The “banking syndicate” has wrested control of our future from us, (the people of Europe and the US) thoroughly corrupted it, and now points the finger of blame again at Germany which should pay for their and the EU nomenclature’s failure. Sailing on a ship of fools steered by today’s German so called “elite”, it is worth to learn about Dr. Hjalmar Horace Greeley Schacht, a German economist, banker and liberal politician in the 1920s and 1930s. If ever there was a financier who could have helped to change the course of German economic politics, it were Schacht. Remember that the current Financial Crisis (2008 until whenever) and the Euro crises (according to G&S irreversible), has been used to extract money from tax payers to keep the banks going. It is highly recommended to take a cynical view of the methods used in banking and politics because main stream media or the education industries worldwide are now propaganda machines.  Read for yourself. Think for yourself. Decide for yourself.

Hjalmar Schacht and the EURO Crisis.

In essence this article talks about Hjalmar Schacht and fiat money.Fiat money has been defined as money declared by a government to be legal tender without intrinsic value – vulgo paper money. Many make the mistake of lumping all fiat money into one category and  even claim that Schacht opposed fiat money.  This is true and false, here there the two major categories (but as we will see, in many shades):

  • Money created by private banks or institutions and loaned out at interest. Most of our national debt is created this way. The Federal Reserve – indirectly privately owned – creates the money by fiat and loans it to the government at interest. There are many variations of this  category, some fairly workable and others doomed to failure.
  • Free or low-interest and debt free money created or approved by the government.

The Greenbacks (and the later mentioned Schacht’s MEFO Bills) were  in the second category.  This has been proven historically to be much more stable than the private fiats that create debt and interest. It looks like that Europe will experience the disadvantage of the first category in the near future again. The European Central Bank is turning its investment portfolio into a “Euro Junk Bond Fund.” The actions by Mario Draghi and his Board of Directors (in which every shareholder has only one vote) is the equivalent of the US FED and Board of Governors loading the Federal Reserve Banks investment portfolio with the worst quality state municipal bonds. In plain English,  the ECB became the Bad Bank  for the international fiat money. The German Federal Bank  fought David against Goliath,  actively discouraged by  the German government, its  monopolized TV. The Germans  do not have any say in this anymore. It is all decided for them by ruling and opposition parties which support what is going on in Brussel and the ECB (on behalf of the international money syndicate.

Hjalmar Schacht’s biography

When I read Hjalmar Schacht’s biography I understood that Schacht’s two great achievements—fixing the Weimar-era hyperinflation and the Third-Reich-era deflation— involved, in essence, simply deciding that the central bank actually wanted to solve the problem – including being bold and ingenious – and accepting reality to reverse a failed policy. The institutional and psychological problem in the EU crisis turn out to be equally severe and very similar to Weimar except the mode is full denial mode and none of the mentioned virtues are available .

Schacht was born as the son of a Danish baroness and a German schoolteacher she had married for love. He was an enigmatic conservative man who never borrowed money or owned stock. Yet Schacht had also a streak of daring, which at one point led him to attempt to bluff World War I reparations. The first effort first failed, but he succeeded the second time engineer Germany’s way out bringing Germany’s devastated economy back on its feet.

By the early 1920s, due to personal brilliance and shrewd politicking, he was one of the world’s most brilliant central bankers of the world. As Germany’s currency commissioner, and later head of the Reichsbank, Schacht was the opposite of (and would oppose)  today’s counterproductive central bankers Alan Greenspan, Bernanke and ECB head Mario Draghi. Draghi for instance directs the central bank (ECB) to buy bonds in distressed European countries, effectively money printing for the peripheral states on the expense of the Germans. Schacht was not like those bankers part of the problem, but led Germany out of  the Weimar Republic’s hyperinflation  (the common name for the republic that governed Germany from 1919 to 1933) and  the Deflation after 1933. How did he do it, why didn’t he get the Nobel price you might ask? Well…

