Tags: History | Dollar | Die

History to Repeat Itself: Politicians to Destroy Dollar Again

Wednesday, 16 Nov 2011 09:56 AM

By Ashish Advani

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I was just reading about the recent happenings in Europe.

We have a leader of a country who has announced dramatic austerity measure in response to the crippling debt which plagues his country and is destroying his nation.

Due to the financial profligacy that has transpired over the last couple of decades, the leader’s means of atoning for the sins of the nations is to drastically cut spending and impose deep austerity measures.

However, the patience of the masses and the surrounding countries did not endure the budget cuts. The hapless leader was forced to resign soon after the cuts were announced. A new government was quickly formed to implement the drastic cuts, and yet confidence was not restored.

I am sure that you are thinking about Greece and or Italy. But the reality is I am talking about Germany in 1932.

Chancellor Dr. Heinrich Bruning presided over the dramatic cuts that he imposed over Germany in his vain attempt to stave off deflation and stop a run on the currency.

The problem started in 1932 in Germany and Austria two years after 1929 crash, about three years apart.

This time, it is 2011, about three years after the 2008-09 crash.

The similarities are scary.

The response in 1932 was deep budget cuts and a partial abandonment of the gold standard. When there was a run on the banks in Austria, they turned to Bank of England to rescue them.

As the contagion spread, the Germans faced the same fate as Austria. They too turned to the Bank of England. The Bank of England overextended due to the rescue packages and was forced to “suspend” the link between the pound sterling and gold, in reality it was not suspension but abandonment.  This led to a 35 percent depreciation of the British pound.

Back in Germany, unemployment soared well above 30 percent and the standard of living across Germany fell by nearly 50 percent. This led to the ouster of Dr. Bruning. The economic plight of the United States was not much better. Unemployment was at 25 percent and farm product prices had fallen by nearly 50 percent.

This was the backdrop when Roosevelt won the elections in 1932. The crisis in American banking was already crippling the nation, and when Roosevelt took office on March 4, 1933, nearly all banks were closed.

Roosevelt declared an extended bank holiday, suspended the gold standard and fixed the dollar to gold by fiat. He effectively devalued the dollar by 41 percent before he was done and yet it took several years before the stock markets could hit the 1929 level.

Franklin Roosevelt was a Democrat. And he started the slippery slope for the decline of the mighty U.S. dollar.

This time, the Democrats may lose the 2012 elections. The masses are enraged with the lack of traction of economic growth and may punish the current president. While this may not have been his fault alone, he certainly did not help the rescue.

The hunt is on for the Republican Roosevelt of modern day era.

A word of caution to the wise investor is not to expect any rescue from the government officials. In fact, fear them irrespective of their stripes and protect your nest egg by exiting the dollar as the next wave of “well intentioned” politicians takes their turn in destroying the dollar.

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