In 1899, Wasa Aktiebanken built a very nice-looking office for itself in Helsinki on Etelä Esplanadi. The building is still there but the bank has been long gone. A few years later, in 1918, during Finland’s civil war, the Whites asked the bank to issue 10 million markka bank notes so that people could buy and sell things locally with “local municipal money”. The Whites had seen that the Germans were doing the same thing with “Notgeld” when official notes were in short supply because of the impending war.
The Germans had started printing the first Notgeld notes in Bremen in 1914 to finance the start of World War 1. Its use spread quickly to the other major cities during the war and the practice continued after November 11th, 1918, now called Armistice Day, the day Germany signed a peace agreement to stop the fighting with Britain, France and their allies.
After that date things started to go badly wrong because basic goods were in short supply and prices started to rise really fast. Cities, towns and even businesses continued to issue Notgeld in greater volumes. Four years later, in 1922, inflation started to get out of control in Germany, culminating in hyperinflation. Throughout the year, the value of the German mark deteriorated and new money in higher denominations was issued continuously. The Reichsbank could not cope with the logistics to supply notes and coins and Notgeld was again issued—this time in denominations of hundreds, and then thousands of Marks.
By July 1923, the Reichsbank had lost control of the economy. Notgeld flooded the economy, to meet the insatiable rise in prices. By September, Notgeld was literally being printed in denominations in the tens of millions; by October, in billions; by November, trillions. On November 12, the Mark was declared valueless by the Reichsbank and all issuance was suspended.
Today we have Covid-19 crisis combined with the aftermath of the financial crisis where the central banks are trying to help the economy along in the same way as the Reichsbank, the cities, towns and businesses. The Central Bank bosses call this “Quantitative Easing” and “PEPP”, an abbreviation for “Pandemic Emergency Purchase Programme”. They have been buying trillions of government, bank and corporate bonds from the banks. They have even started buying more bonds from the Italian and Greek governments who now see that their interest rates are close to those paid by the German government, a result that is not justified by their poor credit ratings. In both cases the central banks are printing money and the natural result of this is inflation…
Your correspondent is not a full-time economist with a PhD, but he has been watching and listening to economists carefully for the last 5 decades. They have missed almost every crisis during this period and none of their ideas seems to have created a smooth functioning global economy. We seem to have a regular financial crisis every ten years, and income inequality gets worse by the year with a small number of people getting a bigger slice of the cake at the expensed of the rest. Listening to economists appears to be time wasted because they have no skin in the game, and their opinions come cheap and easy!
Nassim Nicholas Taleb pointed out in his book ”The Black Swan” that bad stuff happens when everybody least expects it to happen, meaning that when everything is rosy, what could possibly go wrong? Just recall the Tech crisis, The Mortgage crisis, Trump, Brexit, the Surprising Pandemic, and what was all that talk about Climate Change? This is what Margaret Heffernan says is caused by “Wilful Blindness” also the name of her book. Wilful Blindness is has become a pandemic like this virus.
Our central banks are basically irrational in printing money this last years since they are financing huge public sector deficits while interest rates are too close to zero. Inflation is a probable result just around the corner, but it may take a few years to become apparent based on the German experience of the 1920s.
It was the same with Wasa Bank. It lasted a few years before it was bought up by Helsinki-Osake-Pankki, who in turn ended up as part of SYP, who ended up as part of Nordea. And this last banking elephant appears to continue to enjoy illicit money laundering for some nasty people… who says history does not repeat itself?
By Nicholas Anderson – First published in Swedish, September 2020 in Affärsmagasinet Forum / Forum Business Magazine