inequality, inflation targeting, invisible hand, Joseph Schumpeter, Kenneth Rogoff, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, low skilled workers, Mark Zuckerberg, money market fund, moral hazard, mortgage debt, negative equity, paradox of thrift, Paul Samuelson, price stability, quantitative easing, rent-seeking, Robert Gordon, Ronald Reagan, Upton Sinclair, We are the 99%, working poor, Works Progress Administration

And the response to these fiscal crises—frantic, savage attempts to slash spending—has pushed unemployment all around Europe’s periphery to Great Depression levels, and seems at the time of writing to be pushing Europe back into outright recession. The Politics of Despair The ultimate costs of the Great Depression went far beyond economic losses, or even the suffering associated with mass unemployment. The Depression had catastrophic political effects as well. In particular, while modern conventional wisdom links the rise of Hitler to the German hyperinflation of 1923, what actually brought him to power was the German depression of the early 1930s, a depression that was even more severe than that in the rest of Europe, thanks to the deflationary policies of Chancellor Heinrich Brüning. Can anything like that happen today? There’s a well-established and justified stigma attached to invoking Nazi parallels (look up “Godwin’s law”), and it’s hard to see anything quite that bad happening in the twenty-first century.


Rethinking Money: How New Currencies Turn Scarcity Into Prosperity by Bernard Lietaer, Jacqui Dunne

3D printing, agricultural Revolution, Albert Einstein, Asian financial crisis, banking crisis, Berlin Wall, BRICs, business climate, business cycle, business process, butterfly effect, carbon footprint, Carmen Reinhart, clockwork universe, collapse of Lehman Brothers, complexity theory, conceptual framework, credit crunch, different worldview, discounted cash flows, en.wikipedia.org, Fall of the Berlin Wall, fear of failure, fiat currency, financial innovation, Fractional reserve banking, full employment, German hyperinflation, happiness index / gross national happiness, job satisfaction, liberation theology, Marshall McLuhan, microcredit, mobile money, money: store of value / unit of account / medium of exchange, more computing power than Apollo, new economy, Occupy movement, price stability, reserve currency, Silicon Valley, the payments system, too big to fail, transaction costs, trickle-down economics, urban decay, War on Poverty, working poor

Here, the black-and-white photos of Wörgl’s long-departed citizens going about their daily lives seem strikingly ordinary, given the backdrop 175 176 RETHINKING MONEY of this extraordinary moment in time. To appreciate the full panorama of what happened in German-speaking Europe in the years between the two world wars, besides the earlier example of the WIR, a look at Wörgl and the Wära provide some important insights. Mostly forgotten today is that the large number of cooperative currencies arose in the aftermath of the German hyperinflation of the 1920s, when the Reichsmark, the German currency at the time, became worthless. Similarly, there was an explosion of local currencies in both Western Europe and North America following the economic crash of 1929 and, more recently, in Argentina, following the collapse of its national currency in 2001. And now, at present, there is a resurgence of cooperative currencies and other innovations as the shadow of recession looms, but the dire consequences and tough lessons from these experiences seem to have lapsed from memory.


pages: 236 words: 77,735

Rigged Money: Beating Wall Street at Its Own Game by Lee Munson

affirmative action, asset allocation, backtesting, barriers to entry, Bernie Madoff, Bretton Woods, business cycle, buy and hold, buy low sell high, California gold rush, call centre, Credit Default Swap, diversification, diversified portfolio, estate planning, fiat currency, financial innovation, fixed income, Flash crash, follow your passion, German hyperinflation, High speed trading, housing crisis, index fund, joint-stock company, money market fund, moral hazard, Myron Scholes, passive investing, Ponzi scheme, price discovery process, random walk, risk tolerance, risk-adjusted returns, risk/return, stocks for the long run, stocks for the long term, too big to fail, trade route, Vanguard fund, walking around money

Inflation is like being dehydrated—treatable if found early. The second camp is all about fear. It’s true; gold bugs are having their day in the sun with the massive run up in prices since 1999. But they fail to mention the longer-term track record of the metal or the overall purpose for holding the stuff. I find it unclear what their reasoning is outside of the endless chatter of fumbling central banks and parallels to pre-World War II German hyperinflation. Okay, I do get it. Some people want to see the world burn and have the only form of money that has lasted throughout the ages, mainly because you can’t destroy basic elements. Nobody wants to be sitting in line at the corner store with a wheelbarrow of cash when a simple sliver of gold could pay for a loaf of bread. But is gold an investment? I am not sure the case has been made for either camp.


pages: 270 words: 73,485

Hubris: Why Economists Failed to Predict the Crisis and How to Avoid the Next One by Meghnad Desai

"Robert Solow", 3D printing, bank run, banking crisis, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, BRICs, British Empire, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, correlation coefficient, correlation does not imply causation, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, Fall of the Berlin Wall, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, German hyperinflation, Gunnar Myrdal, Home mortgage interest deduction, imperial preference, income inequality, inflation targeting, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, Long Term Capital Management, market bubble, market clearing, means of production, Mexican peso crisis / tequila crisis, mortgage debt, Myron Scholes, negative equity, Northern Rock, oil shale / tar sands, oil shock, open economy, Paul Samuelson, price stability, purchasing power parity, pushing on a string, quantitative easing, reserve currency, rising living standards, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, seigniorage, Silicon Valley, Simon Kuznets, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, women in the workforce

The Chicago School used the idea of “adaptive expectations” to study people’s reaction to inflation. Adaptive expectations are predicated on the idea that our expectations of what will happen tomorrow are based on an average of today’s events and those of the recent past. If inflation has been creeping up, we would expect it to go on rising further. We would then bring our purchases forward to avert the higher prices; but that would make prices more likely to rise further. During the German hyperinflation, this adaptive behavior occurred during the course of the day so that by the afternoon prices were higher than they had been in the morning. Monetarism undermined the twin pillars of Official Keynesianism. Budget deficits were no longer benign and inflation rather than underemployment was the principal problem market economies had to tackle. Chapter Five DECLINING FORTUNES When World War II was coming to an end and the outcome was certain, attention turned to postwar economic issues.


The Armchair Economist: Economics and Everyday Life by Steven E. Landsburg

Albert Einstein, Arthur Eddington, business cycle, diversified portfolio, first-price auction, German hyperinflation, Golden Gate Park, information asymmetry, invisible hand, Kenneth Arrow, means of production, price discrimination, profit maximization, Ralph Nader, random walk, Ronald Coase, Sam Peltzman, sealed-bid auction, second-price auction, second-price sealed-bid, statistical model, the scientific method, Unsafe at Any Speed

They might sound unimportant in the grand scheme of things, but the deadweight losses due to inflation are estimated to total about $15 billion per year in the United States, or $60 per American—hardly devastating, but hardly trivial either. In times of very high inflation, the deadweight losses can become enormous. In the Hungarian hyperinflation of 1948, workers were paid three times a day and their spouses were 68 GOOD AND EVIL employed full-time running back and forth between the workplace and the bank, trying to deposit paychecks before they became worthless. During the German hyperinflation that followed World War I, John Maynard Keynes reported that tavern-goers frequently ordered several beers early in the evening— before the price went up. Drinking warm beer can be a hidden cost of inflation. Hollywood screenwriters and denizens of the college lecture circuit periodically rediscover the dramatic potential of a burning dollar bill. Typically the torching is accompanied by impass-sioned commentary— issuing from a sympathetic character on the movie screen or an aging cultural icon in the college gym— about how a dollar bill is nothing more than a piece of paper.


pages: 361 words: 97,787

The Curse of Cash by Kenneth S Rogoff

Andrei Shleifer, Asian financial crisis, bank run, Ben Bernanke: helicopter money, Berlin Wall, bitcoin, blockchain, Boris Johnson, Bretton Woods, business cycle, capital controls, Carmen Reinhart, cashless society, central bank independence, cryptocurrency, debt deflation, disruptive innovation, distributed ledger, Edward Snowden, Ethereum, ethereum blockchain, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial exclusion, financial intermediation, financial repression, forward guidance, frictionless, full employment, George Akerlof, German hyperinflation, illegal immigration, inflation targeting, informal economy, interest rate swap, Isaac Newton, Johann Wolfgang von Goethe, Johannes Kepler, Kenneth Rogoff, labor-force participation, large denomination, liquidity trap, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, moveable type in China, New Economic Geography, offshore financial centre, oil shock, open economy, payday loans, price stability, purchasing power parity, quantitative easing, RAND corporation, RFID, savings glut, secular stagnation, seigniorage, The Great Moderation, the payments system, The Rise and Fall of American Growth, transaction costs, unbanked and underbanked, unconventional monetary instruments, underbanked, unorthodox policies, Y2K, yield curve

This suspicion is echoed in Johann Wolfgang von Goethe’s Faust, when the demon Mephistopheles tempts the emperor, who is in severe financial distress, to introduce paper money to increase spending and pay off state debt. The device works in the short run but ultimately leads to inflation and ruin. Goethe, writing early in the nineteenth century, was nothing if not prescient. Without paper money, there might have been no German hyperinflation, and perhaps no World War II.1 Failed paper money may be cursed, but successful paper money has long been a cornerstone of the world’s most successful economies. A century and a half before the founding of the Federal Reserve in 1913, American Benjamin Franklin arrived in London, planning to suggest that the British allow the American colonies to create a universal paper money to help pay their share of costs from the Seven Years’ War; the idea did not materialize.2 Ironically, the very American currency Franklin envisioned 250 years ago has now not only come into existence, it has also far surpassed its British counterpart in global import and now constitutes what is perhaps the greatest symbol of American power.


The Future of Money by Bernard Lietaer

agricultural Revolution, banks create money, barriers to entry, Bretton Woods, business cycle, clean water, complexity theory, corporate raider, dematerialisation, discounted cash flows, diversification, fiat currency, financial deregulation, financial innovation, floating exchange rates, full employment, George Gilder, German hyperinflation, global reserve currency, Golden Gate Park, Howard Rheingold, informal economy, invention of the telephone, invention of writing, Lao Tzu, Mahatma Gandhi, means of production, microcredit, money: store of value / unit of account / medium of exchange, Norbert Wiener, North Sea oil, offshore financial centre, pattern recognition, post-industrial society, price stability, reserve currency, Ronald Reagan, seigniorage, Silicon Valley, South Sea Bubble, The Future of Employment, the market place, the payments system, Thomas Davenport, trade route, transaction costs, trickle-down economics, working poor

You will also see that these experiments were stopped by governments, not because they were not working, but because they were working too well without the need for central government involvement. The path not taken in the 1930’s If your family lived in the 1930s in Western Europe, the US, Canada or Northern Mexico (i.e. the area where the Great Depression hit hardest), you may have heard about the path not taken. In the aftermath of the German hyperinflation period of the 1920s, or of the Crash of 1929 in the other countries, literally thousands of communities started their own currency systems. Your village or town probably used one. The interesting solutions, which were implemented at that time, include a now almost forgotten movement of 'emergency currencies'. There was one overriding objective in all the 1930s complementary currency systems: ensuring that people had the medium of exchange necessary for their activities, to give each other work.


pages: 519 words: 104,396

Priceless: The Myth of Fair Value (And How to Take Advantage of It) by William Poundstone

availability heuristic, Cass Sunstein, collective bargaining, Daniel Kahneman / Amos Tversky, delayed gratification, Donald Trump, East Village, en.wikipedia.org, endowment effect, equal pay for equal work, experimental economics, experimental subject, feminist movement, game design, German hyperinflation, Henri Poincaré, high net worth, index card, invisible hand, John von Neumann, Kenneth Arrow, laissez-faire capitalism, Landlord’s Game, loss aversion, market bubble, mental accounting, meta analysis, meta-analysis, Nash equilibrium, new economy, Paul Samuelson, payday loans, Philip Mirowski, Potemkin village, price anchoring, price discrimination, psychological pricing, Ralph Waldo Emerson, RAND corporation, random walk, RFID, Richard Thaler, risk tolerance, Robert Shiller, Robert Shiller, rolodex, social intelligence, starchitect, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, ultimatum game, working poor

She was charging a markup, but only in marked-down marks. Fisher’s point was that money is just a tool for getting stuff. When prices are stable, we can act as if money and purchasing power are one and the same. When the purchasing power of money varies, it’s necessary to draw a distinction. This is how economists think, at any rate. Regular folks, like the shopkeeper, tend to ignore inflation. The peak year of German hyperinflation was 1923, when prices were doubling every two days. A news photo showed a German woman shoveling marks into her furnace. By then, a pile of burning cash generated more heat than the shrinking pile of firewood it could buy. Fisher nonetheless found that Germans managed to live in partial denial. Their mind was on the prices, not on the stuff. The money illusion is almost always introduced in the context of inflation.


pages: 505 words: 142,118

A Man for All Markets by Edward O. Thorp

3Com Palm IPO, Albert Einstein, asset allocation, beat the dealer, Bernie Madoff, Black Swan, Black-Scholes formula, Brownian motion, buy and hold, buy low sell high, carried interest, Chuck Templeton: OpenTable:, Claude Shannon: information theory, cognitive dissonance, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Edward Thorp, Erdős number, Eugene Fama: efficient market hypothesis, financial innovation, George Santayana, German hyperinflation, Henri Poincaré, high net worth, High speed trading, index arbitrage, index fund, interest rate swap, invisible hand, Jarndyce and Jarndyce, Jeff Bezos, John Meriwether, John Nash: game theory, Kenneth Arrow, Livingstone, I presume, Long Term Capital Management, Louis Bachelier, margin call, Mason jar, merger arbitrage, Murray Gell-Mann, Myron Scholes, NetJets, Norbert Wiener, passive investing, Paul Erdős, Paul Samuelson, Pluto: dwarf planet, Ponzi scheme, price anchoring, publish or perish, quantitative trading / quantitative finance, race to the bottom, random walk, Renaissance Technologies, RFID, Richard Feynman, risk-adjusted returns, Robert Shiller, Robert Shiller, rolodex, Sharpe ratio, short selling, Silicon Valley, Stanford marshmallow experiment, statistical arbitrage, stem cell, stocks for the long run, survivorship bias, The Myth of the Rational Market, The Predators' Ball, the rule of 72, The Wisdom of Crowds, too big to fail, Upton Sinclair, value at risk, Vanguard fund, Vilfredo Pareto, Works Progress Administration

Overall, the index has increased by about 3.6 percent a year, but there are some unusual variations. The index falls (deflation!) after the 1929 crash and stays at a reduced level for the next decade. Then it increases rapidly during World War II and the first postwar years. Although inflation has been moderate in the United States and in most first-world countries most of the time, it is occasionally catastrophic. During the German hyperinflation of 1919–23, the currency declined to one hundred billionth of its starting value (divide by 100,000,000,000). Debtors were freed and lenders were ruined. This level of inflation would reduce the $18 trillion or so US national debt of 2015 to the equivalent of $180. In 2009, the African nation of Zimbabwe experienced a hyperinflation comparable to the German one, with Z-one-trillion bills commonplace.


