After Locarno, …the Allies began to look forward to the day when Germany could be trusted to pay the reparations in cash, without cumbersome controls to ensure payment.
(after the alleged mismanagement of the German economy by the new socialist coalition government) money poured out of Germany into the safe haven of the United States. p.143
In September 1928 America and the Allies decided to ‘liquidate’ the war and on 11 February 1929 all the parties sat around a table at the George V hotel in Paris to thrash out the technical details involved. … p.149
(Meanwhile the American stock market was booming)
On 2 March 1929 a reporter on the New York Times commentated: ‘ the stock market was running absolutely wild p.147
On 7 March he declared, ‘The time has come when financiers of knowledge and repute will be forced to come into the open, to tell deluded Wall Street what situation it had actually created’. p.148
Paul Warburg, who had been on the Federal Reserve Board and had connections in the banking capitals of Europe … claimed that control of the Fed had passed into the hands of Stock Exchange operators ‘who have now for many months governed the flow of money, not only in the United States but in the principal parts of the world’. p.148
(Yet once the Young Plan negotiations began in earnest the market began to sag)
On 17 April he (Dr Schacht) offered to pay £82 million a year, but even this figure appeared to be conditional on the Allies returning some of the land taken from Germany under the terms of the Treaty of Versailles.
In the third week of April the mark slipped to its lowest level since 1924, bringing a chill to Americans who remembered Germany’s Great Inflation. … Shares on Wall Street dropped sharply on the last Thursday and Friday of the month.
Over the final weekend (of April) Owen D Young … and Dr Schacht produced a new scheme … (There was a small stock market rally) p.150/1
Yet although America believed the (Young Plan) reparations agreement to be a done deal, Schacht still had a few tricks up his sleeve. The Allied controls over the German economy to ensure payment of the reparations were still in place and Schacht had vowed to get rid of them. p.151/2
Vögler resigned as reparations negotiator, saying that the sums demanded under the terms of the Young Plan represented an impossible burden for a company like his to bear. … Vögler and Schacht’s brinkmanship, unfortunately, paid off. The collapse of the American stock market (in May) precipitated a new zeal to meet German demands. p.153/4
The New York Times commented ‘In their desire to reach a settlement … Germany’s European creditors .. abandoned practically all their reservations (including) the (financial) recovery system, which Great Britain and Belgium have profitably used.’ p.154
The settlement of the terms of the Young Plan (on 7 June) coincided with a surge of confidence on Wall Street. Paul Warburg became an object of derision. … As the market went up and up, his warnings were recalled only with contempt. p.155
During the final negotiations over reparations and war debts at The Hague in August, (during which the Allies agreed to remove the French occupationary troops from the Rhineland) there seemed plenty of money the world’s economic system to finance their payment. True, the American stock market had taken a sudden nosedive in May but then … ‘Along with the great investment trust promotions went the greatest market ever. Every day prices rose; they almost never fell…This gain of 110 points in three months … meant that during the summer values had increased, over-all, by nearly a quarter’.
Finally, on 31 August 1929 the Young Plan agreement was signed at the Hague. The German Parliament had yet to ratify it but as the Allies had accepted practically every demand made by the German delegation, their negotiators had won acceptance that its implementation should be effective from Sunday 1 September.
On 4 September the American stock market dived. The NewYork Times reported caustically: ‘The most obvious explanation …would be that the pace of advancing prices over the last three weeks has been so rapid, and so regardless of the money market position, as to inspire a growing sense of caution’.
The following Monday the reporter gave a serious assessment of the markets reaction … and consoled his readers ‘The money market is guarded against old-time panics, both by the country’s accumulation of gold and by its fund of available foreign credits’ ….
However, the stock market continued to fall (and) the funds which the money market ‘had to borrow from Europe to meet home demands’ began to depart. p.160/1
(What foreign observers had not noticed was that in Germany) In July, Alfred Hugenberg (leader of the second largest German political party had)… formed a committee (which included Hitler and the anti-semitic Pan German, Class) to oppose the Young Plan. … Hugenberg’s so-called Freedom Bill’s premise was that Germany was innocent of starting the First World War and therefore not liable to pay any reparations. It … called on the government to … reject the Young Plan (and) proposed that any minister who supported the Young Plan, the Dawes Plan and even the Treaty of Versailles should be tried for treason. p.158
On 2 October 1929, German Finance Minister, Dr. Hilferding, promised to enact legislation to counteract the high taxes on moderate incomes, which were alleged to have checked saving and encouraged the astonishing ‘capital flight to abroad of 5% of total bank deposits in the spring. … Meanwhile, Hugenberg was promoting his pernicious Freedom Bill petition poisoning the minds of the German people. p.163
On 13 October 1929 the German government felt sufficiently threatened by Hugenberg’s campaign to issue an official proclamation stating that his petition was a ‘monstrous attempt to incite the German people against the government and to annihilate the ten-year good-will policy of the republic with Germany’s former enemies. p.161
On 17 October 1929 counting on the petition to hold a referendum on Hugenberg’s so-called Freedom Bill began. It was scheduled to take two weeks. The New York Times… reported selling on the stock market. There had been a movement to ‘force’ stocks down. p.161
On 18 October the paper published a leader on (Hugenberg’s) Petition, stating its conviction that it would succeed because Hugenberg could count on Hitler’s 800,000 voters if some of his (Hungeberg’s) 4.4 million party faithful fell by the wayside. Money flooded out of America. p.161/2
On 21 October ‘Perpendicular’ falls were recorded after it was reported that the dollar had fallen sharply against the mark. p.163
The Swedish match king Ivar Krueger had undertaken to lend the German government money to help cover the initial instalment of the Young Plan reparations agreement in return for a monopoly on the German match industry. It was believed that he could fund this deal himself. However on the evening of 22 October ‘ formidable advertisements announced … a new offering of certificates in Aktiebolaget Kreuger and Toll.
This was too much for the American market. Americans had already given Germany the Young Plan loan. With the prospective success of Hugenberg’s pernicious petition leading to a national referendum, there seemed a grave doubt as to whether either the reparations, or indeed any of the money lent to Germany since the war, would ever be repaid. The whole edifice of reparations, war debts and German loans could collapse. p.163-4
On 23 October 1929 the American stock market crashed. 19,226,400 shares were sold. The paper loss in October and November was $26.1 billion – equal to the entire wartime increase in the American national debt. p.164
For modern parallels please look at articles on my blog
Germany – an emerging superpower? Comparisons with the 1930s. (published before the Lehman crash)
The Euro, the Stock Market collapse and the Future of Europe?
Germany’s Long Game?