Dr. Hjalmar Schacht served as the Currency Commissioner and President of the Reichsbank under the Weimar Republic, but resigned over disagreements about the reparation and economic issues in 1930. Schacht, a committed democrat who never been a member of the Nazi Party (he led his own party GDP at that time) supported Hitler from 1931 based the fight for Germans sovereignty. He became President of the Reichsbank 1933 and Minister of Economics 1934 until he was forced out of the government by disagreements in particular Goering in December 1937. Schacht attended the church of a well-known anti-Nazi cleric while in Hitler’s government and took Hitler to task over his harsh treatment of Jews. Since 1935-36 he urged him also to reduce (military) spending, turn down protectionist policies, and reduce state control in the economy. He didn’t succeed and was later imprisoned by the Nazis after the 20 July plot. After the war, he was tried at Nuremberg and acquitted.

Fighting (hyper) inflation

Most writers talk about the German inflation problem as beginning in 1919 or 1921 but the problem really began at the beginning of World War I in 1914. By the time 1921 rolled around those who were on fixed incomes and depended on savings or government bonds for retirement or security were largely wiped out by the high inflation leading up to that date. From the beginning of the war in 1914 to its end in 1918 prices of consumer goods increased over 200%.

The Versailles Conference led to the Treaty of Versailles which imposed a crushing reparations payments of 132 billion Reichsmark on the losers participants — costs totaling three times the value of all the property in the country. In the beginning of the 20ties the country was completely, hopelessly broke. The Weimar financial crisis began with the impossible reparations payments imposed at the Treaty of Versailles. Schacht, who was currency commissioner for the Republic, complained: The Treaty of Versailles is a model of ingenious measures for the economic destruction of Germany. . . . [T]he Reich could not find any way of holding its head above the water other than by the inflationary expedient of printing bank notes.

Treaty of Versailles

By February 1920 shortly after the Treaty of Versailles internal prices jumped over 500% and prices of imported products skyrocketed to 1898% over the 1914 level. Unfortunately, as Schacht pointed out, Germany could not pay off their draconian war reparations with inflated Marks but had to pay them with foreign currency values. May 26 1922 private business was given complete control over the Reichsbank and the issuing of currency. This situation accompanied by unlimited printing from private banks created an inflation slide of historical proportions. By July 1922 it took 300 Marks to equal one U.S. dollar. By November it took 9000 and by January of 1923 it was a whopping 49,000.  That was just the beginning of the sinkhole.  By July 1923 the figure was 1,100,000 and by Mid November it reached the legendary 2.5 trillion marks to equal one U.S. dollar. Billion mark notes were traded as almost worthless paper.  To make matters worse, this opened the possibility of  speculation against the German mark which caused it to plummet, precipitating one of the first worst runaway inflations in modern times. Nothing quite like it had ever happened before – the total destruction of the national currency, wiping out people’s savings, their businesses, and the economy generally.

Foreign speculation

Hjalmar Schacht, who became the Commissioner of Currency, finally brought the inflation under control. He prohibited the private banks from creating Marks and established a new Mark – the Rentenmark.  By halting the printing of worthless money 1923, repeatedly slamming speculators, and pegging the mark at 4.2 to the dollar (one new mark was worth 1 trillion old ones) and eventually to gold, he tamed the runaway inflation that crippled Germany after World War I. By the mid-1920s, Schacht had a worldwide reputation as ”the banker who saved his country. What does appear in modern textbooks is the disastrous runaway inflation suffered in 1923 by the Weimar Republic. The radical devaluation of the German mark is cited as the textbook example of what can go wrong when governments are given the unfettered power to print money, but Schacht proceeded in his 1967 book The Magic of Money”, with some truly remarkable admissions that indeed it was the privately owned Reichsbank, not the German government, that was pumping new currency into the economy. Like the U.S. Federal Reserve, the Reichsbank was overseen by appointed government officials but was operated for private gain. What drove the wartime inflation into hyperinflation was in addition the speculation by foreign investors, who would sell the mark short, betting on its decreasing value. Speculation in the German mark was made possible because the Reichsbank made massive amounts of currency available for borrowing, marks that were created with accounting entries on the bank’s books and lent at a profitable interest. When the Reichsbank could not keep up with the voracious demand for marks, other private banks were allowed to create them out of nothing and lend them at interest as well. Sounds familiar, today with the EZB? According to Schacht, then, not only did the government not cause the Weimar hyperinflation, but it was the government that got it under control. The Reichsbank was put under strict government regulation, and prompt corrective measures were taken to eliminate foreign speculation, by eliminating easy access to loans of bank-created money.