pages: 632 words: 159,454

War and Gold: A Five-Hundred-Year History of Empires, Adventures, and Debt by Kwasi Kwarteng

accounting loophole / creative accounting, anti-communist, Asian financial crisis, asset-backed security, Atahualpa, balance sheet recession, bank run, banking crisis, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, California gold rush, capital controls, Carmen Reinhart, central bank independence, centre right, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, currency manipulation / currency intervention, Deng Xiaoping, discovery of the americas, Etonian, eurozone crisis, fiat currency, financial innovation, fixed income, floating exchange rates, Francisco Pizarro, full employment, German hyperinflation, hiring and firing, income inequality, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, liberal capitalism, market bubble, money: store of value / unit of account / medium of exchange, moral hazard, new economy, oil shock, plutocrats, Plutocrats, Ponzi scheme, price mechanism, quantitative easing, rolodex, Ronald Reagan, South Sea Bubble, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, the market place, The Wealth of Nations by Adam Smith, too big to fail, War on Poverty, Yom Kippur War

GETTY IMAGES The First World War (1914–18) was an intense, all-encompassing struggle in which goverments resorted to paper money. They borrowed unprecedented amounts to spend on armaments. © BETTMANN/CORBIS Ford was a symbol of American industrial might for much of the twentieth century. Ford’s successes in the 1920s were built on the back of an unsustainable consumer credit bubble. GETTY IMAGES German hyperinflation, stoked by paper money, shocked the world during the early 1920s. It has shaped the German preoccupation with a strong currency. © BETTMANN/CORBIS The Wall Street Crash which followed in 1929 rocked the financial world. Wall Street had emerged as the international financial centre after the First World War; its sudden collpase had an equally global impact. GETTY IMAGES The resort where the global financial system was repaired.


pages: 407 words: 114,478

The Four Pillars of Investing: Lessons for Building a Winning Portfolio by William J. Bernstein

asset allocation, Bretton Woods, British Empire, business cycle, butter production in bangladesh, buy and hold, buy low sell high, carried interest, corporate governance, cuban missile crisis, Daniel Kahneman / Amos Tversky, Dava Sobel, diversification, diversified portfolio, Edmond Halley, equity premium, estate planning, Eugene Fama: efficient market hypothesis, financial independence, financial innovation, fixed income, George Santayana, German hyperinflation, high net worth, hindsight bias, Hyman Minsky, index fund, invention of the telegraph, Isaac Newton, John Harrison: Longitude, Long Term Capital Management, loss aversion, market bubble, mental accounting, money market fund, mortgage debt, new economy, pattern recognition, Paul Samuelson, quantitative easing, railway mania, random walk, Richard Thaler, risk tolerance, risk/return, Robert Shiller, Robert Shiller, South Sea Bubble, stocks for the long run, stocks for the long term, survivorship bias, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, the rule of 72, transaction costs, Vanguard fund, yield curve, zero-sum game

Treasury version, the 30-year “Treasury Inflation Protected Security,” or TIPS, currently yields 3.45%. So no matter how badly inflation rages, the interest payments of these bonds will be 3.45% of the face amount in real purchasing power, and the principal will also be repaid in inflation-adjusted dollars. (These are the equivalent of the gold-backed bonds of the last century.) Third, inflation is a painful, searing experience for the bondholder and is not soon forgotten. During the German hyperinflation of the 1920s, bonds lost 100% of their value within a few months. German investors said, “Never again,” and for the past 80 years, German central banks have carefully controlled inflation by reining in their money supply. American investors, too, were traumatized by the Great Inflation of 1965 to 1985 and began demanding an “inflation premium” when purchasing long-term bonds. For example, long-term corporate bonds currently yield more than 6%, nearly 4% above the inflation rate.


pages: 376 words: 118,542

Free to Choose: A Personal Statement by Milton Friedman, Rose D. Friedman

affirmative action, agricultural Revolution, air freight, back-to-the-land, bank run, banking crisis, business cycle, Corn Laws, Fractional reserve banking, full employment, German hyperinflation, invisible hand, means of production, minimum wage unemployment, oil shale / tar sands, oil shock, price stability, Ralph Nader, RAND corporation, rent control, road to serfdom, Sam Peltzman, school vouchers, Simon Kuznets, The Wealth of Nations by Adam Smith, union organizing, Unsafe at Any Speed, Upton Sinclair, urban renewal, War on Poverty, working poor, Works Progress Administration

The quantity of commodity money is subject to similar physical limits, though, as the examples of tobacco, precious metals from the New World, and gold in the nineteenth century illustrate, commodity money has at times grown far more rapidly than output in general. Modern forms of money—paper and bookkeeping entries—are subject to no physical limits. The nominal quantity, that is, the number of dollars, pounds, marks, or other monetary units, can grow at any rate, and at times has grown at fantastic rates. During the German hyperinflation after World War I, for example, hand-to-hand money grew at the average rate of more than 300 percent a month for more than a year, and so did prices. During the Hungarian hyperinflation after World War II, hand-to-hand money rose at the average rate of more than 12,000 percent per month for a year, and prices at the even higher rate of nearly 20,000 percent a month.10 During the far more moderate inflation in the United States from 1969 to 1979, the quantity of money rose at the average rate of 9 percent per year and prices at the average rate of 7 percent per year.


pages: 524 words: 155,947

More: The 10,000-Year Rise of the World Economy by Philip Coggan

"Robert Solow", accounting loophole / creative accounting, Ada Lovelace, agricultural Revolution, Airbnb, airline deregulation, Andrei Shleifer, anti-communist, assortative mating, autonomous vehicles, bank run, banking crisis, banks create money, basic income, Berlin Wall, Bob Noyce, Branko Milanovic, Bretton Woods, British Empire, business cycle, call centre, capital controls, carbon footprint, Carmen Reinhart, Celtic Tiger, central bank independence, Charles Lindbergh, clean water, collective bargaining, Columbian Exchange, Columbine, Corn Laws, credit crunch, Credit Default Swap, crony capitalism, currency peg, debt deflation, Deng Xiaoping, discovery of the americas, Donald Trump, Erik Brynjolfsson, European colonialism, eurozone crisis, falling living standards, financial innovation, financial intermediation, floating exchange rates, Fractional reserve banking, Frederick Winslow Taylor, full employment, germ theory of disease, German hyperinflation, gig economy, Gini coefficient, global supply chain, global value chain, Gordon Gekko, greed is good, Haber-Bosch Process, Hans Rosling, Hernando de Soto, hydraulic fracturing, Ignaz Semmelweis: hand washing, income inequality, income per capita, indoor plumbing, industrial robot, inflation targeting, Isaac Newton, James Watt: steam engine, job automation, John Snow's cholera map, joint-stock company, joint-stock limited liability company, Kenneth Arrow, Kula ring, labour market flexibility, land reform, land tenure, Lao Tzu, large denomination, liquidity trap, Long Term Capital Management, Louis Blériot, low cost airline, low skilled workers, lump of labour, M-Pesa, Malcom McLean invented shipping containers, manufacturing employment, Marc Andreessen, Mark Zuckerberg, Martin Wolf, McJob, means of production, Mikhail Gorbachev, mittelstand, moral hazard, Murano, Venice glass, Myron Scholes, Nelson Mandela, Network effects, Northern Rock, oil shale / tar sands, oil shock, Paul Samuelson, popular capitalism, popular electronics, price stability, principal–agent problem, profit maximization, purchasing power parity, quantitative easing, railway mania, Ralph Nader, regulatory arbitrage, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, savings glut, Scramble for Africa, Second Machine Age, secular stagnation, Silicon Valley, Simon Kuznets, South China Sea, South Sea Bubble, special drawing rights, spice trade, spinning jenny, Steven Pinker, TaskRabbit, Thales and the olive presses, Thales of Miletus, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, trade route, transaction costs, transatlantic slave trade, transcontinental railway, Triangle Shirtwaist Factory, universal basic income, Unsafe at Any Speed, Upton Sinclair, V2 rocket, Veblen good, War on Poverty, Washington Consensus, Watson beat the top human players on Jeopardy!, women in the workforce, Yom Kippur War, zero-sum game

A paper from the Bank for International Settlements, the central bankers’ club, concluded that QE had increased inequality by boosting share prices.11 Many elderly savers complained that low rates had cut their retirement income. In the US, these actions revived the old critique that central banks inevitably favour the moneyed classes rather than the heartland economy; Wall Street rather than Main Street. Others feared that QE was a repeat of the money-printing policies that created German hyperinflation in the 1920s (although inflation has not yet resulted). In Europe, the European Central Bank was attacked from a different direction. It was berated for favouring the creditor nations, particularly Germany, and punishing the indebted ones, like Greece. The overarching problem is that, in the aftermath of the 2008 crisis, central banks have been drawn into the political debate. In part this is because they have carried a lot of the burden of reviving the global economy.


pages: 586 words: 160,321

The Euro and the Battle of Ideas by Markus K. Brunnermeier, Harold James, Jean-Pierre Landau

Affordable Care Act / Obamacare, asset-backed security, bank run, banking crisis, battle of ideas, Ben Bernanke: helicopter money, Berlin Wall, Bretton Woods, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Celtic Tiger, central bank independence, centre right, collapse of Lehman Brothers, collective bargaining, credit crunch, Credit Default Swap, currency peg, debt deflation, Deng Xiaoping, different worldview, diversification, Donald Trump, Edward Snowden, en.wikipedia.org, Fall of the Berlin Wall, financial deregulation, financial repression, fixed income, Flash crash, floating exchange rates, full employment, German hyperinflation, global reserve currency, income inequality, inflation targeting, information asymmetry, Irish property bubble, Jean Tirole, Kenneth Rogoff, Martin Wolf, mittelstand, money market fund, Mont Pelerin Society, moral hazard, negative equity, Neil Kinnock, new economy, Northern Rock, obamacare, offshore financial centre, open economy, paradox of thrift, pension reform, price stability, principal–agent problem, quantitative easing, race to the bottom, random walk, regulatory arbitrage, rent-seeking, reserve currency, road to serfdom, secular stagnation, short selling, Silicon Valley, South China Sea, special drawing rights, the payments system, too big to fail, union organizing, unorthodox policies, Washington Consensus, WikiLeaks, yield curve

Many treat it as a product of plain stupidity and ignorance on one side: Paul Krugman talked about a “Dark Age of macroeconomics” in which the good lessons of the Greeks and the Romans had been countermanded by the obscurantist barbarians (from the north!) who overrun Mediterranean civilization.9 The second interpretation is that these preferences represent deep historical traditions, cultures, and memories—so deeply rooted that they cannot be erased by the persuasive powers of superficial rationality and logic. In particular, Germans were so seared by the experience of catastrophic hyperinflation in the early twentieth century that ninety years later they repeat a meaningless mantra. But wait a moment: Krugman’s Dark Age is about the revival in the twenty-first century of the principles of Jean-Baptiste Say, a nineteenth-century economist—from France! In fact, in the nineteenth century, most French (and for that matter Italian) economists were, like Say, classical liberals who mentally inhabited a rule-based world.

In late 1980s Yugoslavia, as the socialist regime disintegrated, the monetary authorities in Belgrade were closest to Serbian politicians such as Slobodan Milosevic and to Serbian business interests. The Croats and Slovenes wanted to get away. In the Soviet Union, inflation appeared as an instrument of the central Moscow bureaucrats, and more remote areas wanted to break away. Hyperinflation thus fueled the national tensions that broke up federal systems in the Soviet Union and Yugoslavia. The response to German hyperinflation in the 1920s was the institution of a new banking law that protected the central bank (Reichsbank) from government intervention. The 1957 Bundesbank Law also guaranteed the autonomy of the new central bank’s monetary policy. In consequence, there were spectacular conflicts when Chancellor Konrad Adenauer in the late 1950s or Helmut Schmidt in the late 1970s attacked the Bundesbank for acting as a brake on growth (in other words, for behaving as an independent central bank is supposed to behave).


pages: 464 words: 139,088

The End of Alchemy: Money, Banking and the Future of the Global Economy by Mervyn King

"Robert Solow", Andrei Shleifer, Asian financial crisis, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, collapse of Lehman Brothers, creative destruction, Credit Default Swap, crowdsourcing, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, distributed generation, Doha Development Round, Edmond Halley, Fall of the Berlin Wall, falling living standards, fiat currency, financial innovation, financial intermediation, floating exchange rates, forward guidance, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, German hyperinflation, Hyman Minsky, inflation targeting, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, labour market flexibility, large denomination, lateral thinking, liquidity trap, Long Term Capital Management, manufacturing employment, market clearing, Martin Wolf, Mexican peso crisis / tequila crisis, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, Nick Leeson, North Sea oil, Northern Rock, oil shale / tar sands, oil shock, open economy, paradox of thrift, Paul Samuelson, Ponzi scheme, price mechanism, price stability, purchasing power parity, quantitative easing, rent-seeking, reserve currency, Richard Thaler, rising living standards, Robert Shiller, Robert Shiller, Satoshi Nakamoto, savings glut, secular stagnation, seigniorage, stem cell, Steve Jobs, The Great Moderation, the payments system, The Rise and Fall of American Growth, Thomas Malthus, too big to fail, transaction costs, Tyler Cowen: Great Stagnation, yield curve, Yom Kippur War, zero-sum game

