"The Roaring Twenties and the Depression" Part 1. Chapter 11 from "Our Country, Then and Now"

"Good Times" and "Rebuilding the Italian and German Economies"

Serialization of selections from my book Our Country, Then and Now continues with the cooperation of my publisher, Clarity Press. Today we have the first installment of Chapter 11: “The Roaring Twenties and the Depression” with sections on “Good Times” and “Rebuilding the Italian and German Economies.”

World War I, the “Great War,” ended without Britain achieving its aim of annihilating Germany as a rival European power. Germany had been bled dry by the Allies which were bolstered by US entry into the war. Germany was never invaded but seethed with anger.

The Treaty of Versailles, onerously punitive largely at French instigation, lay the groundwork for a second major war twenty years later. Driving the bus, as we shall see, was the Bank of England. Meanwhile, Britain’s acquisition of the Palestinian Mandate set the stage for the future Jewish state.

But the US was pursuing its own interests after bailing out the Allies on the Western Front. The Republicans were again in charge. The US Senate had rejected the Treaty of Versailles and the League of Nations. President Warren Harding, elected in 1920, promised a “Return to Normalcy.”

Fueled by enormous largess in getting their hands on British gold through wartime lending, the US banks pumped up the stock market into the stratosphere. Life was great, until the Bank of England pulled the plug. Stay tuned—we’ll see how and why they did it.

After the 1929 crash, the world changed overnight with the onset of the Great Depression. The US dumped the gold standard and embraced Keynesian deficit spending as permanent policy. Still the New Deal tried but failed to overcome the downturn as bank lending turned abroad.

Using British and American loans, Italy and Germany rearmed under the upstarts Mussolini and Hitler. In Germany, the giddiness of the Weimar Republic was over. In the Pacific, Japan began to spread its wings over East Asia.

In 1914 it was the “Great War.” In 1939 it was the “Good War.” Or was it?

“Good Times”

A Republican president, Warren Harding, was elected in 1920 to succeed Woodrow Wilson, though Harding served only two years before dying of a heart attack. Both he and his successor, Calvin Coolidge of Massachusetts were pro-business and in favor of letting go of Bernard Baruch’s control over the US economy that had been dictated by the war. Accordingly, they cut taxes deeply and sought to reduce the national debt. By 1926, taxes on millionaires had been reduced by two-thirds. Also cut was the federal budget, so impact on the national debt was negligible. [The Republicans were attempting to restore the system of governance of the latter part of the nineteenth century.]

On the surface, the “Roaring Twenties” was a period of remarkable economic vitality, with eight years of “good times” after a post war recession. From mid-1921 to 1929 the US gross national product grew from $69.9 billion to $99.4 billion, and productivity increased three percent annually. Remarkably, there was virtually no inflation. Much of the economic growth was enabled by consumers taking on debt by buying on the installment plan, but no one worried about that. [Consumer debt was not yet the bedrock of the economy that it is today with credit cards way off in the future.]

By this time, the Federal Reserve had adopted its now-familiar role of lending to the banks so they could lend in turn, though at a higher rate, to business and consumer customers. The flush times were made even more so by low Fed discount (interest) rates, resulting in an easy money policy.

The Federal Reserve Act of 1913 led to the implementation of a uniform interest rate for the entire country, a rate set by the Federal Reserve Bank of New York, literally owned by member banks on Wall Street. This policy destroyed the prior ability of local and regional banks to adapt their lending policies to local economic conditions. The Money Trust now reigned supreme and still does today.

Then, as at present, the federal government favored low interest rates as it would reduce the interest it had to pay on the national debt. Even at low rates, T-bonds were in demand as a safe parking place for wealth, including for European investors. Their use as a basis for fractional reserve bank lending hearkened back to Hamilton’s First Bank of the United States and resembled today’s “quantitative easing.” [It also mirrored Bank of England practices.]

The Federal Reserve’s expansive monetary policies were encouraged by the Bank of England, whose higher interest rates were luring back the gold it had relinquished to the US during Britain’s massive World War I borrowing. London was also sucking up gold from India and Germany, among the causes of the infamous German hyperinflation of 1922-1924.

The Bank of England and the New York Federal Reserve Bank had been maneuvering to deal with adverse conditions in Europe, where Germany was defaulting on its enormous war reparations to France and Britain, causing France in particular to renege on its debts to American banks. When Germany defaulted on its reparations in 1923, the French and Belgians made headlines by sending in troops to occupy Germany’s Ruhr industrial region. But after the German hyperinflation was done wreaking havoc, Germany’s reparations problems seemed to be fixed by the US Dawes Plan.

The Dawes Plan set up a circular flow of scaled-down payments from Germany to France, with money then reverting to the US for recycling back to Europe in new loans, then back along the same path, with the banks always raking in commissions. More than one observer called the whole process “absurd,” but for the time it seemed to work. And the French and Belgians evacuated the Ruhr.

Much of the loose money now floating around within the US economy went into stock market and real estate speculation. Starting in 1924, US stocks and bonds also began to attract large amounts of capital from Europe. This included French and German investors seeking a safe haven, though many well-off Germans had already transferred capital abroad before the German hyperinflation.

