COMMENT: In recent months, many arti­cles and op-ed columns have noted the par­al­lels between the present and events in the 1930’s. In par­tic­u­lar, com­men­tary has under­scored the causal­ity between the eco­nomic des­per­a­tion wrought by the Great Depres­sion and the rise of fas­cism in Germany.

 The link between finan­cial cri­sis and the ascen­dance fas­cist polit­i­cal sen­ti­ment echoes a cen­tral theme pre­sented over the decades in the broad­casts and posts on this website.

Rep­re­sen­ta­tive of these arti­cles are a cou­ple of sto­ries fea­tured in a char­ac­ter­is­ti­cally inci­sive post by “Pter­rafractyl.” They are worth reca­pit­u­lat­ing for empha­sis. After­ward, we will sup­ple­ment these sto­ries with commentary–none of these sto­ries note that this is not hap­pen­stance. Fas­cism and the Sec­ond World War were not freak occurrences. 

Rather, they were out­growths of the most pow­er­ful and pro­found eco­nomic, reli­gious and “socio-philosophical” forces in our civ­i­liza­tion. Whether or not the hor­rors of “That 30’s Show” are repeated remains to be seen.

After recap­ping a cou­ple of sto­ries, we will rumi­nate about the present politico-journalistic landscape.

“Ghost of Nazi Past Haunts Haunts Austerity-Gripped Europe: Euro Credit” by John Glover; bloomberg.com; 6/22/2012.

EXCERPT: The specter of the 1930s finan­cial cri­sis that cul­mi­nated in the rise of Adolf Hitler’s Nazi party and the Sec­ond World War is stalk­ing Europe.

In May 1931, Cred­i­tanstalt, founded in Vienna by the Roth­schild bank­ing dynasty and the biggest lender in what remained of the Hab­s­burg Empire, suf­fered a run. Its col­lapse after a merger with an insol­vent rival sparked a cri­sis that left Ger­many and cen­tral Europe strewn with failed banks, caused defaults in Europe and Latin Amer­ica, knocked the pound off the gold stan­dard, and forced the New York Fed­eral Reserve by Octo­ber to raise its dis­count rate by 2 per­cent­age points.

“The biggest eco­nomic cat­a­stro­phe of the last cen­tury has been, of course, the big cri­sis after 1929,” Ewald Nowotny, gov­er­nor of the Aus­trian cen­tral bank, said at a con­fer­ence this week in Vienna. “I truly can say that when we had the big cri­sis of 2007 and 2008, it was in the back of the mind of every­body, all of us, every cen­tral banker, that we must avoid the mis­takes of the 1930s.”

What Harold James, pro­fes­sor of his­tory and inter­na­tional affairs at Prince­ton Uni­ver­sity, calls the “vicious cycle” of con­ta­gion between banks and sov­er­eigns is spin­ning today, just as it was 80 years ago. Spain’s 10-year bor­row­ing cost has aver­aged 6.6 per­cent this month, more than a per­cent­age point higher than a year ago, after it sought 100 bil­lion euros ($127 bil­lion) to bol­ster its banks.

Local Tax­pay­ers

The Euro­pean Union’s accord with Spain, trig­gered by the col­lapse of Bankia SA, the country’s third-biggest lender, will leave the nation with debt about equiv­a­lent to its annual gross domes­tic prod­uct. Ireland’s 63 billion-euro bailout of its banks pushed sov­er­eign debt to 108 per­cent of GDP last year from 44 per­cent in 2008.

“The crit­i­cal thing now and in the 1930s is that you can’t dis­tin­guish between bank and sov­er­eign debt,” said Brian Read­ing, an econ­o­mist at Lom­bard Street Research in Lon­don. “As long as bank­ing sys­tems remain national, it doesn’t much mat­ter how inter­na­tional the bank is, local tax­pay­ers are on the hook for it if it collapses.”

Under Germany’s aus­ter­ity poli­cies in the 1930s, taxes rose, ben­e­fits and wages were reduced and unem­ploy­ment soared, stok­ing the pop­u­lar ire that Hitler har­nessed. Extrem­ists are gain­ing ground now as unem­ploy­ment in Greece passes the 20 per­cent mark after five years of reces­sion. The far-right Golden Dawn won 6.9 per­cent of the vote and 18 seats in the country’s most recent elec­tions. France’s anti-immigrant, anti-euro National Front won two seats in par­lia­men­tary elec­tions June 17.

Weak Merg­ers

Cred­i­tanstalt in 1931, like Spain’s Bankia now, was cre­ated by merg­ers with lenders weak­ened by toxic loans and cap­i­tal short­falls. After Cred­i­tanstalt failed, the gov­ern­ment stepped in to prop it up, fatally hurt­ing its own credit. A run on Austria’s bonds and the schilling ensued . . . .

COMMENT: Paul Krug­man has also noted the par­al­lels between the present finan­cial cri­sis and the Cred­i­tanstalt col­lapse, as well as warn­ing about the dan­gers of imple­ment­ing “aus­ter­ity” here in this coun­try, as Franklin Delano Roo­sevelt did in 1937, thus per­pet­u­at­ing the Great Depression.

“The Great Abdi­ca­tion” by Paul Krug­man; The New York Times; 6/24/2012.

EXCERPT: Among econ­o­mists who know their his­tory, the mere men­tion of cer­tain years evokes shiv­ers. For exam­ple, three years ago Christina Romer, then the head of Pres­i­dent Obama’s Coun­cil of Eco­nomic Advis­ers, warned politi­cians not to re-enact 1937 — the year F.D.R. shifted, far too soon, from fis­cal stim­u­lus to aus­ter­ity, plung­ing the recov­er­ing econ­omy back into reces­sion. Unfor­tu­nately, this advice was ignored.

But now I’m hear­ing more and more about an even more fate­ful year. Sud­denly nor­mally calm econ­o­mists are talk­ing about 1931, the year every­thing fell apart.

It started with a bank­ing cri­sis in a small Euro­pean coun­try (Aus­tria). Aus­tria tried to step in with a bank res­cue — but the spi­ral­ing cost of the res­cue put the government’s own sol­vency in doubt. Austria’s trou­bles shouldn’t have been big enough to have large effects on the world econ­omy, but in prac­tice they cre­ated a panic that spread around the world. Sound familiar?

The really cru­cial les­son of 1931, how­ever, was about the dan­gers of pol­icy abdi­ca­tion. Stronger Euro­pean gov­ern­ments could have helped Aus­tria man­age its prob­lems. Cen­tral banks, notably the Bank of France and the Fed­eral Reserve, could have done much more to limit the dam­age. But nobody with the power to con­tain the cri­sis stepped up to the plate; every­one who could and should have acted declared that it was some­one else’s responsibility.

And it’s hap­pen­ing again, both in Europe and in America.

Con­sider first how Euro­pean lead­ers have been han­dling the bank­ing cri­sis in Spain. (For­get about Greece, which is pretty much a lost cause; Spain is where the fate of Europe will be decided.) Like Aus­tria in 1931, Spain has trou­bled banks that des­per­ately need more cap­i­tal, but the Span­ish gov­ern­ment now, like Austria’s gov­ern­ment then, faces ques­tions about its own solvency.

So what should Euro­pean lead­ers — who have an over­whelm­ing inter­est in con­tain­ing the Span­ish cri­sis — do? It seems obvi­ous that Euro­pean cred­i­tor nations need, one way or another, to assume some of the finan­cial risks fac­ing Span­ish banks. No, Ger­many won’t like it — but with the very sur­vival of the euro at stake, a bit of finan­cial risk should be a small consideration.

But no. Europe’s “solu­tion” was to lend money to the Span­ish gov­ern­ment, and tell that gov­ern­ment to bail out its own banks. It took finan­cial mar­kets no time at all to fig­ure out that this solved noth­ing, that it just put Spain’s gov­ern­ment more deeply in debt. And the Euro­pean cri­sis is now deeper than ever. . . .

COMMENT: What con­tem­po­rary ana­lysts are NOT pre­sent­ing is the fact that the present state of affairs is not hap­pen­stance. Ger­many is hold­ing the world econ­omy hostage, insist­ing that bailouts of threat­ened Euro economies by Ger­many will only take place if those coun­tries sur­ren­der polit­i­cal sov­er­eignty, allow­ing Ger­many deci­sive say in those nations’ eco­nomic matters.

As we have seen so many times, this is no acci­dent. Ger­many is real­iz­ing the goals of the Third Reich which, in turn, sought the actu­al­iza­tion of the the­o­ries of Friedrich List.

Of course, nei­ther Paul Krug­man nor the other com­men­ta­tors observ­ing the omi­nous par­al­lels between the present and “That ’30’s Show” are free to dis­cuss the full panorama of events. Whether writ­ing for The New York Times nor Bloomberg News nor any other main­stream media out­let, they are not free to dis­cuss the full panorama of events. They are not to be faulted for this.

As the bril­liant polit­i­cal come­dian Mort Sahl noted in his auto­bi­og­ra­phy Heart­land, “How many lies can you allow your­self to believe before you belong to the lie?” (Mort Sahl, by the way, was one of the inves­ti­ga­tors work­ing for New Orleans DA Jim Gar­ri­son in his inves­ti­ga­tion of Pres­i­dent Kennedy’s assassination.)

Does our world belong to the lie?