Abe, Shinzo, 363 ABN Amro, 118 Acheson, Dean, 368 Ahmed, Liaquat, The Lords of Finance, 158 AIG, 142, 162 alchemy, financial, 5, 8, 10, 40, 50, 91, 191–2, 257, 261, 263–5, 367, 369; illusion of liquidity, 149–55, 253–5; maturity and risk transformation, 104–15, 117–19, 250–1, 254–5; pawnbroker for all seasons (PFAS) approach, 270–81, 288, 368 Ardant, Henri, 219 Arrow, Kenneth, 79–80, 295 Asian financial crisis (1990s), 28, 349, 350 Asian Infrastructure Investment Bank, 349–50 Australia, 74, 259, 275, 348 Austria, 340, 341 Austro-Hungarian Empire, 216 Bagehot, Walter, 212, 218, 335; Lombard Street (1873), 94–5, 114–15, 188, 189, 190, 191–2, 202, 208, 251, 269 Bank for International Settlements, 31, 255, 276, 324 Bank of America, 103–4, 257 Bank of England, 169, 217, 275, 280, 320–1; Bank Charter Act (1844), 160, 198; during crisis, 36, 37–8, 64, 65, 76, 118, 181–3, 184, 205, 206; Financial Policy Committee, 173; garden at, 73–4; gold reserves, 74, 75, 77, 198; governors of, 6, 12–13, 52–3, 175–6, 178; granting of independence to (1997), 7, 166, 186; history of, 92, 94, 156–7, 159, 160, 180–1, 186, 188–201, 206, 335; inflation targeting policy, 7, 167, 170, 322; Monetary Policy Committee (MPC), 173, 329–31; as Old Lady of Threadneedle Street, 75; weather vane on roof, 181 bank runs, 37–8, 93, 105–8, 187–92, 253–4, 262 Bankia (Spanish bank), 257–8 banking sector: balance sheets, 31, 103–4; capital requirements, 137–9, 255–6, 258, 280; commercial and investment separation, 23, 98, 256, 257; creation of money by, 8, 59–63, 86–7, 91, 161, 253, 263; as dangerous and fragile, 8, 23, 33, 34, 36–7, 91–2, 105, 111, 119, 323–4; deposit insurance, 62, 107–8, 137, 254–5, 328; European universal banks, 23–4; and ‘good collateral’, 188, 190, 202–3, 207, 269; history of, 4–5, 18–19, 59–60, 94–5, 187–202, 206–7; implicit taxpayer subsidy for, 96–7, 107, 116–17, 191–2, 207, 254–5, 263–4, 265–6, 267–8, 269–71, 277; interconnected functions of, 95–6, 111–12, 114–15; levels of equity finance, 103, 105, 109, 112, 137–9, 173, 202, 254–9, 263, 268, 280, 368 see also leverage ratios (total assets to equity capital); liquidity support stigma, 205–7; misconduct scandals, 91, 100, 118, 151, 256; narrow and wide banks, 263–5, 266–7, 279; political influence of, 3, 6, 288–9; recapitalisation of (October 2008), 37–8, 201; taxpayer bailouts during crisis, 4, 38, 41, 43, 93, 94, 106, 118, 162, 243, 247, 261, 267–8; ‘too important to fail’ (TITF), 96–7, 99, 116–17, 118, 254–5, 263–4, 279–80; vast expansion of, 23–4, 31–3, 92–4, 95, 96–9, 115–18; visibility of, 92–3, 94; see also alchemy, financial; central banks; liquidity; regulation Banque de France, 159 Barclays, 95 Barings Bank, 137, 193 ‘behavioural economics’, 132–4, 308, 310 Belgium, 201, 216, 340 Benes, Jaromir, 262 Bergsten, Fred, 234 Berlusconi, Silvio, 225 Bernanke, Ben, 28, 44, 91, 158, 175–6, 183, 188, 287 bills of exchange, 197–8, 199 bitcoins, 282–3 Black, Joseph, 56 Blackett, Basil, 195–6 Blair, Tony, 186 Blakey, Robert, The Political Pilgrim’s Progress (1839), 251–3 Blinder, Alan, 164 BNP Paribas, 35 Brazil, 38 Brecht, Bertolt, The Threepenny Opera (1928), 88, 93 Bremer, Paul, 241 Bretton Woods system, 20–1, 350, 352 British Empire, 216, 217 Bryan, William Jennings, 76, 86–7 Buffett, Warren, 102, 143 building societies, 98 Bunyan, John, Pilgrim’s Progress (1678), 251 Cabaret (film, 1972), 52, 83 Cambodia, 246 Cambridge University, 12, 83, 292–3, 302 Campbell, Mrs Patrick, 220 Campbell-Geddes, Sir Eric, 346 Canada, 116, 167, 170 capitalism, 2, 5, 8, 16–21, 42, 155, 366; as best way to create wealth, 17, 365–6, 369; and end of Cold War, 26–7, 365; money and banking as Achilles heel, 5, 16–17, 23–6, 32–9, 40–1, 50, 369–70; Schumpeter’s ‘creative destruction’, 152; see also market economy Carlyle, Thomas, 16 Carney, Mark, 176 Caruana, Jaime, 324 central banks, 156–9; accountability and transparency, 158, 168, 169–70, 175–6, 178–80, 186, 208; and ‘constrained discretion’, 169–70, 186; creation of ‘emergency money’, 48, 65–6, 71, 86, 172, 182–3, 189, 196–7, 201–7, 247, 275; during crisis, 36–9, 64, 65, 76, 113, 118, 158, 159, 162, 181–4, 205, 206, 335; and disequilibrium, 46–7, 171–2, 175, 208, 329–32; exclusive right to issue paper money, 160, 165, 283; and expectations, 28, 176–8, 304; forecasting by, 179–80, 304–5; future of, 207–10; gold reserves, 74–5, 77, 198; history of, 159–60, 161–2, 180–1; independence of, 5–6, 7, 22, 71, 165–7, 169–70, 185–6, 209–10, 357; industry of private sector watchers, 178; integrated policy framework, 187, 208–9, 288; as ‘lenders of last resort’ (LOLR), 94–5, 109–10, 163, 187–97, 202–7, 208, 259, 268, 269–70, 274–5, 288; and ‘macro-prudential policies’, 173–5, 187; monetary policy rules, 168–9; and money supply, 63, 65–6, 76, 86–7, 162, 163, 180–4, 192, 196–201; pawnbroker for all seasons (PFAS) approach, 270–81, 288, 368; in post-crisis period, 43–4, 63, 76, 162–3, 168–9, 173, 175, 179–80, 183–6; printing of electronic money by, 43, 52, 359; proper role of, 163, 172, 174–5, 287; and swap agreements, 353; see also Bank of England; European Central Bank (ECB); Federal Reserve central planning, 20, 27, 141 Chiang Mai Initiative, 349 ‘Chicago Plan’ (1933), 261–4, 268, 273, 274, 277–8 China, 2–3, 22, 34, 77, 306, 322, 338, 357, 362–3, 364; banking sector, 92, 93; export-led growth strategy, 27–8, 319, 321, 323–4, 356; falling growth rates, 43–4, 324, 363; medieval, 57, 68, 74; one child policy in, 28; problems in financial system, 43–4, 337, 362–3; savings levels in, 27–8, 29, 34; trade surpluses in, 27–8, 46, 49, 319, 321, 329, 364 Chou Enlai, 2 Churchill, Winston, 211, 366 Citigroup, 90, 99, 257 Clark, Kenneth, 193 Clinton, President Bill, 157 Cobbett, William, 71–2 Cochrane, John, 262 Coinage Act, US (1792), 215 Cold War, 26–7, 68, 81–2, 350, 365 Colley, Linda, 213–14 communism, 19, 20, 27 Confucius, 10 Cunliffe, Lord, 178, 193 currencies: break-up of sterling area, 216; dollarisation, 70, 246, 287; ‘fiat’, 57, 283; during government crises, 68–9; monetary unions, 212–18, 238–49 see also European Monetary Union (EMU, euro area); optimal currency areas, 212–13, 215, 217, 248; ‘sterlingisation’ and Scotland, 244–7, 248; US dollar-gold link abandoned (1971), 73; virtual/digital, 282–3; see also exchange rates cybercrime, 282 Cyprus, 363–4 Czech Republic, 216 Debreu, Gerard, 79–80, 295 debt, 140; bailouts as not only response, 343–4; as consequence not cause of crisis, 324–5; forgiveness, 339–40, 346–7; haircut on pledged collateral, 203, 204, 266, 269, 271–2, 275, 277–8, 280; household, 23, 31, 33–4, 35; importance of for real economy, 265–6; as likely trigger for future crisis, 337–8; and low interest rates, 337; quantitative controls on credit, 173, 174–5; rise in external imbalances, 22–3, 24–5, 27–31, 33–4, 45–7, 48–9, 236, 306–7, 319–24, 329–30, 338, 364; and rising asset prices, 23, 24, 31–2; role of collateral, 266–7, 269–81; see also sovereign debt decolonisation process, 215 deflation, 66, 76, 159, 164, 165 demand, aggregate: ‘asymmetric shocks’ to, 213; disequilibrium, 45–9, 316, 319–24, 325–7, 329–32, 335, 358–9; in EMU, 221, 222–3, 229, 230, 236; during Great Stability, 319–24; and Keynesianism, 5, 20, 41, 293, 294–302, 315–16, 325–6, 327, 356; and monetary policy, 30, 41–9, 167, 184–5, 212–13, 221, 229–31, 291–2, 294–302, 319–24, 329–32, 335, 358; nature of, 45, 325; pessimism over future levels, 356, 357–60; price and wage rigidities, 167; and radical uncertainty, 316; rebalancing of, 357, 362–3, 364; saving as source of future demand, 11, 46, 84–5, 185, 325–6, 356; as weak post-crisis, 38–9, 41–2, 44–5, 184–5, 291–2, 337, 350, 356–60 democracy, 26–7, 168, 174, 210, 222, 318, 348, 351; and euro area crisis, 224–5, 231, 234–5, 237–8, 344; and paper money, 68, 77; rise of non-mainstream parties in Europe, 234–5, 238, 344, 352 demographic factors, 354, 355, 362 Denmark, 216–17, 335 derivative instruments, 32–3, 35–6, 90, 93–4, 97–8, 100, 101, 117, 141–5; desert island parable, 145–8 Dickens, Charles, 1, 13–14, 233 disequilibrium: and aggregate demand, 45–9, 316, 319–24, 325–7, 329–32, 335, 358–9; alternative strategies for pre-crisis period, 328–33; and central banks, 11–12, 46–7, 171–2, 175, 208, 329–32; continuing, 42, 45–8, 49, 171–2, 291, 334–5, 347, 353, 356–70; coordinated move to new equilibrium, 347, 357, 359–65; definition of, 8–9; euro area at heart of, 248, 337; and exchange rates, 319, 322–3, 329, 331, 364; high- and low-saving countries (external imbalances), 22–3, 24–5, 27–31, 33–4, 45–7, 48–9, 236, 307, 319–24, 329–30, 338, 364; in internal saving and spending, 45–8, 49, 313–16, 319–21, 324, 325–6, 329–30, 356; and ‘New Keynesian’ models, 306; the next crisis, 334–5, 336–8, 353, 370; and paradox of policy, 48, 326, 328, 333, 357, 358; and stability heuristic, 312–14, 319–21, 323, 331, 332; suggested reform programme, 359–65 division of labour (specialisation), 18, 54–5 Doha Round, 361 Domesday Book, 54, 85 dotcom crash, 35 ‘double coincidence of wants’, 55, 80, 82 Douglas, Paul, 262 Draghi, Mario, 225, 227, 228 Dyson, Ben, 262 econometric modelling, 90, 125, 305–6 economic growth: conventional analysis, 44–5, 47; as low since crisis, 11, 43–4, 290–2, 293, 324, 348, 353–7; origins of, 17–21; pessimism over future levels, 353–7; in pre-crisis period, 329, 330–1, 351–2; slowing of in China, 43–4, 324, 362; stability in post-war period, 317–18 economic history, 4–5, 15–21, 54–62, 67–77, 107–9, 158–62, 180–1, 206–7, 215–17, 317–18; 1797 crisis in UK, 75; 1907 crisis in US, 159, 161, 196, 197, 198, 201; 1914 crisis, 192–201, 206, 307, 368; 1920-1 depression, 326–7; 1931 crisis, 41; ‘Black Monday’ (19 October 1987), 149; Finnish and Swedish crises (early 1990s), 279; German hyperinflation (early 1920s), 52, 68, 69, 86, 158–9, 190; Latin American debt crisis (1980s), 339; London banking crises (1825-66), 92, 188–90, 191–2, 198, 201; panic of 1792 in US, 188; see also Great Depression (early 1930s) The Economist magazine, 108–9 economists, 78–80, 128–31, 132–4, 212, 311; 1960s evolution of macroeconomics, 12, 16; forecasting models, 3–4, 7, 122–3, 179–80, 208, 305–6; Keynes on, 158, 289; see also Keynesian economics; neoclassical economics Ecuador, 246, 287 Egypt, ancient, 56, 72 Eliot, T.S., Four Quartets, 120, 290 emerging economies, 39, 43, 337, 338, 361; export-led growth strategy, 27–8, 30, 34, 319, 321, 324, 349, 356; new institutions in Asia, 349–50; savings levels in, 22–3, 27–8, 29, 30; ‘uphill’ flows of capital from, 30–1, 40, 319; US dollar reserves, 28, 34, 349 ‘emotional finance’ theory, 133–4 Engels, Friedrich, 19 Enron, 117 equity finance, 36, 102, 103, 140, 141, 143, 266, 280; and ‘bail-inable’ bonds, 112; in banking sector, 103, 105, 109, 112, 137–9, 173, 202, 254–9, 263, 268, 280, 368 see also leverage ratios (total assets to equity capital); and limited liability, 107, 108, 109 European Central Bank (ECB), 137, 162, 166, 232, 339; and euro area crisis, 203–4, 218, 224–5, 227–8, 229, 231, 322; and political decisions, 218, 224–5, 227–8, 231–2, 235, 344; sovereign debt purchases, 162, 190, 227–8, 231 European Monetary Union (EMU, euro area), 62, 217–38, 337–40, 342–9, 363–4; creditor and debtor split, 49, 222–3, 230–1, 232–7, 338, 339–40, 342–4, 363–4; crisis in (from 2009), 138, 203–4, 218, 223–31, 237–8, 276, 338, 339–40, 3512, 368; disillusionment with, 234–5, 236, 238, 3444; divergences in competitiveness, 221–3, 228, 231, 232–3, 234; fiscal union proposals (2015), 344; at heart of world disequilibrium, 248, 337; inflation, 70, 221–2, 232, 237; interest rate, 221–2, 232, 237, 335; launch of (1999), 22, 24–5, 218, 221, 306; main lessons from, 237; and political union issues, 218, 220, 235, 237–8, 248–9, 344, 348–9; ‘progress through crisis’ doctrine, 234; prospects for, 232–3, 345–6; sovereign debt in, 162, 190, 224, 226–8, 229–31, 258, 338, 339–40, 342–4; transfer union proposal, 224, 230, 231, 233, 234, 235, 237, 344; unemployment in, 45, 226, 228, 229–30, 232, 234, 345; value of euro, 43, 228–9, 231, 232, 322 European Stability Mechanism (ESM), 228 European Union, 40, 235–6, 237–8, 247, 248–9, 348–9; no-bailout clause in Treaty (Article 125), 228, 235–6; Stability and Growth Pact (SGP), 235, 236 Exchange Rate Mechanism (ERM), 219, 220 exchange rates: and disequilibrium, 319, 322–3, 329, 331, 364; and EMU, 222, 228–9, 338–9, 363–4; exchange controls, 21, 339; fixed, 20–1, 22–3, 24–5, 72–3, 75–6, 339, 352, 353, 361; floating, 21, 338, 353, 361–2; and ‘gold standard’, 72–3, 75–6; risk of ‘currency wars’, 348; and wage/price changes, 213 Federal Deposit Insurance Corporation (FDIC), 62, 137, 328 Federal Open Market Committee, 179 Federal Reserve, 45, 65, 74, 137, 157–8, 162, 168–70, 175, 178–9, 320; in 1920s/30s, 192, 326–7, 328, 349; during crisis, 39, 76, 107, 113, 183, 184; discount window, 206; dual mandate of, 167–8; opening of (1914), 60, 62, 159–60, 194–5, 196, 197 Ferrer, Gaspar, 193 Field, Alexander, 355 Financial Conduct Authority, UK, 260 financial crises, 11–12, 34; and demand for liquidity, 65–6, 76–7, 86, 106, 110, 119, 148, 182, 187–92, 194, 201–7, 253–4, 367; differing causes of, 307, 316–17, 327–8; frequency of, 2, 4, 20, 92, 111, 316–17; and ‘gold standard’, 75, 165, 195; and Minsky’s theory, 307–8, 323; narrative revision downturns, 328, 332–3, 356, 357, 58–9, 364; the next crisis, 334–5, 336–8, 353, 370; as test beds for new ideas, 49–50; see also economic history financial crisis (from 2007): articles and books, 1–2, 6; central banks during, 36–9, 64, 65, 76, 113, 118, 158, 159, 162, 181–4, 205, 206, 335; desire to blame individuals, 3, 89–90; effects on ordinary citizens, 6, 13, 41; the Great Panic, 37–8; interest rates during, 150–1, 181, 335; LIBOR during, 150–1; liquidity crisis (2007-8), 35–8, 64–5, 76, 110; money supply during, 181–3; parallels with earlier events, 90–2, 193; post-crisis output gap, 42, 291, 337; short-term Keynesian response, 39, 41, 48, 118–19, 326, 328, 356; ‘small’ event precipitating, 34–5, 323; unanswered questions, 39–43; underlying causes, 16–17, 24–5, 26–39, 40, 307, 319–26, 328; weak recovery from, 43–4, 48, 291–2, 293, 324, 337, 355, 364, 366 financial markets, 64–5, 113, 117–18, 141–5, 149, 184, 199–200, 314–15; basic financial contracts, 140–1; desert island parable, 145–8; and radical uncertainty, 140, 143, 144–5, 149–55; ‘real-time’ trading, 153–4, 284; see also derivative instruments; financial products and instruments; trading, financial financial products and instruments, 24, 35–6, 64, 99–100, 114, 117, 136–7, 258, 278, 288; see also derivative instruments Finland, 159, 279 First World War, 88–9, 153, 164, 178, 200–2, 307; financial crisis on outbreak of, 192–201; reparations after, 340–2, 343, 345–6 fiscal policy, 45, 184, 347–8, 352, 358; and Keynesianism, 78, 181, 292, 300, 356; in monetary unions, 222–3, 235; short-term stimulus during crisis, 39, 118–19, 356 Fisher, Irving, 163, 261 fractional reserve banking, 261 France, 93, 201, 216, 219, 221, 236, 248, 348, 364; and euro area crisis, 228–9, 231, 236, 322; occupation of Ruhr (1923), 340; overseas territories during WW2, 242; revolutionary period, 68, 75, 159 Franklin, Benjamin, 58, 127 Friedman, Milton, 78, 130, 163, 182, 192, 262, 328 Fuld, Dick, 89 futures contracts, 142, 240–1, 295–6 G20 group, 39, 255, 256, 351 G7 group, 37–8, 351 Garrett, Scott, 168–9 Geithner, Timothy, 267 George, Eddie, 176, 330 Germany, 93, 161, 162, 184, 219, 322, 341, 357; Bundesbank, 166, 219, 228, 232; and EMU, 219–22, 224, 227, 228, 230, 231–2, 234–6, 248, 338, 340, 342–3, 345; export-led growth strategy, 222, 319, 363–4; hyperinflation (early 1920s), 52, 68, 69, 86, 158–9, 190; Notgeld in, 201–2, 287; reunification, 219, 342; trade surpluses in, 46, 49, 222, 236, 319, 321, 356, 363–4; WW1 reparations, 340–2, 343, 346 Gibbon, Edward, 63, 164 Gigerenzer, Professor Gerd, 123, 135 Gillray, James, 75 global economy, 349–54, 361; capital flows, 20–1, 22, 28, 29, 30–1, 40, 319, 323; rise in external imbalances, 22–3, 24–5, 27–31, 33–4, 45–7, 48–9, 236, 307, 319–24, 329–30, 338, 364; see also currencies; exchange rates; trade surpluses and deficits Goethe, Johann Wolfgang von, Faust, 85–6 ‘gold standard’, 72–3, 75–6, 86, 165, 195, 200–1, 216–17, 348, 352 Goldman Sachs, 98, 109, 123, 257 Goodwin, Fred, 37, 89 Grant, James, 327 Great Depression (early 1930s), 5, 16, 20, 158, 160, 226, 348, 355; dramatic effect on politics and economics, 41; Friedman and Schwartz on, 78, 192, 328; and ‘gold standard’, 73, 76; US banking crisis during, 90–1, 108, 116, 201 Great Recession (from 2008), 6, 38–9, 163, 290–2, 326 Great Stability (or Great Moderation), 6, 22, 45–7, 71, 162, 208, 305, 313–14, 318–24, 325–6; alternative strategies for pre-crisis period, 328–33; monetary policies during, 22, 25, 46–7, 315 Greece, 216, 221, 222, 225–31, 338–40, 364; agreement with creditors (13 July 2015), 230–1, 346; crisis in euro area, 223–4, 225–7, 229, 230–1, 236, 258, 338–40; debt restructured (2012), 226–7, 229, 236, 339, 343–4, 346; national referendum (July 2015), 230; sovereign debt, 224, 226–7, 339–40, 342–4, 346–7; Syriza led government, 229, 235 Greenspan, Alan, 157–8, 164, 175, 317 Gulf War, First (1991), 238 Hahn, Frank, 79 Halifax Bank of Scotland (HBoS), 37, 118, 206, 243 Halley, Edmund, 122 Hamilton, Alexander, 188, 202, 215 Hankey, Thomas, 191–2 Hansen, Alvin, Full Recovery or Stagnation?


pages: 611 words: 130,419

Narrative Economics: How Stories Go Viral and Drive Major Economic Events by Robert J. Shiller

agricultural Revolution, Albert Einstein, algorithmic trading, Andrei Shleifer, autonomous vehicles, bank run, banking crisis, basic income, bitcoin, blockchain, business cycle, butterfly effect, buy and hold, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, central bank independence, collective bargaining, computerized trading, corporate raider, correlation does not imply causation, cryptocurrency, Daniel Kahneman / Amos Tversky, debt deflation, disintermediation, Donald Trump, Edmond Halley, Elon Musk, en.wikipedia.org, Ethereum, ethereum blockchain, full employment, George Akerlof, germ theory of disease, German hyperinflation, Gunnar Myrdal, Gödel, Escher, Bach, Hacker Ethic, implied volatility, income inequality, inflation targeting, invention of radio, invention of the telegraph, Jean Tirole, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, litecoin, market bubble, money market fund, moral hazard, Northern Rock, nudge unit, Own Your Own Home, Paul Samuelson, Philip Mirowski, plutocrats, Plutocrats, Ponzi scheme, publish or perish, random walk, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Reagan, Rubik’s Cube, Satoshi Nakamoto, secular stagnation, shareholder value, Silicon Valley, speech recognition, Steve Jobs, Steven Pinker, stochastic process, stocks for the long run, superstar cities, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, theory of mind, Thorstein Veblen, traveling salesman, trickle-down economics, tulip mania, universal basic income, Watson beat the top human players on Jeopardy!, We are the 99%, yellow journalism, yield curve, Yom Kippur War

Consider, for example, this sermon by Reverend George Richards of the First Congregational Church of Litchfield, Connecticut, on February 22, 1863: How, in contrast with the greedy speculators, in office and out of it, who have prowled, like famished wolves, round our fields of carnage—stealing everything they could lay their hands on—robbing the national treasury—purloining from the camp-chest—pilfering from the wounded in the hospitals—appropriating to themselves the little comforts meant for the dying, if not stripping the very dead!15 During the 1917–23 German hyperinflation, the inflation rate was astronomical, and not due to any war. Prices in marks rose on the order of a trillionfold. And yet many people were unable to identify the malefactor who was causing inflation. Irving Fisher, an American economist who visited Germany at the time, found that Germans did not blame their own government, which had been printing money excessively. Fisher wrote: The Germans thought of commodities as rising and thought of the American gold dollar as rising.


pages: 1,057 words: 239,915

The Deluge: The Great War, America and the Remaking of the Global Order, 1916-1931 by Adam Tooze

anti-communist, bank run, banking crisis, British Empire, centre right, collective bargaining, Corn Laws, credit crunch, failed state, fear of failure, first-past-the-post, floating exchange rates, German hyperinflation, imperial preference, labour mobility, liberal world order, mass immigration, Mikhail Gorbachev, Monroe Doctrine, mutually assured destruction, negative equity, price stability, reserve currency, Right to Buy, the payments system, trade route, transatlantic slave trade, union organizing, zero-sum game

It was based on the idea that since Germany had evaporated away its internal debt, if it imposed taxes equal to those of its neighbours then it should be able to generate a cash surplus with which to finance its reparations obligations.49 The fact that for every debtor relieved by the German inflation there was also an offsetting financial loss was not part of the calculation. Nor did the obvious damage that German productive capacity had suffered during the Ruhr occupation and the hyperinflation enter into the narrowly financial discussions. The Dawes Plan did, however, recognize what was a key problem, the destabilizing effect on the currency markets of exchanging huge quantities of Reichsmarks for dollars. In future, a resident reparations agent would see to it that Berlin’s transfers did not unduly destabilize the markets. Funds that could not be safely exchanged would be held on account in Germany, in the name of the creditors.

., Colonel 35, 45, 49, 56, 62, 86–7, 145, 159, 192, 197–8, 226, 227, 228, 267 and China 103–4 and Japan, human equality and the League Covenant 324–5, 326 Howard, Sir Esme 471 Hrushevsky, Mykhailo 154 Hugenberg, Alfred 506 Hughes, Charles Evans 46, 368, 372, 395, 406, 425, 441, 443–6, 453, 454, 458, 492 and Geneva Protocols 470 and the Washington Conference 397–8 Hunan 104, 483 Hungary declaration as a republic 232 Hoover moratorium 498 Hungarian Red Army 410 and Keynes’ proposal of German foreign bonds 301 and Russia/USSR 410 threat of national extinction during war 5 uprising and Romanian war (1919) 409–10 US private long-term investment (December 1930) 476 Hymans, Paul 261 hyperinflations, interwar 37, 212, 362 Germany 443, 444–5, 454, 464 Imperial Conference, London 394–6 imperial liberalism 179, 383–93; Imperial Silk Filiature company, Japan 361 Imperial War Cabinet 181, 196–8 imperialism 15–16 anti-colonial activists 23 British 15, 17, 20, 22; post-war challenges and crises 374–93; seen by Wilson as threat to new order 223–4; in Soviet imagination 483 see also British Empire Communist struggle against 111, 412–13, 415–16, 419 see also Bolshevism/Bolsheviks; Communism destructive force of 19–23 French 17, 22, 223–4, 273, 280 German 22 German reparations and echoes of the age of 289 Germany vs imperialism of Entente 313 Italian 22 Japanese 16, 22, 258, 515 ‘liberal imperialism’ 15–16 market-based liberalism as guard against 488 new imperialism of the 1930s 515 of the ‘old world’ 233 US suppression of 15–16 and Wilson 17, 22–3 Independent Labour Party, Britain 26, 76, 79, 183, 241, 296 Independent SPD see USPD India 180–82, 185–90, 196–7, 364, 382–90, 475 and Afghanistan 393 Amritsar massacre 383–4, 385, 387, 463 Chauri Chaura violence 389 Communist movement 387 credit 210 currency and the rupee 209, 210–11, 383 democracy 386 economic drain 209, 383 franchise 188, 386 general elections 386 and Germany’s East African colonies 194 Government of India Bill 385 Indian Army 186, 194, 375 Indian rights in South Africa 392–3 Justice Party 386 and the League of Nations 262 Montagu-Chelmsford reforms 188–9, 210, 382, 383, 385 Muslim minority 181, 384–5, 390 National Congress see Indian National Congress National Liberal League 386 nationalism 180–81, 182, 187, 382–90, 392; and Gandhi’s movement 385–90; and Home Rule/Swaraj 181, 182, 186, 187–9, 382, 385–90; mass movement threatening British rule 382–90; and non-violence 385 Reading’s offer of a Round Table 388–9 and Roy’s Third Worldism 414–15 and silver prices 355 trade balance 209–10 and Turkey 384–5, 390, 391 and the US 210 war services 390 wartime wholesale price dislocation 213 Indian National Congress 181, 186, 188, 383, 392 boycott of Prince of Wales’ visit 387–8 and Gandhi’s movement 385–6 Lucknow agreement 181, 188, 384, 391–2 inflation American: inflation tax 216; inflation–deflation succession (1919–1920) 342–7 British 356–8 and the British Empire 374 French 355–6, 469 German 355, 371, 454; hyperinflation 443, 444–5, 454, 464 global 212–15, 355–8; and wholesale price dislocation 213–14 interwar hyperinflations 37, 212, 362; Germany 443, 444–5, 454, 464 Japanese 355, 363 Keynes on inflationism 356 Soviet 423 Inoue Junnosuke 499 Inter-Allied Conference (November 1917) 116, 197 Inter-Allied Supply Council 207 International Workers of the World (IWW) 340 internationalism ‘bourgeois’ 243 and France 457 Germany’s Atlanticist internationalism 221–2 Great Depression and the tragedy of 487–507 and the Hague Treaties 267 Soviet line of 433–4 Wilsonian 16, 27, 119, 241, 244 without sanctions 517 IRA (Irish Republican Army) 376 Iran 419 Iraq 380–81 Anglo-Iraq Treaty 381 British Mandate 364 independence 381 Ireland conscription in 192, 193 Council of Ireland 376 Dail Eirann 376 deteriorating situation at end of War 227, 375–6; civil war within the South 377; guerrilla war 376 Easter uprising, Dublin 79, 180, 376 Home Rule 179–80, 190–93, 376 and imperial catastrophe 375–7 IRA 376 Irish Free State 376–7, 394 Irish Parliamentary Party 179, 180 and Lloyd George see Lloyd George, David, Ist Earl: and Ireland martial law 376 partitioning 376–7 Sinn Fein see Sinn Fein Unionists 79, 179–80, 191, 376 and the US 190–93, 377 Irish Republican Army (IRA) 376 Ishii Kikujiro, Viscount 103 Islam Britain seen as ‘arch enemy’ of 384 Indian Muslim minority 181, 384–5, 390 Khilafat movement 384, 416 Muslim League 188; Lucknow agreement 181, 188, 384, 391–2 Roy’s Islamic army 416, 418 Soviet attempt to radicalize Asian Muslims 415 isolationism, US 348, 505, 517 Istanbul/Constantinople 381, 390, 437 Italian front 11 Italy 1915–1919 politics and the war effort 176–8 1917 Austro-German advance 82 1918 summer offensive 306 Biennio Rosso 356 bread subsidy 361 British and French support for democratic interventionists 307–8 Caporetto disaster 82, 174, 176 coal 74, 310 constitutionalism 41 and the Corfu crisis 446–7 democratic interventionists 307–8 economy: deflation 502; and the gold standard 502; the lire 355, 466–7; stabilization 360, 362; wartime wholesale price dislocation 213 see also Italy: public debt Fascio for National Defence 178, 311 fascism see fascism: Italian and Fiume 308, 310, 311 and France see France/the French: and Italy and Germany: 1917 Austro-German advance 82; and fascism 494; and the German U-boat campaign 74; Mussolini and Hitler 305–6; reparations 298 Giolitti government 361 grain imports 310 imperialism 22 Inter-Allied Conference (November 1917) 197 Italian Army 82, 306; Servizio P 177 labour unrest 247, 361 London Treaty 116, 176, 177, 178, 306–7, 308, 310 nationalism 306, 308 Popular Catholic Party 312 post-war sense of second-class status 6 power vacuum in Rome 433 progressives 177 public debt 249; to US 298, 302, 466–7, 468, 498 and self-determination 177 siding with Entente 33, 116, 176 Socialist Party (PSI) 176, 177, 241, 311, 409, 418 unification in nineteenth century 5 and the US 177, 312; balance of payments 12; Hoover moratorium 498; and Italian Fascists 7; US private long-term investment (December 1930) 476; war debts 298, 302, 466–7, 468, 498; and Wilson 307, 308–10 and Versailles 255, 308–11 working class militancy 246, 247 and Yugoslavia 178 Ittihadists 147 IWW (International Workers of the World) 340 J.