A lot of US money also went into bank deposits, which increased bank lending capabilities and enabled a spree of overseas lending, as well as domestic loans to allow individuals to buy stock “on margin.” In fact, a majority of the money going into the stock market had been borrowed from US banks. [The results were ominous.]

Yet with so much foreign lending, the dollar was beginning to compete with the British pound as a world reserve currency, a battle the dollar would one day win—but not yet. US corporations were meanwhile expanding overseas, with Standard Oil starting to invest in the oilfields of Iraq and Saudi Arabia. [US bank lending and investments also began to reach heavily into Central and South America.]

1924 was the most prosperous year in history for the New York banks. The 1920s were now being spoken of as a second “Gilded Age.” When Herbert Hoover won election as president in 1928, he said, “We in America are today nearer to the final triumph over poverty than ever before in the history of every land.”[i] The stock market reached record highs by the autumn of 1929. But some sensed trouble, with insiders beginning to make money “by shorting the market”; i.e., betting on a decline.

Millionaire Secretary of the Treasury Andrew Mellon was in the middle of everything, though his main interest was in cutting income taxes. Anticipating President Ronald Reagan’s “supply-side” tax cuts in the 1980s and similar action by Republican presidents George W. Bush and Donald Trump, Mellon argued that lower taxes would mean more disposable income and greater economic growth. For a while he seemed to be right. The New York Times, always the house organ for the US establishment and the New York City financial elite, cheered it all on. Even after Black Tuesday, the Times assured Americans that the “Big Six” banks had everything under control.

It wasn’t that no one saw what was going on. Even President Coolidge himself said, “The whole country from the national government down has been living on borrowed money.”[ii] Not long after the 1929 crash, a third of the nation’s banks closed and unemployment hit twenty-five percent. More on the crash later.

Rebuilding the Italian and German Economies

The Morgans and Rockefellers remained the twin powers of the American Money Trust. Meanwhile, the Morgan Bank, under top Morgan executive Thomas Lamont, who also had Rockefeller connections, became the principal lender to Italy’s Prime Minister Benito Mussolini and for the next decade provided the money for the rise of Italian fascism. Later, when Lamont became Morgan Bank chairman, he continued the bank’s relationship with Mussolini almost until World War II.

Germany too began to rebuild its economy with credit supplied by American banks. In late 1923, Britain and the US connived in installing German banker Hjalmar Schacht as the Weimer Republic’s new Commissioner on the National Currency.[iii]

Schacht’s program was based on forming giant German industrial cartels that would issue their own bonds, primarily to American investors. This would enable the building of a new German currency based on the Reichsmark, now under British control through the gold standard system run, as always, out of London. Schacht next became governor of the German Central Bank. [iv]

Behind the scenes, Britain, with America in tow, had decided to encourage Germany to rearm as a bulwark against the Soviet Union.[v] [This well-established fact is a key to understanding the pre-World War II era. Meanwhile, the US military, reverting to a 19th century outlook with Republican presidents and Senate rejection of the Treaty of Versailles, was developing secret plans to invade Canada if war broke out between the US and the British Empire.]

[Back in Europe], ever since the short-lived 19^th century League of the Three Emperors linking Germany, Russia, and Austria-Hungary, it was an axiom of British foreign policy never to allow Russia and the German-speaking nations to form an alliance.[vi] Such a step would have violated Britain’s longstanding policy of always opposing a hegemonic Continental force.

“Divide and conquer” was ever Britain’s rule, [as was shown vividly during the Napoleonic era.] That rule enforced another foundational axiom: that Britain and other European nations were in a perpetual state of hot or cold war, always egged on by the hyena-like British press.

Between the two world wars, the Soviet Union itself was rebuilding its military machine, using Western money obtained [in part] from selling Czarist gold. An impoverished Germany, however, could only rebuild by taking out British and American loans.

By 1930, $28 billion had flowed into Germany, half from the US.[vii] This included loans by Morgan & Co., the Rockefeller’s Chase National Bank, Dillon & Reed, V.A. Harriman, and Brown Brothers who lent to such German armaments firms as I.G. Farben, the Vereinigte Stahlwerke coal and steelworks, and AEG, Germany’s General Electric. Thus, the ground for World War II was being deliberately enabled by the Anglo-American financial elite, in anticipation that the German military would strike against their emergent class enemy, the Soviet Union.

[More detail will be provided on the rearming of Germany in a future installment. For now, we can observe how the overriding British plan for German annihilation was playing out. It followed similar patterns to the takedown of France and Napoleon a century-and-a-half earlier.]

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[i] Nomi Prins, All the President’s Bankers, p. 88.

[ii] Ibid, p. 79.

[iii] Ibid, p. 161.

[iv] Ibid, p. 170.

[v] These machinations were concealed from France, which feared a German military resurgence.

[vi] The policy continues to this day. Britain is the biggest cheerleader for the US/NATO proxy war against Russia in Ukraine. A main objective of this war is to prevent German industry from being supplied by Russian gas and oil.

[vii] Prins, p. 166.