Fighting  Deflation (The Great Depression)

Making matters worse for Germany, at the end of the decade the global depression hit after the black Friday 1929. Now President of the Reichsbank again and as Minister of Economics, Schacht implemented the so-called ‘New Plan’ which included policies of redevelopment, reindustrialization, and economic “autarky defending to debt slavery to international lenders. Neo-liberal economists everywhere seven decades later have yet to acknowledge that employment is all that counts and living wages are the key to national prosperity. Any economic policy that does not lead to full employment is self-deceiving counterproductive, and any policy that permits international wage arbitrage is treasonous. German economic policies between 1930 and 1932 were brutally deflationary.

Now before I write more about this let me make something crystal clear because many others who have written about the Third Reich economic recovery have been maliciously accused of being a Hitler sympathizer.  This is not the case with me nor is it the vast majority of writers on this subject. When Hitler took over Germany on January 30, 1933 Germany was in the middle of a great depression and the little gold they had was storming out of the country. By 1934 they only had 83 million Marks worth of gold, a loss of about 97% of their supplies since 1929.

Germans economic turn around

Instead of descending the country further into economic chaos, as many expected, Hitler appointed a capable economic turn around team which bypassed the international money syndicate.  Schacht supported after 1933 public works programs to attempt to alleviate unemployment which had in turn later influenced Roosevelt’s “New Deal”. He provided Hitler with instruments to refute Treaty of Versailles, which Schacht felt was unjust and economically not viable. As Germany were rearming against the terms of the Treaty of Versailles they needed a way to fund rearming without leaving a paper trail, which is why a limited liability dummy company Metallurgische Forschungsgesellschaft, m.b.H. (MEFO) with a nominal capital of only one million Reichsmark was created in 1934. Between 1933-1938 the Third Reich economy grew by 9.5% per year. They built many public works projects such as dams and about 1900 miles of the current autobahn. Housing construction doubled. By 1936 unemployment was over 80% gone and by 1938 it was virtually non-existent for they had more jobs available than there were laborers to fill them. By contrast FDR and his New Deal was not working so well.

Currency and foreign trade

Germany stablized its currency at a time when millions of people in the United States and other Western countries were still out of work and living on welfare. Germany even managed to restore foreign trade, although it was denied foreign credit and was faced with an economic boycott abroad. It did this by using a barter system: equipment and commodities were exchanged directly with other countries, circumventing the international banks. This system of direct exchange occurred without debt and without trade deficits

Comparison with the New Deal

In 1938 the United States was in a depression within the depression with unemployment at 19% and many were committing suicide rather than endure a continued struggle. Some say that Hitler achieved full employment because he put people to work on government projects.  That explanation does not cut it because Roosevelt  did the same thing  – but paid deficit spending and taxes.What was the difference then? There were several.  Even though Hitler only had a elementary understanding of economics he recognized talent when he saw it. Hjalmar Schacht, who once restored Germany’s economy but quit in frustration in 1930, was appointed by Hitler to be the Reichsbank President in 1933.  He come up with an ingenious scheme ating Bills of Exchange, similar to what the early American colonists did when they had no gold. This was powerful fiat money, but still had a disadvantage over the Greenback in that they paid around 4% interest and added to the national debt whereas the greenback was interest free. Even with this disadvantage they were able to put enough money into circulation to revive the economy whereas money was nowhere to be found or borrowed by the common people in the United States at that time.

