US Risks Joining 1933 Germany Pantheon of Deadbeat Defaults
Oct 14, 2013 8:01:10 GMT -5
Post by popcorn on Oct 14, 2013 8:01:10 GMT -5
U.S. Risks Joining 1933 Germany in Pantheon of Deadbeat Defaults
“The Fed is not going to taper while the government is shut down,” said Dean Maki, chief U.S. economist at Barclays Plc in New York. “One, there is a weight on the economy and, two, the Fed calls itself ‘data dependent’ and it’s hard to be data dependent when there’s no data coming out.” Photographer: Andrew Harrer/Bloomberg
Reneging on its debt obligations would make the U.S. the first major Western government to default since Nazi Germany 80 years ago.
Germany unilaterally ceased payments on long-term borrowings on May 6, 1933, three months after Adolf Hitler was installed as Chancellor. The default helped cement Hitler’s power base following years of political instability as the Weimar Republic struggled with its crushing debts.
“These are generally catastrophic economic events,” said Professor Eugene N. White, an economics historian at Rutgers University in New Brunswick, New Jersey. “There is no happy ending.”
The debt reparations piled onto Germany, which in 1913 was the world’s third-biggest economy, sparked the hyperinflation, borrowings and political deadlock that brought the Nazis to power, and the default. It shows how excessive debt has capricious results, such as the civil war and despotism that ravaged Florence after England’s Edward III refused to pay his obligations from the city-state’s banks in 1339, and the Revolution of 1789 that followed the French Crown’s defaults in 1770 and 1788.
Failure by the world’s biggest economy to pay its debt in an interconnected, globalized world risks an array of devastating consequences that could lay waste to stock markets from Brazil to Zurich and bring the $5 trillion market in Treasury-backed loans to a halt. Borrowing costs would soar, the dollar’s role as the world’s reserve currency would be in doubt and the U.S. and world economies would risk plunging into recession — and potentially depression.
Senate Talks
Senate leaders of both parties are negotiating to avert a U.S. default after a lapse in borrowing authority takes effect Oct. 17, even as senators block legislation to prevent one and talks between the White House and House Republicans have hit an impasse. Democratic lawmakers said Oct. 12 that the lack of movement may have an effect on financial markets. After Oct. 17, the U.S. will have $30 billion plus incoming revenue and would start missing payments sometime between Oct. 22 and Oct. 31, according to the Congressional Budget Office.
Serial Defaulter
Germany, staggering under the weight of 132 billion gold marks in war reparations and not permitted to export to the victors’ markets, was a serial defaulter from 1922, according to Albrecht Ritschl, a professor of economic history at the London School of Economics. That forced the country to borrow to pay its creditors, in what Ritschl calls a Ponzi scheme.
“Reparations were at the heart of the issue in the interwar years,” Ritschl said in a telephone interview. “The big question is why anyone lent a dime to Germany with those hanging over them. The assumption must have been that reparations would eventually go away.”
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“The Fed is not going to taper while the government is shut down,” said Dean Maki, chief U.S. economist at Barclays Plc in New York. “One, there is a weight on the economy and, two, the Fed calls itself ‘data dependent’ and it’s hard to be data dependent when there’s no data coming out.” Photographer: Andrew Harrer/Bloomberg
Reneging on its debt obligations would make the U.S. the first major Western government to default since Nazi Germany 80 years ago.
Germany unilaterally ceased payments on long-term borrowings on May 6, 1933, three months after Adolf Hitler was installed as Chancellor. The default helped cement Hitler’s power base following years of political instability as the Weimar Republic struggled with its crushing debts.
“These are generally catastrophic economic events,” said Professor Eugene N. White, an economics historian at Rutgers University in New Brunswick, New Jersey. “There is no happy ending.”
The debt reparations piled onto Germany, which in 1913 was the world’s third-biggest economy, sparked the hyperinflation, borrowings and political deadlock that brought the Nazis to power, and the default. It shows how excessive debt has capricious results, such as the civil war and despotism that ravaged Florence after England’s Edward III refused to pay his obligations from the city-state’s banks in 1339, and the Revolution of 1789 that followed the French Crown’s defaults in 1770 and 1788.
Failure by the world’s biggest economy to pay its debt in an interconnected, globalized world risks an array of devastating consequences that could lay waste to stock markets from Brazil to Zurich and bring the $5 trillion market in Treasury-backed loans to a halt. Borrowing costs would soar, the dollar’s role as the world’s reserve currency would be in doubt and the U.S. and world economies would risk plunging into recession — and potentially depression.
Senate Talks
Senate leaders of both parties are negotiating to avert a U.S. default after a lapse in borrowing authority takes effect Oct. 17, even as senators block legislation to prevent one and talks between the White House and House Republicans have hit an impasse. Democratic lawmakers said Oct. 12 that the lack of movement may have an effect on financial markets. After Oct. 17, the U.S. will have $30 billion plus incoming revenue and would start missing payments sometime between Oct. 22 and Oct. 31, according to the Congressional Budget Office.
Serial Defaulter
Germany, staggering under the weight of 132 billion gold marks in war reparations and not permitted to export to the victors’ markets, was a serial defaulter from 1922, according to Albrecht Ritschl, a professor of economic history at the London School of Economics. That forced the country to borrow to pay its creditors, in what Ritschl calls a Ponzi scheme.
“Reparations were at the heart of the issue in the interwar years,” Ritschl said in a telephone interview. “The big question is why anyone lent a dime to Germany with those hanging over them. The assumption must have been that reparations would eventually go away.”
read more:
