From: DANIEL.DAVIES at flemings.com Date: Wed, 5 Jan 2000 15:27:06 +0000
>So are you saying that the reason the monetary expansion didn't lead to
>inflation is because it was completely financed by the default on debts?
>Because I thought what Doug was getting at when he said this expansionary
>monetary policy was politically sterilized by busting unions was that
>without such measures, an expansionary policy would have strengthened
>unions, who would have raised their real wages, which would have cut into
>profits and led to inflation. Or at least to overwhelming calls by the
>capitalist class to reverse policy.
More or less yes, (I think) but financed in a purely monetary sense. The idea would be that the go-for-broke monetary policy would normally result in inflation. This could be mitigated by running a huge current account deficit (shades of the current US? no, let's not get into that again). With the obvious problem that the current account deficit would be totally unsustainable. But unsustainable current a/c deficits are only unsustainable if you intend to pay your debts, which there is ample evidence that neither Hitler nor Schacht ever did.
I'll confess to a slight concern about whether the magnitudes involved stack up (I think they actually might), and I'm not really happy with the fact that this "exporting inflation" strategy tends to imply a rising exchange rate during the Schacht period, which I'm not sure about -- although the default method of financing and the exchange control regime might change things a bit.
>If in fact the inflationary aspects could be entirely avoided by
>defaulting on debts, well then, that's a national economic policy a lot of
>countries could avail themselves of today.
Could and in my view should, and (I predict) increasingly will now that Russia and Ecuador have come through the process without Armageddon, whatever Charles Dallara and the IIF say.
dd