Fed rate hikes in 1928 reversed capital flows and triggered austerity in Germany.
Evidence
This had the effect of reversing the flow of capital to Europe as US capital came home to take advantage of these higher interest rates, which unexpectedly further stoked the stock market boom. After all, why put your money in Germany when you can make 15 percent buying shares in an investment trust and 7 percent in a bank deposit in the USA? The resulting capital flight placed enormous pressure on the German economy, which responded with ever-stricter austerity policies, especially, as we shall see, under Chancellor Brüning in 1930–1931. Deprived of external liquidity—all the money had gone back to the United States—bank runs in Austria and Germany were met with ever-tighter austerity policies in exchange for more loans (that failed to materialize) to stave off the inevitable default. — Mark Blyth, Austerity, 502
Categorization
- XREF: connects to: Weimar hyperinflation ended quickly and was succeeded by austerity-triggered collapse. — Mark Blyth, Austerity: The History of a Dangerous…, 527; French reliance on German reparations forced interest-driven deficits and inflation. — Mark Blyth, Austerity: The History of a Dangerous…, 546; High Bank rates triggered a deflationary spiral in 1920s Britain — Clara E. Mattei, The Capital Order: How Economists…, 1697 (+5 more)
Broader Connections
- Austerity in Weimar Germany crippled labor and enabled Nazi takeover
#corroborates(0.82) — Clara E. Mattei, Escape from Capitalism, 234 - The 1929 Young Plan’s seniority reversal drove American capital out of Germany.
#corroborates(0.78) — Mark Blyth, Austerity, 1007 - High Bank rates triggered a deflationary spiral in 1920s Britain
#corroborates(0.70) — Clara E. Mattei, The Capital Order, 1697 - British monetary austerity after 1920 produced an unhealthy quasi-equilibrium for a full decade
#corroborates(0.70) — Clara E. Mattei, The Capital Order, 1731