A few weeks ago, SocGen's Dylan Grice released a piece which quickly became a scathing focal point in the inflation-deflation debate, in that he speculated that it was not the Weimar-unleashed hyperinflation (which incidentally is the primary reason why most Germany now dread what the outcome of a profligate ECB would look like) that led to the surge of the Nazi party, but in fact the opposite: the stinginess of German monetary authorities in the 1930s that further exacerbated the situation and helped unleash the Hitler juggernaut. Many promptly took sides in the argument, the bulk of which were shocked that Grice - traditionally a defender of prudent monetary and fiscal policy, would go so far as suggest that it is the ECB's duty to print or else it may justify another "Hitler"-type advent. Well it seems there was more than meets the eye, and in a follow up piece the strategist says: "The purpose of the historical analysis, therefore, was not to reach conclusions about how adherence to hard money principles will linearly lead to resurgent fascism, or war on a par with that seen in the 1930s.For the record, here's the history of Nazi political success measured by the number of seats in the Reichstag:
Neither was it in any way a defence of Keynesian fiscal activism. It was to illustrate that adherence to even the best principles must come at a price, making a judgment on whether or not that price is prohibitive or not is unavoidable, and today Germany and the ECB have to make that judgment." And his conclusion: "From the beginning of this crisis I've believed the only way politicians will get ahead of it is to bring in the ECB. Since I believe politicians do want to get ahead of it, I expect the ECB to print, and print copiously. I've repeatedly emphasized that printing will solve nothing, beyond buying market confidence for a while... All ECB printing will do is buy the politicians time and space to reset government and private sector balance sheets, to reform how their economies function and be honest with their own citizens.
Whether they use that time or not is a separate question (frankly, I'm not hopeful)." But instead of us putting words in Grice's mouth, here is the explanation straight from the horse's mouth. Incidentally we agree 100% with Grice on the issue that eventual printing is inevitable. Which for the TLDR crowd means the entire Grice missive can be summarized as follows: 'buy gold.'
From Dylan Grice:
My point was that there is always a price. Today, the price of Germany and the ECB holding on to their hard money principles is a possible break-up of the single currency. But both have signalled that they won't pay that price ("if the euro fails, Europe fails"). So my conclusion was that since Germany's stance is logically inconsistent (it wants to hold onto its principles but it doesn't want to pay the price), it will ultimately be forced to choose. My prediction was that it will sacrifice its principles. The three broad criticisms I got from readers were:
Let's go through each one in turn.
- My history was factually wrong
- My analysis was simplistic
- In suddenly urging the ECB to print, I was a hypocrite
Complaint #1: Grice’s history is disgraceful and wrong
One common response to my thesis was that "fear of inflation" had nothing to do with Germany's decision not to devalue. In fact, the key factor was the foreign debt Germany owed to the Allies. A number of you replied with this criticism, but the following was my favourite...MORE
6 June, 1920 - 0
4 May 1924 - 32 (6.6%) (masquerading as the National Socialist Freedom Party, NSFP, due to the Nazi party being banned following Hitler's ill-fated putsch)
7 December 1924 - 14 (3%) (masquerading as the National Socialist Freedom Party, NSFP, due to the Nazi party being banned following Hitler's ill-fated putsch)
The NSFP was disbanded and re-absorbed into the Nazi party in 1925 following the ending of the ban on 27 January 1925.
20 May 1928 - 12 (2.6%)
14 September 1930 - 107 (18.3%)
31 July 1932 - 230 (37.4%)
6 November 1932 - 196 (33.1%)
5 March 1933 - 288 (43.9%)