Yes, I’m back to talk about the same topic I’ve been beating to death over the past six weeks or so – the economy and whether we will be able to add a default on the debt to the elements of disaster equation. That’s a reference to the Air Disasters metaphor I invoked a few entries ago.

But now I want to talk about historical precedents, specifically that of Weimar Germany in 1931. A guy named Bruning was the chancellor and another fellow called Hjelmar Schact was in charge of the German reserve bank. If you recall, reserve banks came into being between the late 1800’s in Germany and in 1913 in the US.

Without going into excruciating detail, let me describe what happened in Germany that led to the end of the Weimar republic. No, it wasn’t the early inflation in 1923. That was relatively short-lived, and got fixed pretty rapidly with the Dawes plan. It wasn’t just the Versailles Treaty alone that destroyed the republic. It was human error. Vanity? Hatred? Yes, and perhaps a fundamental lack of understanding of the potential for disaster brought on by the actions of Bruning and Schmidt. More detail, you ask? Well, OK, if you insist.

In ’23, the Germans were having trouble with reparation payments to Britain and France. When they were late delivering some telephone poles (I’m not kidding – really!) France invaded the Ruhr valley, which was akin to the old ‘cutting off your nose to spite your face’ kind of move. That started a tit for tat between the two countries, leading to more economic pain all around. And that inflation previously mentioned. Big inflation – you know, the wheelbarrel full of Marks to buy a loaf of bread inflation. Like Zimbabwe.

After Dawes, everybody bumped along for a while, mostly on borrowed money for Germany. Borrowed American money. Then came 1928 and the boom market in the US. Many Germans put their life savings into American stocks – you know, adding to the musical chairs players at the end just before the music stops. And stop it did, in October of ’29. Then Germany was in big time trouble. Nobody could pay anybody back. So by ’31, Bruning had had enough of trying to repay reparations. He wanted them gone. So with Schact’s blessing, he made a customs union agreement with Austria. Well, that really set things off with the French, as it was in direct violation of the Versailles Treaty. What little money was left in German and Austrian banks went elsewhere. First the Austrian banks failed; then the German banks. Since Germany wasn’t paying the money back it had borrowed from the Americans, American banks started to fail. The French franc was in trouble too, since trade stopped when nobody had any Marks or Dollars.

So the so-called Great Depression was not a seamless event caused strictly by the Wall Street crash in October of ’29. Things got worse after 1931 because of the guys in charge doing really stupid things. Kinda like today. You know – the default on the debt?

Some estimate the likelihood now at 60%, a big jump from previous expectation. The Reps are gonna try to pass some legislation this week intended to force Dems to negotiate a spending cut. If we’re on our way to a recession, does a spending cut make sense? Not if you’re a Keynesian economist, which the Reps are not. This is just another wide swing of the economic pendulum that will result in, by one estimate, the loss of a million jobs.

Where will those jobs be lost? Travel and hospitality. Housing. Home improvement – oops, hitting close to home for me there. In other words, anything that isn’t absolutely necessary for survival. Will that bring on a recession? You betcha. Will it go too far? More than likely. This is a global economy after all. Britain is already in trouble. France can’t get their people to agree to work another two years before retirement. And Germany? Who knows. But it’s a safe bet when there’s a run on banks in America, Britain and France, Germany will feel the pinch. And what about China? Russia? Instability everywhere? That’s a post for later on as the pinching spreads. But it doesn’t bode well for any of us, economically or likely politically. That will have to wait for another post as well. Will it bring Trump back? Depends on how healthy Joe Biden stays. Scary, huh?