238 THE BiG DROP
At one point, the Reichsbank printed such huge volumes
of currency that they were physically constrained by paper
shortages. They even resorted to printing on one side of the
banknote in order to save ink, which was also in short supply.
Havenstein is routinely portrayed as the villain in the story —
the man whose money printing ruined the German currency
and its economy.
Yet Taylor makes almost no mention of Havenstein, refer-
ring to him only a few times in this 400-page book. Instead,
Taylor takes aim at the political leadership that refused to com-
promise on the structural reforms needed to restore growth to
the German economy so it could begin to deal with its debt
burden.
Politicians looked to the central bank to paper over their
problems rather than fix the problem themselves. In this anal-
ysis, Havenstein is not an autonomous actor out to destroy the
currency. He is simply the handmaiden of a weak, dysfunction-
al political class who refuse to make hard choices themselves.
This insight, which is well documented by Taylor and clearly
described, is of the utmost importance as you try to assess the
risks of hyperinflation in the U.S. today. Investors like to point
fingers at Ben Bernanke and Janet Yellen for “printing” (actually
digitally creating) trillions of U.S. dollars out of thin air.
But today’s problems in the U.S. economy, too much debt
and too little growth, are identical to the problems confront-
ing Germany in 1921. Then, as now, the solutions were mainly
structural. Then, as now, the politicians refused to compromise
on solutions and looked to the central bank to paper over the
problems. Then, as now, the central bank accommodated the
politicians.
The name for this phenomenon is fiscal dominance, some-
thing described by former Federal Reserve Governor Frederic
Mishkin in a classic academic paper in 2013. Mishkin says that
central bank independence is largely a myth and only appears