Reading notes : Lords of Finance (part 3)

Introduction.
The aftermath of the war and the problems
The war ruined the major industrial economies involved.
All major economies in world contracted. France n german ( 30 % ) , Uk ( 5 % ) . Onli Us expand.

With all the European country seriously need time for recovery, they were haunted by financial burden which linked each other and the Unites states.

The Treaty of Versailles that German forced to bold on was called The Diktat. include Disarmament, didmemberment, occupation and reparations.

Over above, the major problem is the reparation that German Forced to pay the Allies. As the Allies claiming Reparation to high ( $24billion dollar, roughly twice the GDP of German ) .

John Maynard Keynes, “ The economic Consequence of the Peace”. argue that
- in order for Germany to earn the money to pay the Allies, it would have to sell more goods, than it bought., and its trade partners would have to be willing to absorb this large influx of goods, with potentially crippling consequences for their own industries.

A brief account on the text book German hyperinflation history as follow.
All country finance their war through means of printing more money, causing inflation.
After war, large budget deficit in Germany prolonged the printing of money , causing inflation further up.

In early 1923, the budget deficit double to 1.5 billion dollar, more money printed.
Inflation occur so fast that , central bank need to print more money to meet dosmestic needs. Which in return pushing inflation further up.
August 1923: a dollar worth 620, 000 marks,
Early November 1923, a dollar worth 630 billion. ( as in Hungary 1945-46, and Zimbabwee recently , But German Was the third largest economy in the world. )

Consequence, inflation wipe away the internal debit, both in government and private sector.
However, Those middle class who have invest bond in government hit worst.

The Allies European country was burden with war debit they owed America during the war period.

to pay for the war, all Europe country have to borrow money abroad , which cause a seismic shift in flow of capital from US to Europe.

Uk owed Us around 5 billion, where Uk lend 3 billion to france and 2.5 billion to Russia ( Defaulted by Russian after Bolshevik revolution.)

The US tried to separate war debit with reparation,

Uk, to eager to settle the debit, agree to pay 80 cent out of a dollar around 1922.
While France and Italy hold on, they get a better deal . France ( 40 cent), Italy ( 24 cent )

In 1923, the united state had washed his hand on European’s Affair. ( compare to Marshall Plan draw on by World War 2. )

The tough stand that U.S taken on demanding debit from UK and France proven to be causing the financial instability of these country, which shall be discussed later.