Labor Treasury Certificates (MEFO Bills)

A national credit program supported the public work programs. The projected cost of the various programs was fixed at one billion units of the national currency. One billion non-inflationary Labor Treasury Certificates (commonly known as ‘MEFO bills’) of exchange were then issued against this cost. Millions of people were put to work on these projects, and the workers were paid with them. This government-issued money wasn’t backed by gold, but essentially a receipt for labor and materials delivered to the government. The workers then spent the certificates on other goods and services, creating more jobs for more people.   Transactions in “MEFO” bills worked as follows: “MEFO” bills were drawn by contractors and accepted by the MEFO GmbH. Those bills ran for six months, but provision was made for extensions running consecutively for three months each. The drawer could present his “MEFO” bills to any German bank for discount at any time, and these banks, in turn, could rediscount the bills at the Reichsbank at any time within the last three months of their earliest maturity. The “MEFO” bill system continued to be used until 1 April 1938, when 12 billion Reichsmark of “MEFO” bills were outstanding. This method of financing enabled the Reich to obtain credit from the Reichsbank which, under existing statutes, Schacht has conceded, could not directly normally or legally have obtained. Schacht has later said that his “MEFO” bill device “enabled the Reichsbank to lend by a subterfuge to the Government.

Conclusion

Reading his memoirs and looking at the facts, one can argue, that he was just a patriot, trying to make the German economy strong and thwarted the international banking cartel by issuing Germany her own money and being the Reichsbank lender of last resort. It is important to differentiate the Weimar money from Greenbacks.  Greenbacks are much closer to the them MEFO Bill which were Schacht ‘s weapon against Deflation.

  • Issuer of Fiat money: The Weimar money was issued by private banks – led by the Reichsbank.  This was similar to the Federal Reserve, which, contrary to the sound of its name, has been privately owned and publicly controlled like the later used Metallurgische Forschungsgesellschaft, m.b.H. (MEFO). The Greenback was not issued by a private or semi private bank but by the U.S. government. The Euro is issued by national banks led by the ECB.
  • Ownership and governance: Most hyperinflation commentators blame the government as having sole responsibility for issuing so much money but it was done through the privately owned Banks Mark.  As anybody might know, the FED ist privately owned. The Deutsche Bundesbank has its capital that is available from the state, so it seems is 100% State-owned. The Austrian National Bank, however, is 30% owned by private owner, the National Bank of Belgium even to 50%. The Italian Central Bank, the Banca d ‘ Italia, owned to 94.33% by Italian private banks. The Greek National Bank is even the largest value in the Athens Exchange with a share of 17 percent. The ECB is therefore predominantly private, in contrast to the ECB. This is more so than the voting right in the directory is one per natiainal bank regardless of their ECB share.  ECB governance is issued by form G&S employee who actually buys debt and turnedthe ECB to bad bank on German taxpayer expense.
  • Interest:  The Weimar Mark was created by loans at interest whereas Greenback was created without interest involved. MEFO Bills yielded modest interest. For EURO the interests payments are crippling .
  •  Limitation: The Weimar Mark had no limitations on its issue.  The Greenback’s issue was limited to $450 million and the MEFO Bills to one Billion Mark. The EZB announced also to no limitation for – in essence – printing money.

Schacht’s behavior toward the Nazis was deeply inconsistent. Through most of the 1930s, he worked tirelessly to stabilize Germany’s finances in the face of wild Nazi spending. But he also intervened to save Jewish friends. And by 1938, Schacht was publicly calling the Nazis ”criminals” and attacking the persecution of Jews in a Christmas speech to employees of the Reichsbank. Hitler tolerated this defiance because of Schacht’s importance to the economy, but Schacht still was running a huge personal risk. By 1943, when Hitler formally dismissed him from the government, Schacht was brazenly anti-Nazi and had ties to groups plotting the Führer’s assassination; he was eventually sent to Ravensbruck and Dachau. Schacht died in Munich in 1970, at 93, having spent his old age building a new life out of the rubble of the old one like Leni Riefenstahl and fighting like her against published lies.Schacht was the plaintiff in a foundational case in German law on the “general right of personality”.

