LIVING ON BORROWING

New Zealand Herald, Volume LXXII, Issue 22225, 27 September 1935, Page 17

LIVING ON BORROWING

NAZI FINANCE METHODS DRAINING BANK DEPOSITS END OF PROCESS AT HAND An account of the manner in which unemployment relief and other activities have been financed in Germany by the Hitler regime has been given to the Melbourne Argus by its Berlin correspondent. In the course of his article Jie states that admittedly since its advent in January, 1933, Hitlerism has made Germany feel prosperous. Still better times are promised. So there is no logical reason why the rank and file of the nation should not feel grateful for the improvement in their lot, or suspect that it might not be resting on a sound foundation.

j -What has Hitlerism accomplished i since January, 1933? First, it has rej duced the number of unemployed from i somewhat more than 6,000,000 to a little ' more than 2,000,000. Next, it has balanced the State Budget after a series i of hopeless deficits under its predeccsj sors. The production of coal, pig iron, I and electrical power—all indicators of I economic activity—has increased by 70 1 per cent and more. Deposits in the

savings banks have reached record figures. The currency has been kept

stable. Agriculture has been placed on a paying basis. Building is going on at an incredible rate, especially in Berlin. Everybody has a wireless set, and looks

forward to owning a television receiver soon. Many families have small cars. The list is formidable. In its very effi-

cient propaganda the present German Government claims full credit for these achievements, attributing its success to its sound political principles. Doubts of Economists

Bat as the economist sees it the present situation has arisen from causes that have no connection with politics at all. The same causes would have produced the same effects anywhere. National-Socialism owes its rise in Germany, more than to anything else, to its promise to abolish unemployment. The regime stands or falls by its power to keep its word. And no sooner was flitler in power than people began to find work again. Business grew brisk. Why? Fundamentally just through reversal of the policy of deflation. Stupendous amounts of borrowed money have been spent in financing all kinds of national and social advantages, all in themselves, but representing a substantial rise in . the standard of life which —especially in the midst of a serious have been dispensed with until economic circumstances justified them. Putting it plainly, these benefits for the masses are not being paid for out of revenue. Germany has for long been living much beyond its means. How rrudh money has been spent on financing the boom is " ot , (I de £ mt f! y known, becaaise, under the leadershjp regime," the nation is not entitled to demand any statement of accounts Indirectlv, however, certain approximations can be arrived at. From a comparison of the floating debt when the Nazis took command, and its present lpvel it is estimated that a sum between £350,000,000 and £650,000,000 in p-old, or betweem £600,000,000 and £1,100,000,000 at the present rate of exchange, has been- • spent' on fighting unemployment. No Currency Inflation

As the Reich cannot borrow abroad and has not issued any homo loans, the question arises as to where this money has come from. Certainly not from currency inflation, because the weekly Reichsbank statement shows that the amount of cash in circulation is roughly the same now as it was before the war. Moreover, prices have not risen to the extent that inflation would imply. . . , In reality the Reich has obtained ready cash by "breaking open the money-box"—in other words, by draining the short-term money market. Since 1929 world trade has dropped to about one-third of its normal volume. That means that immense sums necessary to finance commercial operations, and forming an integral part of the machinery of trade, were thrown idle. Banks cannot refuse to accept money on deposit. But they have to pay interest for holding it. How to do this and provide shareholders' dividends when nobody wanted to borrow was a problem. So when the Government offered a high rate of interest and "gilt-edged" security, the banks considered themselves saved. They cheerfully discounted the "unemployment scheme bills" of the Reich. But they were resorting to the dangerous practice of "borrowing short (from the depositors) and lending long (to the Government)." Lavish Expenditure Money obtained in this way was spent lavishly on all kinds of relief work, such as motor road building, where most of the expenditure was on wages. Every man who got a job ceased to draw the dole, and at once became a taxpayer. This relieved the expenditure side of the Budget and increased the revenue side. Most of those who got jobs had been out of work for years. They were obviously grateful to the regime for finding them honest work. But they had been "hard up" so long that all their earnings were immediately spent on prime ilecessities like food and clothing. This stimulated the retail trade and made the small shopkeepers ardent supporters of the Nazi regime. Shopkeepers deposited their takings tfith the banks, which were then in the position to put the Government in funds again by discounting more unemployment scheme bills. Thereupon the Government could undertake more ambitious relief schemes Pile of Promissory Notes And all the time the pile of Government promissory notes at the banks grows higher and higher. According to a recent estimate, more than half the bills in the Reichsbank portfolio, and two-thirds of that of the private banks consist of such bills. Like A dog living bv biting off bits of its own tail, the Reich has consumed the liquid resources requisite for financing the nation's trade when business is normal. Obviously, in any case, borrowing on this prodigious scale must come to an end. Most experts declare that the crisis is already near at hand. Several ways of escape from the predicament suggest themselves. One is to stop all relief works and "slow down" the rate of rearmament. Such a course is out of the question, partly for reasons of prestige, partly because, as recently as May 1, Hitler himself promised that by the end of 193G unemployment would bo a thing of the past. Another suggestion is to depreciate the mark by the same amount as'the pound, and thus make Germany competitive again. But the present Government has sworn solemnly a hundred times that "the people will never again be robbed of their savings by inflation." Besides, other countries would at once raise their tariffs against German dumping. Only in one way could the situation be saved —by a vast increase of German exports, whereby every German would obtain employment in a sound, economic process. To live at their present standard of life, Germans must be able to sell the products of their labour abroad.