Mitchell 340, 342, 343, 345 Pan African Congress 374 Panama Canal 44 Paris 74, 140, 173 Commune 138, 240, 422 Conference of Ambassadors 447 economic conference (1916) 205 evacuation of families of American bankers 469 Inter-Allied Conference (November 1917) 197 Peace Conference see Versailles/Paris peace conferences and Treaty Passchendale offensive 78 Patagonia 353 Payer, Friedrich von 111, 134–5, 154, 163, 168–9 peace movement 23 peace settlements 1918 armistice see armistice negotiations Locarno Security Pact see Locarno Treaty and the new order 4, 5 see also Versailles/Paris peace conferences and Treaty between Russia and Central Powers see Brest-Litovsk Treaty see also specific treaties peasantry 408, 415–16, 420–22, 483 Chinese 421, 479, 480, 481, 483 First International Peasant Conference 421 German hyperinflation 443 Peng Pai 479 Penrose, Boise 372 Pentland, John Sinclair, 1st Baron 182 Pershing, John J. 202, 206 independent American Army see United States of America: American Army Persia 330, 377 Peru US private long-term investment (December 1930) 477 wartime wholesale price dislocation 214 Pétain, Philippe 74, 76, 469 Petlura, Simon 412 Petrograd and Brest-Litovsk 118–19 British embassy stormed 168 Comintern Second Congress in 413–17, 418–19 Finno-German march on 150, 155 German embassy 168 proposed occupation of 167 Red Terror 168 Second All-Russian congress 84 Seventh National Congress of the Bolshevik Party 137 Petrograd formula for peace 71, 74, 76–8, 79, 115, 124, 138, 183 Petrograd Soviet 69, 70, 71, 76, 78–9, 83–4, 136, 194 peace formula see Petrograd formula for peace Philippines imperial rule 15 US conquest of 41 US private long-term investment (December 1930) 476 Pilsudski, Joseph 284, 411–12, 417, 475, 483 Pittman Act 210 platinum 153 Poincaré, Raymond 24, 430–31, 440, 469–70 decree powers 456 and the French invasion of the Ruhr 442, 446, 448, 456–7, 473 and French security based on Entente 431, 453 and the Genoa Conference 431, 433 and Lloyd George 431, 454 resignation (1924) 457 retirement 473 Poindexter, Miles, US Senator 230 Poland/Poles Allied sponsorship of new state of Poland 276 assembling and integrating Polish republic 284–5 Bolshevik negotiations (October 1919) 411 and Brest-Litovsk 116, 118, 138–9 and Britain 412 coal 466 declaration of Poland as a republic 232 and France 280, 412 and German–Soviet non-aggression pact 475 and Germany 114, 138–9, 161, 285; Silesian boundary dispute 5, 281–3, 286, 314, 426 inflation 355; hyperinflation 212, 285 Jews 135 and the League of Nations 260 and Lloyd George 285 and Ludendorff 135 Ministry of War 411 National Democrats 284, 411 nationalism 284 Polish-Soviet War 284, 411–13, 417; Treaty of Riga 417 Polish-Ukrainian army 412 Soviet defensive struggle between Polish and Chinese arenas 475, 483 Tsarist anti-Semitism in Russian Poland 43 Uhlans 417 and the Ukraine 411–12 US private long-term investment (December 1930) 476 and Versailles 284–6 wars between 1918 and 1920 284 welfare spending 285 and western protection 109 and Wilson’s 14 Points manifesto 121 and the world economy hierarchy 362 political credit 37 Polk, Frank 322 Popular Catholic Party, Italy 312 Portsmouth, Treaty of 408 Portugal 255 Hoover moratorium 498 power vacuum in the East 134 in Eurasia 21 in Rome 433 in Russia 83 in the Ukraine 124–5 Pravda (newspaper) 128, 232 Preuss, Hugo 315 Princes’ Islands conference proposal 236 private investment 37, 425, 504 US private long-term foreign investment 476–7, 495–6 productivism 201 property rights 430, 434 protectionism 15, 349, 492, 493, 501 Prussia 274, 451 ‘Austro-Prussian War’ 274 democratization 75, 111 House of Lords 112 Kaiser’s constitutional reform promises 73, 75 Prussian guards unit coup plot July 1919 318 secret police in 1815 silencing pretension to German unity 273–4 and Versailles 283, 314, 316 PSI (Italian Socialist Party) 176, 177, 241, 311, 409, 418 Qingdao 89 Quai d’Orsay conference 235, 255 Radek, Karl 126, 137 rail network, European 427–8 Raj see India Rapallo, Treaty of 435, 436, 494 Rathenau, Walther 66, 152, 200, 426, 427, 432, 433, 434–5 assassination 436 Reading, Rufus Isaacs, 1st Marquess of 385, 387, 388 recession cyclical 488 Great Depression see Great Depression US, 1919–1921 345–7, 346 Reconstruction Finance Corporation 505 Red Army 21, 136, 234, 235, 236, 411 Azerbaijan invasion 415 civil war triumph 422 fight against White forces, July 1919, in Ukraine 410 First Red Cavalry Army 417 and German Communist militancy 449 Hungarian 410 Polish-Soviet War 412–13, 417 Ruhr 319, 337 Transcaucasian occupation 417 Red Guards (German detachments) 319 Red Guards (Russia) 84, 127–8, 150–51, 167, 423 clashes with Czechs 158 Red Terror 168–9, 237 Redmond, John 179, 180 regime change 9, 219, 275 Reichsbahn 427, 442, 460 Reichsbank 215, 431, 432, 460, 497, 502, 506 Reichstag peace resolution 75, 78–9, 82, 111, 113, 122, 163, 170 Reinsch, Paul S. 91–2, 98, 99, 104, 322 reparations 249–51, 288–304, 367–71, 426 and the Bank of International Settlements 489 and Britain 249–50, 292–5, 349, 427–9, 488–9; British unilateral cancellation of allied debts 435–9 Dawes Plan 453–61, 464, 470, 497 deleverage 349, 366 and the European economy >290, 293 and France 288, 292, 294–5, 366, 367–72, 426, 429, 432, 488–9, 496–7; Dawes Plan 453–61, 470, 497; and the French invasion/occupation of the Ruhr 440–46, 447–9, 452–7, 459; Young Plan 489, 497 and the German economy 368–71, 369, 427, 431–2, 441, 495–6; and the Dawes Plan 453–61, 464 and inter-Allied war debts 298–304, 302, 349, 439, 440, 466–70, 468, 473, 488–9, 496–7, 498 and Keynes see Keynes, John Maynard: and war reparations Lausanne Conference (1932) resolution 504, 506 and Lloyd George 249–50, 293, 314 London Reparations Ultimatum 368, 371–2 payments made 1918–1931 369 Reparations Commission 294, 431, 432, 458–9 Soviet bill for damage by Allies in civil war 434 transfer protection system 489 and the US 293–5, 297–304, 441, 453–61, 488–9, 496–7, 498, 506 and Versailles 288, 292, 295, 297–8, 313–14, 489 Young Plan 488–9, 493, 497; anti-Young campaign 503, 506 restorationist monarchism, absence of 232 Reuter, Lugwig von 317 Review of the Far East 88 Reza Khan 419 Rhineland 277, 278, 279 and Adenauer 451–2 and the French 176, 227, 272, 274, 277, 278, 288 Ruhr see Ruhr Rhodesia 374 rice riots, Japan 212, 258, 324 Riezler, Kurt 58, 112, 114 Riga 82 Riga, Treaty of 417 Robins, Raymond 145, 152–3 Rocky Mountain News 230 Romania and the Brusilov offensive 70 Entente diplomacy over 34 and France 280 Hungarian-Romanian War 410 and the League of Nations 260 peace imposition 158 siding with Entente 47, 70 threat of national extinction during war 5 US debts 302, 468, 498 Romanov family, murder of 165 Rome Congress of the Oppressed Nationalities 177–8 power vacuum 433 Ronaldshay, Lawrence Dundas, 2nd Marquess of Zetland 182 Roosevelt, Franklin D. 505 ‘bombshell telegram’ 506 Roosevelt, Theodore (Teddy) 28, 43, 44, 55, 59, 66, 67, 230 on Hughes 372 Portsmouth Treaty arbitration 408 on Wilson and the ‘Copperheads’ 64–5 Root, Elihu 80, 336 Root resolutions 402–3 Rothschild, Walter, 2nd Baron 196 Rowlatt, Sir Sidney Arthur Taylor 182, 383 Roy, M.


Social Capital and Civil Society by Francis Fukuyama

Berlin Wall, blue-collar work, Fall of the Berlin Wall, feminist movement, Francis Fukuyama: the end of history, George Akerlof, German hyperinflation, Jane Jacobs, Joseph Schumpeter, Kevin Kelly, labor-force participation, low skilled workers, p-value, Pareto efficiency, postindustrial economy, principal–agent problem, RAND corporation, Silicon Valley, The Death and Life of Great American Cities, transaction costs, World Values Survey

[FUKUYAMA] Social Capital 469 ample, are bound by a common religion and ethnicity, but are also shaped by common experiences of persecution that create solidarities of a different sort. Many cultural phenomena can have relatively recent political or economic roots: hence the postwar German central bank’s emphasis on a strong Deutschmark and a tough anti-inflationary policy is said to be a direct outcome of the German experience with hyperinflation during the Weimar period. 4 . Norms rooted in nature. Despite the changes in family structure described in the first lecture, kinship remains the most powerful form of social relationship in contemporary societies. As I indicated in Trust, the importance of kinship relative to other kinds of social structures varies considerably from one society to another, but there is no society in which it has completely withered away.


pages: 1,477 words: 311,310

The Rise and Fall of the Great Powers: Economic Change and Military Conflict From 1500 to 2000 by Paul Kennedy

agricultural Revolution, airline deregulation, anti-communist, banking crisis, Berlin Wall, Bretton Woods, British Empire, cuban missile crisis, deindustrialization, Deng Xiaoping, European colonialism, floating exchange rates, full employment, German hyperinflation, imperial preference, industrial robot, joint-stock company, laissez-faire capitalism, long peace, means of production, Monroe Doctrine, mutually assured destruction, night-watchman state, North Sea oil, nuclear winter, oil shock, open economy, Peace of Westphalia, Potemkin village, price mechanism, price stability, RAND corporation, reserve currency, Ronald Reagan, Silicon Valley, South China Sea, South Sea Bubble, spice trade, spinning jenny, stakhanovite, The Wealth of Nations by Adam Smith, trade route, University of East Anglia, upwardly mobile, zero-sum game

With the Bolsheviks’ repudiating Russia’s massive borrowings of $3.6 billion, with the Americans asking for their money back, with France, Italy, and other countries refusing to pay off their debts until they had received reparations from Germany, and with the Germans declaring that they could not possibly pay the amounts demanded of them, the scene was set for years of bitter wrangling, which sharply widened the gap in political sympathies between western Europe and a disgruntled United States.13 If it was true that these quarrels seemed smoothed over by the Dawes Plan of 1924, the political and social consequences of this turbulence had been immense, especially during the German hyperinflation of the previous year. What was equally alarming, although less well understood at the time, was that the apparent financial and commercial stabilization of the world economy by the mid-1920s rested on far more precarious foundations than had existed prior to the First World War. Although the gold standard was being restored in most countries by then, the subtle (and almost self-balancing) pre-1914 mechanism of international trade and monetary flows based upon the City of London had not.


pages: 932 words: 307,785

State of Emergency: The Way We Were by Dominic Sandbrook

anti-communist, back-to-the-land, banking crisis, Bretton Woods, British Empire, centre right, collective bargaining, Corn Laws, David Attenborough, Doomsday Book, edge city, estate planning, Etonian, falling living standards, fear of failure, Fellow of the Royal Society, feminist movement, financial thriller, first-past-the-post, fixed income, full employment, German hyperinflation, global pandemic, mass immigration, moral panic, Neil Kinnock, new economy, New Urbanism, Norman Mailer, North Sea oil, oil shock, Own Your Own Home, sexual politics, traveling salesman, union organizing, upwardly mobile, urban planning, Winter of Discontent, young professional

We must expect chaos, the £ to be worth 1 penny, if we are lucky, and the oil sheiks buying up our industries. A jolly prospect.’30 At one level, the popularity of the Weimar parallel was a classic illustration of the contemporary obsession with the Second World War, which dominated the British imagination like no other historical event. By the end of 1973, indeed, it seemed that almost no economic setback went by without observers reaching for their textbooks on the German hyperinflation of the 1920s, the collapse of Weimar democracy and the rise of National Socialism. As Sir Alec Guinness, who wore the dictator’s uniform for the wildly sensationalist film Hitler: The Last Ten Days (1973), told Time magazine, ‘the situation in England strikes every month a decadent, yes decadent note. All these depressing things. People say, why not get someone else to sort it all out for them … a strong man.’