Whatever else you can say about Hjalmar Schacht, he defied easy categorization to the end. It is up to the reader to make the judgments. Although President Franklin Roosevelt’s “New Deal” measures helped only marginally, the Third Reich’s much more focused and comprehensive policies proved remarkably effective. And while Roosevelt’s record in dealing with the Great Depression is pretty well known, the remarkable story of how Schacht tackled the crisis is not widely understood or appreciated. Germany succeeded. The US economic programs were largely ‘artificial’ in that the government, not private business, created jobs via large projects funded by U.S. tax dollars. In other words, tax dollars were used to pay taxpayers and the US economy stayed shaky until the Second World War.

76 Jahre meines Lebens, Hjalmar Schacht, 1967

Das Ende der Reparationen. Hjalmar Schacht 1931

John Weitz, Hitler’s Banker (Great Britain: Warner Books, 1999).

 Ellen Hodgson Brown, Web of Debt Fifth edition Third Millennium Press

Economy of Nazi Germany from the Wikipedia at its best

Stephen Zarlenga, The Lost Science of Money (Valatie, New York: American Monetary Institute, 2002)

 Nazism and the German Economic Miracle Asia Times  by Henry C K Liu  here he writes of Germany’s remarkable transformation:

The Nazis came to power in Germany in 1933, at a time when its economy was in total collapse, with ruinous war-reparation obligations and zero prospects for foreign investment or credit. Yet through an independent monetary policy of sovereign credit and a full-employment public-works program, the Third Reich was able to turn a bankrupt Germany, stripped of overseas colonies it could exploit, into the strongest economy in Europe within four years, even before armament spending began.

The Lost Science of Money By Stephen Zarlenga, 2002

Hjalmar Schacht, Stabilization of the Mark, (London: George Allen & Unwin, 1927)

Hjalmar Schacht, The Magic of Money, (London: Oldboume, Trans. P. Erskine, 1967)

Norbert Muhlen, Schacht – Hitler’s Magician, (New York: Alliance, Longmans Green, trans. Dickes

http://www.freeread.com/archives/tag/fiat-money

C. C. Veith, Citadels of Chaos (Meador, 1949)

 

Appendix Excerpt 76 Jahre meines Lebens, Hjalmar Schacht, 1967, Chapter 41 Page 400-403:

Der Mefo-Wechsel war ein 1934 von Hjalmar Schacht entworfenes Finanzierungsinstrument zur Vorfinanzierung von Reichsausgaben, die das Reichsbankgesetz nur begrenzt zuließ. Aus Geheimhaltungsgründen wurden die Mefo-Wechsel als Sonderwechsel bezeichnet. Erst lange nach dem Ausgabestopp wurden sie als Mefo-Wechsel bekannt.  Herr Schacht hat da in gewisser Weise  – wie beim FIAT Konzept durch Schulden Geld geschaffen, aber ohne welches zu drucken unf ohne dass es im Umlauf kam.  Grundsätzlich zum Wechsel: Ein Wechsel unterscheidet sich von einem Kreditmittel dadurch, dass er gleichzeitig ein Zahlungsmittel ist. Der Aussteller bekommt sofort sein Geld, der Bezogene musste erst nach z. Bsp. 6 Monaten bezahlen, hat also solange einen zusätzlichen Kredit in der Höhe. Die Laufzeit kann auch verlängert werden. Das das Wechselrecht sehr steng ist, kann der Wechsel leicht als Zahlungsmittel weitergegeben werden.  Sinn und Zweck der „Mefo-Wechsel“ war es jedoch, dem Staat ein Kreditmittel in die Hand zu geben ohne dass eine galoppierende Bargeldvermehrung erfolgt. Um einer sofortigen Diskontierung vorzubeugen, wurden die Wechsel mit einem Jahreszins von 4 % ausgestattet. Dadurch wurden die Firmen motiviert, die Wechsel nicht vor Verfall beim Reich einzulösen.  Sie behielten die Wechsel – als kurzfristige  Anlage und damit praktisch als sogenannte “bare Kasse” – und verwandten diese Wechsel als  Zahlungsmittel, das obendrein auch noch einen Zinsertrag brachte. Die notwendigen Mittel über Inflation zu beschaffen sah er als Stümperei an, stattdessen kam er auf diese Idee, ungenutzte Barbeträge in der Wirtschaft einzufangen ohne langfristige Staatsanleihen (in welche die Wirtschaft kein Vertrauen gehabt hätte).  Von 12 Mrd. wurden so 6 Mrd. von der inländischen Wirtschaft aufgenommen kamen also nicht zur Rechsbank. Nach dem Anlaufen der Wirtschaft, wurde der MEFO Wechsel zu einem beliebten Papier für kurzfristige Bankgelder. D.h. der Anteil der nicht am Markt untergebracht werden konnte, ohne weiteres von der Reichsbank in das Portefeuille genommen werden.  Das MEFO System wurde von 1934 bis zum Krieg von der interationalen Bankwelt als sehr findige Finanzierungsmethode anerkannt – was es auch war.

