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.
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.
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.
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.
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.
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?