Principles of Corporate Finance by Richard A. Brealey, Stewart C. Myers, Franklin Allen

3Com Palm IPO, accounting loophole / creative accounting, Airbus A320, Asian financial crisis, asset allocation, asset-backed security, banking crisis, Bernie Madoff, big-box store, Black-Scholes formula, break the buck, Brownian motion, business cycle, buy and hold, buy low sell high, capital asset pricing model, capital controls, Carmen Reinhart, carried interest, collateralized debt obligation, compound rate of return, computerized trading, conceptual framework, corporate governance, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, cross-subsidies, discounted cash flows, disintermediation, diversified portfolio, equity premium, eurozone crisis, financial innovation, financial intermediation, fixed income, frictionless, fudge factor, German hyperinflation, implied volatility, index fund, information asymmetry, intangible asset, interest rate swap, inventory management, Iridium satellite, Kenneth Rogoff, law of one price, linear programming, Livingstone, I presume, London Interbank Offered Rate, Long Term Capital Management, loss aversion, Louis Bachelier, market bubble, market friction, money market fund, moral hazard, Myron Scholes, new economy, Nick Leeson, Northern Rock, offshore financial centre, Ponzi scheme, prediction markets, price discrimination, principal–agent problem, profit maximization, purchasing power parity, QR code, quantitative trading / quantitative finance, random walk, Real Time Gross Settlement, risk tolerance, risk/return, Robert Shiller, Robert Shiller, shareholder value, Sharpe ratio, short selling, Silicon Valley, Skype, Steve Jobs, The Nature of the Firm, the payments system, the rule of 72, time value of money, too big to fail, transaction costs, University of East Anglia, urban renewal, VA Linux, value at risk, Vanguard fund, yield curve, zero-coupon bond, zero-sum game, Zipcar

If the prices of goods and services increase by more than 10%, you will lose ground in terms of purchasing power. Several indexes are used to track the general level of prices. The best known is the Consumer Price Index (CPI), which measures the number of dollars that it takes to pay for a typical family’s purchases. The change in the CPI from one year to the next measures the rate of inflation. BEYOND THE PAGE ● ● ● ● ● The German hyperinflation brealey.mhhe.com/c03 Figure 3.5 shows the rate of inflation in the U.S. since 1900. Inflation touched a peak at the end of World War I, when it reached 21%. However, this figure pales into insignificance compared with the hyperinflation in Zimbabwe in 2008. Prices there rose so fast that a Z$50 trillion bill was barely enough to buy a loaf of bread. FIGURE 3.5 Annual rates of inflation in the United States from 1900–2011.


pages: 275 words: 77,017

The End of Money: Counterfeiters, Preachers, Techies, Dreamers--And the Coming Cashless Society by David Wolman

addicted to oil, Bay Area Rapid Transit, Berlin Wall, Bernie Madoff, bitcoin, Bretton Woods, carbon footprint, cashless society, central bank independence, collateralized debt obligation, corporate social responsibility, credit crunch, cross-subsidies, Diane Coyle, fiat currency, financial innovation, floating exchange rates, German hyperinflation, greed is good, Isaac Newton, Kickstarter, M-Pesa, Mahatma Gandhi, mental accounting, mobile money, money: store of value / unit of account / medium of exchange, offshore financial centre, P = NP, Peter Thiel, place-making, placebo effect, Ponzi scheme, Ronald Reagan, seigniorage, Silicon Valley, special drawing rights, Steven Levy, the payments system, transaction costs, WikiLeaks

Younger Americans today have been so lulled by economic stability that the notion of all prices surging upward is alien. A $100 hot dog or a $10,000 sheet of plywood only reads like a typo because of our good fortune. Still, those images from pathological instances of hyperinflation are plenty searing: banknotes used as wallpaper in Zimbabwe, swept into the gutter in postwar Budapest, or spilling out of wheelbarrows in Germany like so many leaves. One German artist during the Weimar hyperinflation covered a park bench with 100,000-mark notes. He titled the work “Deutsche Bank,” a pun on the German word for bench, which is bank. We can only pray that the same never happens here. Fears about inflation and hyperinflation may not always be rational, but countermeasures against them sure as hell are. In a roundabout way, then, maybe the wise move really is to spend whatever’s necessary to fund small coinage so as to prevent worries about inflation.


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Other People's Money: Masters of the Universe or Servants of the People? by John Kay

Affordable Care Act / Obamacare, asset-backed security, bank run, banking crisis, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, Bonfire of the Vanities, bonus culture, Bretton Woods, buy and hold, call centre, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, cognitive dissonance, corporate governance, Credit Default Swap, cross-subsidies, dematerialisation, disruptive innovation, diversification, diversified portfolio, Edward Lloyd's coffeehouse, Elon Musk, Eugene Fama: efficient market hypothesis, eurozone crisis, financial innovation, financial intermediation, financial thriller, fixed income, Flash crash, forward guidance, Fractional reserve banking, full employment, George Akerlof, German hyperinflation, Goldman Sachs: Vampire Squid, Growth in a Time of Debt, income inequality, index fund, inflation targeting, information asymmetry, intangible asset, interest rate derivative, interest rate swap, invention of the wheel, Irish property bubble, Isaac Newton, John Meriwether, light touch regulation, London Whale, Long Term Capital Management, loose coupling, low cost airline, low cost carrier, M-Pesa, market design, millennium bug, mittelstand, money market fund, moral hazard, mortgage debt, Myron Scholes, NetJets, new economy, Nick Leeson, Northern Rock, obamacare, Occupy movement, offshore financial centre, oil shock, passive investing, Paul Samuelson, peer-to-peer lending, performance metric, Peter Thiel, Piper Alpha, Ponzi scheme, price mechanism, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, railway mania, Ralph Waldo Emerson, random walk, regulatory arbitrage, Renaissance Technologies, rent control, risk tolerance, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, Schrödinger's Cat, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, sovereign wealth fund, Spread Networks laid a new fibre optics cable between New York and Chicago, Steve Jobs, Steve Wozniak, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Tobin tax, too big to fail, transaction costs, tulip mania, Upton Sinclair, Vanguard fund, Washington Consensus, We are the 99%, Yom Kippur War

The Bank of England was in principle a private institution until it was nationalised in 1946, following the twenty-year governorship of the mentally unbalanced Montagu Norman. The Banque de France, on the other hand, has always been effectively an organ of the French state. The post-war Bundesbank had a different constitutional role: to act as autonomous defender of the integrity of the German currency following that country’s history of hyperinflation. This conflict between French and German views of the role of a central bank feeds into different views of the role of the European Central Bank. France and the majority of Eurozone members wish to use the ECB as an instrument of European economic policy. Germany is determined to maintain the bank’s independence – a provision which at Germany’s insistence is enshrined in the Maastricht Treaty, which established the ECB.


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10% Less Democracy: Why You Should Trust Elites a Little More and the Masses a Little Less by Garett Jones

"Robert Solow", Andrei Shleifer, Asian financial crisis, business cycle, central bank independence, clean water, corporate governance, correlation does not imply causation, creative destruction, Edward Glaeser, financial independence, game design, German hyperinflation, hive mind, invisible hand, Jean Tirole, Kenneth Rogoff, Mark Zuckerberg, mass incarceration, minimum wage unemployment, Mohammed Bouazizi, open economy, Pareto efficiency, Paul Samuelson, price stability, rent control, The Wealth of Nations by Adam Smith, trade liberalization

Of course, any time you see data plotted out like this, with a strong correlation like this one, you should remind yourself that correlation isn’t causation—that having a chandelier in your house doesn’t make you rich (even though it’s a sign you’re rich), that buying a baby stroller won’t make you a parent (though it’s a sign a baby is on the way). But then what is causation? How can we know whether it’s the legal independence of the central banks of the United States, Switzerland, and Germany that is getting the job done? For instance, maybe instead it’s “German culture” that makes German inflation low. The classic story, after all, is that the post–World War II German collective memory of the 1920s hyperinflation created a culture that demanded low inflation after the war. And so perhaps an alternate explanation might go that German postwar culture was so insistent on low inflation that Germans bought all the bells and whistles that were supposed to go along with low inflation, including an independent central bank. Sure, an independent central bank probably doesn’t hurt, but maybe it’s not in the driver’s seat.


pages: 180 words: 61,340

When the Money Runs Out: The End of Western Affluence by Stephen D. King

Albert Einstein, Asian financial crisis, asset-backed security, banking crisis, Basel III, Berlin Wall, Bernie Madoff, British Empire, business cycle, capital controls, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, congestion charging, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cross-subsidies, debt deflation, Deng Xiaoping, Diane Coyle, endowment effect, eurozone crisis, Fall of the Berlin Wall, financial innovation, financial repression, fixed income, floating exchange rates, full employment, George Akerlof, German hyperinflation, Hyman Minsky, income inequality, income per capita, inflation targeting, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Kickstarter, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, London Interbank Offered Rate, loss aversion, market clearing, mass immigration, moral hazard, mortgage debt, new economy, New Urbanism, Nick Leeson, Northern Rock, Occupy movement, oil shale / tar sands, oil shock, old age dependency ratio, price mechanism, price stability, quantitative easing, railway mania, rent-seeking, reserve currency, rising living standards, South Sea Bubble, sovereign wealth fund, technology bubble, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, too big to fail, trade route, trickle-down economics, Washington Consensus, women in the workforce, working-age population


pages: 561 words: 87,892

Losing Control: The Emerging Threats to Western Prosperity by Stephen D. King

Admiral Zheng, asset-backed security, barriers to entry, Berlin Wall, Bernie Madoff, Bretton Woods, BRICs, British Empire, business cycle, capital controls, Celtic Tiger, central bank independence, collateralized debt obligation, corporate governance, credit crunch, crony capitalism, currency manipulation / currency intervention, currency peg, David Ricardo: comparative advantage, demographic dividend, demographic transition, Deng Xiaoping, Diane Coyle, Fall of the Berlin Wall, financial deregulation, financial innovation, fixed income, Francis Fukuyama: the end of history, full employment, G4S, George Akerlof, German hyperinflation, Gini coefficient, hiring and firing, income inequality, income per capita, inflation targeting, invisible hand, Isaac Newton, knowledge economy, labour market flexibility, labour mobility, liberal capitalism, low skilled workers, market clearing, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, Naomi Klein, new economy, old age dependency ratio, Paul Samuelson, Ponzi scheme, price mechanism, price stability, purchasing power parity, rent-seeking, reserve currency, rising living standards, Ronald Reagan, savings glut, Silicon Valley, Simon Kuznets, sovereign wealth fund, spice trade, statistical model, technology bubble, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Market for Lemons, The Wealth of Nations by Adam Smith, Thomas Malthus, trade route, transaction costs, Washington Consensus, women in the workforce, working-age population, Y2K, Yom Kippur War


pages: 564 words: 182,946

Global Governance and Financial Crises by Meghnad Desai, Yahia Said

Asian financial crisis, bank run, banking crisis, Bretton Woods, business cycle, capital controls, central bank independence, corporate governance, creative destruction, credit crunch, crony capitalism, currency peg, deglobalization, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, financial repression, floating exchange rates, frictionless, frictionless market, German hyperinflation, information asymmetry, knowledge economy, liberal capitalism, liberal world order, Long Term Capital Management, market bubble, Mexican peso crisis / tequila crisis, moral hazard, Nick Leeson, oil shock, open economy, price mechanism, price stability, Real Time Gross Settlement, rent-seeking, short selling, special drawing rights, structural adjustment programs, Tobin tax, transaction costs, Washington Consensus

But even then, there have been attempts at seeking separate national explanation for the Great Depression. It has been argued in the case of the USA by Milton Friedman that this was a case of central bank failure on the part of the Fed. British explanations rely on overvaluation of the Pound after the 1925 return to the Gold Standard and the resulting shock to exports. German explanations hinge on the aftermath of the hyperinflation of 1923–24, reparations payments and the sudden reversal of US bank credits after the Great Crash.6 But the crisis and the following downward cycle was an international and not a national phenomenon. And this internationalisation of the crash/panic was much more damaging in this crisis than in any previous crisis. Stock markets crashed in Wall Street and this led to a credit squeeze.


pages: 363 words: 28,546

Portfolio Design: A Modern Approach to Asset Allocation by R. Marston

asset allocation, Bretton Woods, business cycle, capital asset pricing model, capital controls, carried interest, commodity trading advisor, correlation coefficient, diversification, diversified portfolio, equity premium, Eugene Fama: efficient market hypothesis, family office, financial innovation, fixed income, German hyperinflation, high net worth, hiring and firing, housing crisis, income per capita, index fund, inventory management, Long Term Capital Management, mortgage debt, passive investing, purchasing power parity, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Reagan, Sharpe ratio, Silicon Valley, stocks for the long run, superstar cities, survivorship bias, transaction costs, Vanguard fund

In particular, beginning in 1970 the Morgan Stanley Capital International (MSCI) indexes provided a common methodology for measuring stocks in all of the industrial countries. Of course, it is possible to trace stock markets much earlier than 1970. Indeed, Dimson et al (2002) reports on the stock returns of many industrial countries for the century from 1900 to 2000. But the quality of national indexes varies widely during earlier periods. For example, how reliable do you think German stock indexes were during the hyperinflation of the 1920s or during the period of the second World War? Hardly any emerging stock markets have data prior to the mid1970s. Global emerging market stock market indexes begin in the mid to late 1980s. This chapter will focus on the last four decades of stock market performance in the industrial countries using the MSCI indexes. The next chapter will address the emerging stock markets.


The Spinoza Problem by Irvin D. Yalom

Albert Einstein, anti-communist, German hyperinflation


pages: 935 words: 267,358

Capital in the Twenty-First Century by Thomas Piketty

"Robert Solow", accounting loophole / creative accounting, Asian financial crisis, banking crisis, banks create money, Berlin Wall, Branko Milanovic, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, central bank independence, centre right, circulation of elites, collapse of Lehman Brothers, conceptual framework, corporate governance, correlation coefficient, David Ricardo: comparative advantage, demographic transition, distributed generation, diversification, diversified portfolio, European colonialism, eurozone crisis, Fall of the Berlin Wall, financial intermediation, full employment, German hyperinflation, Gini coefficient, high net worth, Honoré de Balzac, immigration reform, income inequality, income per capita, index card, inflation targeting, informal economy, invention of the steam engine, invisible hand, joint-stock company, Joseph Schumpeter, Kenneth Arrow, market bubble, means of production, mortgage debt, mortgage tax deduction, new economy, New Urbanism, offshore financial centre, open economy, Paul Samuelson, pension reform, purchasing power parity, race to the bottom, randomized controlled trial, refrigerator car, regulatory arbitrage, rent control, rent-seeking, Robert Gordon, Ronald Reagan, Simon Kuznets, sovereign wealth fund, Steve Jobs, The Nature of the Firm, the payments system, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, trade liberalization, twin studies, very high income, Vilfredo Pareto, We are the 99%, zero-sum game

Despite running large deficits during both world wars (the public debt briefly exceeded 100 percent of GDP in 1918–1920 and 150 percent of GDP in 1943–1944), inflation made it possible in both instances to shrink the debt very rapidly to very low levels: barely 20 percent of GDP in 1930 and again in 1950 (see Figure 4.2).1 Yet the recourse to inflation was so extreme and so violently destabilized German society and economy, especially during the hyperinflation of the 1920s, that the German public came away from these experiences with a strongly antiinflationist attitude.2 That is why the following paradoxical situation exists today: Germany, the country that made the most dramatic use of inflation to rid itself of debt in the twentieth century, refuses to countenance any rise in prices greater than 2 percent a year, whereas Britain, whose government has always paid its debts, even more than was reasonable, has a more flexible attitude and sees nothing wrong with allowing its central bank to buy a substantial portion of its public debt even if it means slightly higher inflation.


pages: 310 words: 90,817

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The Myth of Capitalism: Monopolies and the Death of Competition by Jonathan Tepper