Bezogener von Mefo-Wechseln war die Metallurgische Forschungsgesellschaft m. b. H. Die Metallurgische Forschungsgesellschaft mbH hatte mit einem Stammkapital von 1 Million RM nur eine dünne Kapitaldecke, das Reich stand daher für die Erfüllung der Wechselverbindlichkeiten der Mefo-GmbH ein, unter Verzicht auf die Einrede der Vorausklage (selbstschuldnerische Wechselbürgschaft). Das Stammkapital für die Metallurgische Forschungsgesellschaft zeichneten im Mai 1933 vier große namhafte deutsche Unternehmen, nämlich Siemens, Gutehoffnungshütte, Krupp und Rheinmetall. Die Mefo GmbH war von Anfang an als Scheinfirma konzipiert worden; sie hatte keine weitere Funktion bzw. Geschäftszweck. Die Geschäftsführung wurde durch einen Vertreter des Reichswehrministeriums und einem Vertreter der Reichsbank gestellt. Die Reichsbank stellte das übrige Personal für die verwaltungsmäßige Abwicklung der Wechselgeschäfte.

Alle Unternehmen, die im Auftrage des Staates Aufgaben ausführten, stellten nun die Mefo-Wechsel aus. Die Reichsbank erklärte sich bereit, diese Wechsel jederzeit entgegenzunehmen und in Bargeld umzutauschen. Die Laufzeit der Wechsel betrug anfangs sechs Monate und wurde immer wieder verlängert, so daß die Wechsel letztendlich fünf Jahre im Umlauf waren. Das Problem war jedoch, daß mit der Ausgabe der Mefo-Wechsel eine galoppierende Bargeldvermehrung einsetzen mußte, wenn alle Lieferanten die Wechsel bei der Reichsbank einlösen würden. Schacht jedoch baute jedoch, wie oben erwähnt vor.

Die Mefo-Wechsel waren nichts anderes als ein Darlehen der Reichsbank an das Reich. Dieser Weg der Finanzierung wurde so beschritten, da das Reichsbankgesetz größere Darlehenssummen, die über 400 Millionen RM hinausgingen, nicht zuließ. Insgesamt wurden von 1934 bis zum 31. März 1938 Mefo-Wechsel in Höhe von zwölf Mrd. Reichsmark ausgegeben. Sie finanzierten ca. 45 % der bis dahin aufgelaufenen Rüstungsausgaben (bis Ende 1939 waren es ca. 20 %). Von diesen zwölf Milliarden RM wurden jedoch acht Milliarden vom Markt aufgenommen. Sie wurden also nicht bei der Reichsbank eingelöst. Schachts Absicht, eine merkbare Inflation zu verhindern, ging somit auf.

Ab April 1938 – Schacht war nicht mehr im Amt – wurden die Mefo-Wechsel durch kurzfristige Reichs-Schatzanweisungen ersetzt. Die zur Einlösung kommenden Mefo-Wechsel konnten, neben der Barauszahlung, wiederum in andere kurzfristige Wechsel eingetauscht werden. In der Zeit vom 31. März 1938 bis 31. März 1939 explodierte die Ausgabe dieser kurzfristigen Schatzanweisungen. So wurden in nur einem Jahr 4,2 Milliarden RM davon ausgegeben.