Tag Archives: Bankruptcy

Repeating history: The future of Greece, Europe, and the United States.

I’m rereading The Path to Tyranny to prepare it for a second printing and came across this section about Germany in the late 1920s and early 1930s (before the Nazis took over) very relevant for today:

The country’s economic problems worsened and the government approached bankruptcy. To reduce the budget deficit, the government raised unemployment insurance premiums, increased duties on wheat and barley, reduced pension and unemployment benefits, and cut the salaries of civil servants. The Social Democratic Party’s popularity declined even more when these measures pushed up unemployment even further and weakened the already fragile banking system. The government was trapped in a no-win situation. It cut back on spending to avoid bankruptcy, but this increased hardship on the people and reduced the government’s popularity. On the other hand, the government could have continued providing welfare to the people, but this would likely have forced Germany to default on its debt, which would have resulted in massive inflation and a flight of capital out of the country. The German government’s large deficits, which were the result of the economic depression combined with Germany’s already semi-socialist economy, forced Germany to decide between two equally bad choices. The resulting economic and political crisis was inevitable, regardless of what the government chose to do.

Are we in the same no-win situation today? If governments cut back on spending, this reverse-stimulus will hurt the economy and the removal of economic support will certainly increase the pain for many poor people. However, if the government continues with its deficit spending, bankruptcy will eventually occur, first in Greece which already has debt to GDP of 173%, but eventually in most if not all Western countries.

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