Affordable Care Act / Obamacare, air freight, Airbnb, airline deregulation, bank run, barriers to entry, Berlin Wall, Bernie Sanders, big-box store, Bob Noyce, business cycle, Capital in the Twenty-First Century by Thomas Piketty, citizen journalism, Clayton Christensen, collapse of Lehman Brothers, collective bargaining, computer age, corporate raider, creative destruction, Credit Default Swap, crony capitalism, diversification, don't be evil, Donald Trump, Double Irish / Dutch Sandwich, Edward Snowden, Elon Musk, en.wikipedia.org, eurozone crisis, Fall of the Berlin Wall, family office, financial innovation, full employment, German hyperinflation, gig economy, Gini coefficient, Goldman Sachs: Vampire Squid, Google bus, Google Chrome, Gordon Gekko, income inequality, index fund, Innovator's Dilemma, intangible asset, invisible hand, Jeff Bezos, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Rogoff, late capitalism, London Interbank Offered Rate, low skilled workers, Mark Zuckerberg, Martin Wolf, means of production, merger arbitrage, Metcalfe's law, multi-sided market, mutually assured destruction, Nash equilibrium, Network effects, new economy, Northern Rock, offshore financial centre, passive investing, patent troll, Peter Thiel, plutocrats, Plutocrats, prediction markets, prisoner's dilemma, race to the bottom, rent-seeking, road to serfdom, Robert Bork, Ronald Reagan, Sam Peltzman, secular stagnation, shareholder value, Silicon Valley, Skype, Snapchat, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, undersea cable, Vanguard fund, very high income, wikimedia commons, William Shockley: the traitorous eight, zero-sum game

Those on the verge of starvation make unlikely “true believers” and followers of populist movements, as their daily struggle for existence is more important than any broader political concerns. The “New Poor” are the most likely converts for mass movements. They bitterly recall their former wealth and blame others for their current misfortune. This was true of British farmers who had suffered during the enclosure movement and gravitated toward Cromwell before the British Civil War (1641–1652). This was certainly the case with the Germans, who lost their wealth due to war and hyperinflation, before the rise of Hitler and the Nazi Party in the 1930s. Today, votes for Sanders, Trump, and Brexit are the expression of discontent by the “Newly Poor.” They feel the system is rigged against them and the future is not as bright as the past. Historian Will Durant warned that societies fall apart when inequality is too severe. “Civilization begins with order, grows with liberty, and dies with chaos.”


pages: 444 words: 151,136

Endless Money: The Moral Hazards of Socialism by William Baker, Addison Wiggin

Andy Kessler, asset allocation, backtesting, bank run, banking crisis, Berlin Wall, Bernie Madoff, Black Swan, Branko Milanovic, break the buck, Bretton Woods, BRICs, business climate, business cycle, capital asset pricing model, commoditize, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, crony capitalism, cuban missile crisis, currency manipulation / currency intervention, debt deflation, Elliott wave, en.wikipedia.org, Fall of the Berlin Wall, feminist movement, fiat currency, fixed income, floating exchange rates, Fractional reserve banking, full employment, German hyperinflation, housing crisis, income inequality, index fund, inflation targeting, Joseph Schumpeter, Kickstarter, laissez-faire capitalism, land reform, liquidity trap, Long Term Capital Management, McMansion, mega-rich, money market fund, moral hazard, mortgage tax deduction, naked short selling, negative equity, offshore financial centre, Ponzi scheme, price stability, pushing on a string, quantitative easing, RAND corporation, rent control, reserve currency, riskless arbitrage, Ronald Reagan, school vouchers, seigniorage, short selling, Silicon Valley, six sigma, statistical arbitrage, statistical model, Steve Jobs, stocks for the long run, The Great Moderation, the scientific method, time value of money, too big to fail, upwardly mobile, War on Poverty, Yogi Berra, young professional


pages: 482 words: 149,807

pages: 434 words: 135,226

The Music of the Primes by Marcus Du Sautoy

Ada Lovelace, Andrew Wiles, Arthur Eddington, Augustin-Louis Cauchy, computer age, Dava Sobel, Dmitri Mendeleev, Eratosthenes, Erdős number, Georg Cantor, German hyperinflation, global village, Henri Poincaré, Isaac Newton, Jacquard loom, lateral thinking, music of the spheres, New Journalism, P = NP, Paul Erdős, Richard Feynman, Rubik’s Cube, Search for Extraterrestrial Intelligence, Simon Singh, Solar eclipse in 1919, Stephen Hawking, Turing machine, William of Occam, Wolfskehl Prize, Y2K

Abel, Niels Henrik 66, 223 Adams, Douglas 283 Adleman, Leonard 11, 228–32, 229, 236, 238, 240, 249 Agrawal, Manindra 245 American Mathematical Society 224, 301, 304 Analytical Engine (Babbage) 190 Apollonius 61 Appel, Kenneth 211, 212 Arago, François 45 Archimedes 52, 61 Armengaud, Joel 208 Aronofsky, Darren 28 astronomy 208 AT&T 12, 219–23, 254, 270, 273, 280, 281, 311 Atkins, Derek 239 atoms 264–9, 277, 278 axioms, consistent 179–80, 181 Babbage, Charles 189–90, 191 Babylonians 67 Baker, Alan 16, 256, 258 Bamberger, Louis 160 Barnes, Ernest 126–7 Bell Laboratories 219, 238 Berndt, Bruce 146 Berry, Sir Michael 84, 278–80, 283, 285–6, 307, 311 Bertrand, Joseph 164 Bertrand’s Postulate 164, 169–70 Bessel-Hagen, Erich 151, 154 ‘Bible code’ 271, 275 Birch, Bryan 250–52 Birch-Swinnerton-Dyer Conjecture 246, 250–51, 252 Bletchley Park, Milton Keynes, Buckinghamshire 174, 175, 190, 191, 192, 204, 205, 206, 226, 311 Bloomsbury publishing house 15–16 Bohr, Harald 117, 118, 119, 121–2, 123, 156, 159 Bohr, Niels 117 Bois-Reymond, Emil du 113 Boiteux, Marcel 299 Bolyai, János 110 Bombieri, Enrico 8, 13, 19, 193, 218, 231, 307 faith in the Hypothesis 10, 214–15, 219 Fields Medal 16, 308 joke email announces the Riemann Hypothesis proved 2,3,4,9,12–14, 19, 102, 285, 309 studies the Reimann Hypothesis as a teenager 2–3, 5 Bonne-Nouvelle military prison, Rouen 289, 294, 297, 298 Born, Max 267 Bourbaki group 292, 299, 300–301 Brent, Richard 217 Brewster, Edwin Tenney 176 Brunswick, Carl Wilhelm Ferdinand, Duke of 22, 51, 57 BSI (German Security Agency) 231, 240, 250 Cameron, Michael 209 Cantor, Georg 185–6, 201, 202 Carr, George 132, 133 Carroll, Lewis 82, 283 Cartan, Elie 289, 290, 295–6, 297 Cartan, Henri 297 Castelnuovo, Guido 296 Catherine the Great 41, 42, 43 Cauchy, Augustin-Louis 65–6, 70–71, 72, 75, 81, 84, 103, 113, 194, 289, 291 Central Limit Theorem 176, 177 Ceres 19, 20, 49, 54, 57 Certicom 249, 252–3 Changeux, Jean-Pierre 7 chaos theory 276, 280 Chebyshev, Pafnuty 104, 164, 168 Chinese 22–3 Chladni, Ernst 265, 266 Choquet, Gustave 288 Chowla, Saravadam 170, 171, 263 Church, Alonzo 187 Churchill, Sir Winston 175 Class Number Conjecture 257–8 Clay, Landon T. 14–17, 33, 242, 246, 252 clock calculator 20–22, 29, 30, 74, 76, 168, 232–5, 238, 239, 240, 249, 295 Cohen, Paul 16, 201–2, 282, 304, 308 Cold War 199 Cole, Frank Nelson 224–5, 236, 244 computers 193, 203, 204–23, 311 Connes, Alain 3, 4, 7, 14, 16, 288–9, 305–9, 311 Conrey, Brian 173, 281, 283–5 Cray computers 207, 208, 220–21, 270 Cray Research 207, 208, 209 Critical line 99 cryptography 224–54 d’Alembert, Jean Le Rond 111 Davenport, Harold 126 Davis, Martin 198 de la Vallée-Poussin, Charles 106, 117, 127, 128, 168, 172, 311 De Morgan, Augustus 43 Decision Problem (Hilbert) 184, 186, 187, 188, 197 Dedekind, Richard 73, 106, 151, 153 Deligne, Pierre 16, 146 Descartes, René 62, 70, 111 Deuring, Max 258 Diaconis, Persi 271–5, 273 Diderot, Denis 42–3 Dieudonné, Jean 292 Difference Engine (Babbage) 189 Diffie, Whit 226–9 Diophantus 29 Lejeune-Dirichlet, Rebecka 75 Dirichlet, Peter Gustav Lejeune 64, 65, 73, 75, 76, 81, 82, 83, 100, 102, 106, 116, 134, 150, 155, 168–9 Dirichlet’s Theorem 81, 168–9 Doxiadis, Apostolos 15 Drazin, Philip 286 Dyson, Freeman 262–4, 267, 269, 275, 312 e-business 11, 74, 241, 246, 253 ECC Central 249, 250 Eddington, Arthur 110, 128 Egypt/Egyptians 67, 94 Einstein, Albert 2, 74, 161, 162, 166, 179, 307 Theory of Relativity 100, 289 electromagnetism 73–4 Electronic Frontier Foundation 209 electrons 265, 267, 268, 277 elliptic curves 246, 249, 251–2, 253 Encke, Johann 55, 56, 72 Enigma code 175, 190–91, 192, 205, 206, 225, 226, 242 equations 107, 113, 114, 193, 197–201, 295, 296 Eratosthenes 23, 239 erbium 264 Erdos, Paul 162–5, 168–71, 173, 176, 209, 219, 238, 245, 262, 311–12 Euclid 36–8, 37, 58, 61, 76, 81, 102, 109, 110, 111, 163, 178, 204, 205, 209, 243, 292, 301, 310 algorithm 16 Euler, Leonhard 41–5, 42, 57, 71–2, 77, 79–80, 86–9, 93, 97, 102, 104,105, 106, 113, 133, 135, 150, 162, 200, 223, 233, 235, 266 Euler’s product 17, 80–81, 89 Faber & Faber 15–16 Faber-Bloomsbury Goldbach prize 15–16 factorising numbers 236–8, 257–8, 259, 261 Felkel, Antonio 47 Feller, William 272 Fermat, Pierre de 5, 22, 29, 39–41, 44, 68, 76, 101, 122, 133, 136, 154, 168, 223, 231, 232, 233, 238, 292 Factorisation Method 238–9 Last Theorem 5, 12–16, 29, 33, 34, 44, 101, 113–14, 115, 118, 119, 136, 171, 193, 228, 233, 248, 251, 282, 289, 296, 298, 308 Little Theorem 8–9, 232, 233, 235, 238, 244 Feynman, Richard 262, 263, 285 Fibonacci, Leonardo 25–6 Fibonacci numbers 25, 26, 27, 142, 204, 206 Fields, John 16 Fields Medals 16, 146, 172, 202, 246, 289, 302 First World War 144, 145, 148, 155, 292 Five Hysterical Girls Theorem, The (off-Broadway show) 224 Flannery, Sarah 246–8, 249 Four-Colour Problem 210–12, 210 Fourier, Joseph 60, 93–6, 291 Fourier series 17 fourth dimension 84, 85 fractions 67 Frederick Barbarossa, Emperor 1–2, 115 Frederick the Great 41 French mathematical tradition 69–70, 72, 108 French Revolution 17, 53, 60, 94, 119, 291 Frenicle de Bessy, Bernard 233 Frey, Gerhard 204 Fry, John 281, 284 Fry Electronics 281, 282 Fuld, Caroline Bamberger 160 functions 71–2 Gage, Paul 207, 208 Galileo Galilei 269 Gandhi, Mahatma M.K. 293 Gardner, Martin 230–31, 236 Gauss, Carl Friedrich (main references) 21, 26, 52 background and childhood 20 Class Number Conjecture 257–8 clock calculators 20–22, 29, 30, 74, 232, 233, 234, 249, 295 death 74 director of Göttingen Observatory 57–8 discovery of Ceres’ path 19–20, 24, 49, 54, 64 discovery of a pattern in primes 47–51, 57 failure to disseminate his discoveries 20, 52–3 geometry 109–10, 202 and Germain 193–4 imaginary numbers 69, 71, 84, 85, 221, 257–8, 260–61 lateral thinking 25 logarithms 46–7, 55, 62, 72, 74, 91, 206 methods outstrip Legendre’s 56–7 patronage 22, 51–2 prime motivation 52 Prime Number Conjecture (later Theorem) 49, 53–4, 54, 57, 82, 83, 89, 90, 91, 97, 100, 103–6, 117, 134, 138, 142, 164–8, 170–73, 176, 243, 262, 270, 281, 291, 295, 308, 310–13 second conjecture 57, 128–30 stresses the value of proof 51 triangular numbers 25, 26, 26, 29, 32, 52 and Weber 73–4 Dirichlet succeeds 75 Gaussia 75 Gaussian integers 17 geometry 4, 61, 62, 67, 70, 74, 84, 87–8, 100, 109–13,178, 180, 202, 282, 289, 300, 306–7, 313 algebraic 296, 298, 302, 305, 306 Cartesian 111 non-commutative 288–9, 305, 309 Germain, Sophie 193 Germain primes 193 German Mathematical Society 108 Germany: educational revolution 60, 72 hyperinflation 118 Nazi 156 Ghosh, Amit 283 Gödel, Kurt 1, 2, 177, 178–84, 179, 187, 196, 197, 201, 256, 257, 263, 302, 312 Incompleteness Theorem 181, 182, 184, 186, 190 Gödel numbering 17, 181 Goethe, Johann Wolfgang von 59 Goldbach, Christian 44 Goldbach’s Conjecture 15–16, 31, 115, 141, 143, 158, 181, 182, 183, 256 golden ratio 27 ‘golden shield’ 253 Gonek, Steve 284, 285 Göttingen 62–4, 106, 118–9 Göttingen Library 73, 151, 154, 286–7 Göttingen Observatory 57 ‘Göttingen Seven’ 74 Gowers, Timothy 246 Graff, Michael 239 Grand Prix des Sciences Mathématiques (Paris Academy) 95, 104–5, 108, 116 Great Internet Mersenne Prime Search (GIMPS) 208 Greeks 20, 23, 29, 32, 34–5, 36, 41, 51, 61, 67, 68, 81, 84, 105, 106–7, 109, 110, 169, 178, 181, 194, 224 Greene, Graham 34 Griffith, C.L.T. 135 Grothendieck, Alexandre 16, 298, 299–306, 300, 303, 308 Guthrie, Francis 210, 211 Hadamard, Jacques 105, 106, 117, 127, 128, 134, 168, 172, 291, 311 Hajratwala, Nayan 209 Haken, Wolfgang 211, 212 Hardy, G.H. 11, 17, 30–31, 33, 38–9, 78, 119–23, 124, 153, 162–3, 165, 175, 212–13, 301, 313 on the difficulty of the primes 132 and Landau 155 and Littlewood 123–8, 132, 137–8, 143, 147, 152, 158–9, 170, 177, 256, 259, 260, 283 and Ramanujan 136–47, 158, 162 and Riemann Hypothesis 120, 121–2, 125–6, 150, 188, 312 and Skewes Number 129 and Turing 187, 188, 190 on uselessness of mathematics in real world 222–3, 250 Hardy-Littlewood Circle Method 17, 143 harmonic series 79, 80 Hasse, Helmut 251 Hawking, Stephen 84, 180 Hecke, Erich 258 height function 253 Heilbronn, Hans 128, 258 Heisenberg, Werner 267 Uncertainty Principle 180, 305 Hellman, Martin 227–8, 228, 229 Hermite, Charles 103, 104–5 Heuser, Ansgar 231, 240 Hewlett-Packard 12, 280, 281, 311 Hilbert, David 102, 106–16, 107, 108–9, 118, 125, 128, 148, 153, 155–6, 175, 191, 193, 291 brings best mathematicians to Göttingen 118, 119 death 156 Decision Problem 184, 186, 187, 188, 197 equations 107, 114, 193, 197–8, 199 geometry 109, 110–11, 178, 180 and Gödel 178, 179, 180, 182 and Hardy 119–20 lecture to International Congress of Mathematicians 1, 2, 112–15, 183–4 and a new approach 14–15, 112 and Noether 194 and Riemann Hypothesis 1–2, 17, 106, 114, 115, 243, 312 sets twenty-three problems 1–2, 113–15, 282 and Siegel 149, 152 tenth problem 114, 183, 197–9 Hilbert space 16 Hill, M.J.M. 135, 136 Hindu mathematicians 68 Hitler, Adolf 155, 160, 251, 291, 293 Hodges, Andrew 190 Humboldt, Alexander von 64, 75 Humboldt, Wilhelm von 59, 60, 64, 237 hydrogen 268 Hyperion (a satellite of Saturn) 24 imaginary numbers 66–72, 70, 81, 82, 84, 85, 86, 88, 103, 113, 115, 119, 221, 251, 257–8, 259, 261, 266, 267, 286, 287, 289, 300 infinities 185–6 Ingham, Albert 188, 283 Institut des Hautes Etudes Scientifiques, Paris 299, 303 International Congress of Mathematicians 1, 2, 3, 16, 17, 112, 115, 172, 183–4, 208 Internet 11–12, 74, 225–32, 247 irrational numbers 6, 67, 68, 68 Ishango bone 22 Iyer, Ganapathy 136 Iyer, Narayana 139 Jacobi, Carl 59–60, 75, 139 Jacquard weaving looms 189–90 James, Henry 34 Jordan, Camille 123 Kabalah 240 Kac, Mark 165 Kant, Imannuel 112 Katz, Nick 308 Kayal, Neeraj 245 Keating, Jon 283, 284, 285–7 Kelvin, Lord 95 Kingsley, Ben 240 Klein, Felix 108, 150, 153 Klondike (Idiot’s Delight) card game 274–5, 274 Koblitz, Neal 248–9, 250, 253 Königsberg (later Kaliningrad) 43, 106, 108, 178 Krieger, Samuel I. 196 Kulik, Jakub 56 Kummer, Ernst 150 Lagrange, Joseph-Louis 65, 301 Landau, Edmund 116–18, 117, 128, 132, 137, 143, 148–9, 152–5, 301 Landau, Leopold 148 Landau, Lev 268–9, 270 Lascar, Larry 240 Legendre, Adrien-Marie 53, 54, 56–7, 60, 62, 95, 132, 261–2 Lehmer, Derrick H. 196, 204, 206, 207, 215 Lehmer, D.N. 196, 204, 205–6 Leibniz, Gottfried 77–8, 119 Lenstra, Arjen 239 Lenstra, Hendrik 218, 237 Levinson, Norman 172–3 Leyland, Paul 239 Lindeberg, J.W. 176, 177 Linnik, Yu.


Manias, Panics and Crashes: A History of Financial Crises, Sixth Edition by Kindleberger, Charles P., Robert Z., Aliber

active measures, Asian financial crisis, asset-backed security, bank run, banking crisis, Basel III, Bernie Madoff, Black Swan, Bonfire of the Vanities, break the buck, Bretton Woods, British Empire, business cycle, buy and hold, Carmen Reinhart, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, Corn Laws, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency peg, death of newspapers, debt deflation, Deng Xiaoping, disintermediation, diversification, diversified portfolio, edge city, financial deregulation, financial innovation, Financial Instability Hypothesis, financial repression, fixed income, floating exchange rates, George Akerlof, German hyperinflation, Honoré de Balzac, Hyman Minsky, index fund, inflation targeting, information asymmetry, invisible hand, Isaac Newton, joint-stock company, large denomination, law of one price, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, margin call, market bubble, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, new economy, Nick Leeson, Northern Rock, offshore financial centre, Ponzi scheme, price stability, railway mania, Richard Thaler, riskless arbitrage, Robert Shiller, Robert Shiller, short selling, Silicon Valley, South Sea Bubble, special drawing rights, telemarketer, The Chicago School, the market place, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, very high income, Washington Consensus, Y2K, Yogi Berra, Yom Kippur War

Many foreigners bought francs as the currency depreciated in 1919–20 in anticipation of large revaluation gains from the subsequent appreciation toward its pre-war parity – but they eventually gave up and sold.39 Speculators in Amsterdam, Vienna, and Berlin (perhaps stimulated by the German government) sold francs in anticipation that they would be able to purchase them later at much lower prices.40 The story was that speculators who had profited from their short positions in the German mark as it depreciated sharply in the hyperinflation of 1923–24 then turned their attention to the French franc. Hundreds of thousands of Frenchmen with liquid securities denominated in the franc watched signals like the advances from the Bank of France to the French government approach the legal ceiling. On 4 March 1924 panic broke out. The franc, which had been 98 to the pound on 17 February and 104 on 28 February, went to 107 on 4 March.


pages: 407 words: 117,763

The Fire and the Darkness by Sinclair McKay

Berlin Wall, Fall of the Berlin Wall, German hyperinflation, haute couture, women in the workforce

The reason Klemperer had converted to Christianity as a young man had nothing to do with his beliefs – he was not religious in any way – but was that certain professions and academic roles in German institutions were, during the reign of Kaiser Wilhelm, quietly, informally barred to those of the Jewish faith. In addition to this, Klemperer’s strong sense of his Germanic identity was allied to a feeling that Protestantism was its most natural cultural expression. Klemperer found secure tenure at the Technical University in Dresden. His field was philology and the Romance languages, as well as German studies. Amid the chaos of the 1920s – the hyperinflation, the national humiliation both of reparations and of the French occupation of the Ruhr and the resultant foaming, highly aggressive extremists on all political fronts – Klemperer and his wife none the less found their own sort of stability. Hitler’s ascendancy to the chancellorship in 1933 might just have been foretold, but the speed at which virulent, spitting Jew-hatred became embedded in day-to-day German culture could not.



pages: 700 words: 201,953

The Social Life of Money by Nigel Dodd

accounting loophole / creative accounting, bank run, banking crisis, banks create money, Bernie Madoff, bitcoin, blockchain, borderless world, Bretton Woods, BRICs, business cycle, capital controls, cashless society, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, commoditize, computer age, conceptual framework, credit crunch, cross-subsidies, David Graeber, debt deflation, dematerialisation, disintermediation, eurozone crisis, fiat currency, financial exclusion, financial innovation, Financial Instability Hypothesis, financial repression, floating exchange rates, Fractional reserve banking, German hyperinflation, Goldman Sachs: Vampire Squid, Hyman Minsky, illegal immigration, informal economy, interest rate swap, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, Kickstarter, Kula ring, laissez-faire capitalism, land reform, late capitalism, liberal capitalism, liquidity trap, litecoin, London Interbank Offered Rate, M-Pesa, Marshall McLuhan, means of production, mental accounting, microcredit, mobile money, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, negative equity, new economy, Nixon shock, Occupy movement, offshore financial centre, paradox of thrift, payday loans, Peace of Westphalia, peer-to-peer, peer-to-peer lending, Ponzi scheme, post scarcity, postnationalism / post nation state, predatory finance, price mechanism, price stability, quantitative easing, quantitative trading / quantitative finance, remote working, rent-seeking, reserve currency, Richard Thaler, Robert Shiller, Robert Shiller, Satoshi Nakamoto, Scientific racism, seigniorage, Skype, Slavoj Žižek, South Sea Bubble, sovereign wealth fund, special drawing rights, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transaction costs, Veblen good, Wave and Pay, Westphalian system, WikiLeaks, Wolfgang Streeck, yield curve, zero-coupon bond

This is an appropriate moment to turn to Benjamin, because he also invokes the Übermensch to make sense of an economic condition in which our very capacity for exercising self-responsibility has been threatened, or even suspended, namely, debt. CAPITALISM, DEBT, AND RELIGION In “One-Way Street” (originally published 1923–1926, 1996e cited here), Walter Benjamin acts as our guide on “A Tour Through the German Inflation.” He was referring to the Weimar hyperinflation of 1921–24. Money, he observes, “stands ruinously at the centre of every vital interest” (Benjamin 1996e: 451–52).2 “Money and rain belong together,” he continues in “Tax Advice,” imagining a “cloudless realm of perfect goods, on which no money falls” (Benjamin 1996e: 481). In the same text, we find a striking description of banknotes: “The innocent cupids frolicking about numbers, the goddesses holding tablets of the law, the stalwart heroes sheathing their swords before the monetary units, are a world of their own: ornamenting the façade of hell” (Benjamin 1996e: 481).


pages: 584 words: 187,436

More Money Than God: Hedge Funds and the Making of a New Elite by Sebastian Mallaby

Andrei Shleifer, Asian financial crisis, asset-backed security, automated trading system, bank run, barriers to entry, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Bonfire of the Vanities, Bretton Woods, business cycle, buy and hold, capital controls, Carmen Reinhart, collapse of Lehman Brothers, collateralized debt obligation, computerized trading, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency manipulation / currency intervention, currency peg, Elliott wave, Eugene Fama: efficient market hypothesis, failed state, Fall of the Berlin Wall, financial deregulation, financial innovation, financial intermediation, fixed income, full employment, German hyperinflation, High speed trading, index fund, John Meriwether, Kenneth Rogoff, Kickstarter, Long Term Capital Management, margin call, market bubble, market clearing, market fundamentalism, merger arbitrage, money market fund, moral hazard, Myron Scholes, natural language processing, Network effects, new economy, Nikolai Kondratiev, pattern recognition, Paul Samuelson, pre–internet, quantitative hedge fund, quantitative trading / quantitative finance, random walk, Renaissance Technologies, Richard Thaler, risk-adjusted returns, risk/return, Robert Mercer, rolodex, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical arbitrage, statistical model, survivorship bias, technology bubble, The Great Moderation, The Myth of the Rational Market, the new new thing, too big to fail, transaction costs


EuroTragedy: A Drama in Nine Acts by Ashoka Mody

"Robert Solow", Andrei Shleifer, asset-backed security, availability heuristic, bank run, banking crisis, Basel III, Berlin Wall, book scanning, Bretton Woods, call centre, capital controls, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, credit crunch, Daniel Kahneman / Amos Tversky, debt deflation, Donald Trump, eurozone crisis, Fall of the Berlin Wall, financial intermediation, floating exchange rates, forward guidance, George Akerlof, German hyperinflation, global supply chain, global value chain, hiring and firing, Home mortgage interest deduction, income inequality, inflation targeting, Irish property bubble, Isaac Newton, job automation, Johann Wolfgang von Goethe, Johannes Kepler, Kenneth Rogoff, Kickstarter, liberal capitalism, light touch regulation, liquidity trap, loadsamoney, London Interbank Offered Rate, Long Term Capital Management, low-wage service sector, Mikhail Gorbachev, mittelstand, money market fund, moral hazard, mortgage tax deduction, neoliberal agenda, offshore financial centre, oil shock, open borders, pension reform, premature optimization, price stability, purchasing power parity, quantitative easing, rent-seeking, Republic of Letters, Robert Gordon, Robert Shiller, Robert Shiller, short selling, Silicon Valley, The Great Moderation, The Rise and Fall of American Growth, too big to fail, total factor productivity, trade liberalization, transaction costs, urban renewal, working-age population, Yogi Berra

Businesses needed to become more innovative, and workers needed to moderate their wage demands. Progress on both those fronts would have dampened domestic inflationary pressures, made the French economy more competitive, and made French citizens more prosperous. The contrast with German economic performance was striking. German companies held a dominant position in the global exports of sophisticated industrial products. Moreover, with German citizens still haunted by the memories of interwar hyperinflation and the accompanying political calamity, the Deutsche Bundesbank, Germany’s central bank, had kept a determined lid on inflation. The combination of high productivity growth and low inflation led to large excesses of exports over imports and, hence, to chronic current account surpluses.53 Because German products were in such 34   e u r o t r a g e d y great demand, international buyers perpetually scrambled for German D-​ marks, and German authorities were always under pressure to revalue the D-​ mark (to make it more expensive) and thus dampen the incentive of foreign buyers to purchase German goods.


From Peoples into Nations by John Connelly

Albert Einstein, anti-communist, bank run, Berlin Wall, Cass Sunstein, centre right, collective bargaining, colonial exploitation, colonial rule, crony capitalism, cuban missile crisis, facts on the ground, Fall of the Berlin Wall, financial independence, German hyperinflation, Gini coefficient, Johann Wolfgang von Goethe, joint-stock company, laissez-faire capitalism, land reform, land tenure, liberal capitalism, means of production, Mikhail Gorbachev, moral hazard, oil shock, old-boy network, open borders, Panopticon Jeremy Bentham, Peace of Westphalia, profit motive, purchasing power parity, Ronald Reagan, strikebreaker, the built environment, The Chicago School, trade liberalization, Transnistria, union organizing, upwardly mobile, wikimedia commons, women in the workforce

Even in regions of mixed ethnicity where space has been hotly contested for generations, national identity is far from an everyday concern: people think of themselves in terms of age, or gender, or village, or profession. Yet nationalism remains a “crisis frame” of reference that politicians can appeal to when opportune, for example, in the enduring economic crisis of the 1930s, when radio stations in Germany spewed hate-filled messages to Germans living in Czechoslovakia, or during the hyperinflation that wracked Serbia in the 1980s when the banker Slobodan Milošević discovered the nationalist in himself and rose to power by resurrecting fears that Serbs faced “extinction.”28 This crisis frame is not something one finds in Western European or Russian nationalism. During the worst days of World War II, few worried that the Dutch, French, or Russian peoples would become extinct.


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