In the 1980s, the investment firm EF Hutton sponsored advertisements featuring variations on a crowded room – an airport, a cocktail party, a restaurant. When one person remarks to another that “EF Hutton says…”, the room would suddenly become still and silent.
Everyone present strained to hear the precious words of the much-vaunted company.
Today, legendary investor Warren Buffett actually enjoys influence and prestige comparable to what EF Hutton tried to achieve through an advertising campaign.
Inflation today is a serious and undeniable challenge. Even Federal Reserve Chairman Jerome Powell has finally acknowledged that we have a problem.
Buffett, the Sage of Omaha, is highly relevant for accurate contemporary analysis. In 2010, in the turmoil following the global financial crash of 2007-2008, Britain’s “Daily Telegraph” newspaper reported that Buffett had recommended the previously obscure book “When Money Dies” by Adam Fergusson. As a result, the book rose to the top of Amazon’s UK website.
Fergusson’s study focuses on the disastrous mistakes of the German central bank in the chilling turmoil after the defeat of World War I. Faced with huge reparations payments, economic collapse, and huge currency hoarding, senior German officials panicked.
The Reichsbank, Germany’s central bank, operated the printing presses around the clock, producing paper money to meet a range of otherwise impossible financial obligations. As a result, German currency in 1923 had become almost worthless.
The German public, attached to stability, became desperate. Adolf Hitler and the Nazi Party exploited this concern and won the election, although Fergusson insightfully observes that the new regime had no clear or detailed program. Lies are incompatible with sustainable institutional management.
The author describes a world torn apart by war, nationalism and fear. French military intervention in Germany after the peace settlement damaged the economy, especially the industrial Ruhr, while enraging the German people. Today’s international institutions were completely absent from 1920s Europe.
“When Money Dies” appeared in 1975, when inflation was rising rapidly in global terms, fueled by the United States with large budget deficits and escalating government spending, and by OPEC (Organization of oil-exporting nations) with the drastic 1973 rise in oil. prices.
This cartel had failed in a similar effort to raise prices in 1960, but 13 years later it controlled a much larger share of the world oil market. Arab states have pledged to pressure the United States regarding Israel.
The stagflation – high inflation combined with high unemployment – that plagued industrialized countries during the 1970s was difficult, unnerving, sometimes seemingly unmanageable. It didn’t end until Fed Chairman Paul Volcker smashed inflation with very tough measures of high interest rates and tight money supply.
The global economy has been largely inflation-free, but the collapse of housing and related derivatives markets has raised the specter of the Weimar catastrophe. “When Money Dies” has an important lesson here for today. Simply pumping funds into an unstable economy without essential reforms is a recipe for failure.
Fergusson emphasizes the vital role of integrity. Weimar officials and business executives were guilty of widespread corruption. Others simply looked the other way. The election of the Nazis put an end to all integrity.
EF Hutton, convicted of fraud, has disappeared.
Warren Buffett had never heard of “When Money Dies” until a reporter contacted him to confirm the erroneous story.
The exact news includes the reality that globalization makes it much easier to be efficient and adapt to change. Nevertheless, vast government spending, then or now, is aggressively fueling inflation.
In short, confirm your facts.
Arthur I. Cyr is the author of “After the Cold War” (NYU Press and Palgrave/Macmillan). Contact him at email@example.com