November 10, 2010
post contributed by Megan Flynn
Paul Singer, of Elliot Management, enlightened the New York Hedge Fund Roundtable last Friday on the value of history. It was a far cry from a college history lecture, but his political presentation indirectly encouraged the audience to broaden their historical perspective in order to properly evaluate the present economic situation we are in today.
Singer boldly used the German Inflation Crisis of the 1920's to exemplify the severity of Inflation as a consequence of Quantitative Easing. Warning of "Inflation of currency that no one can imagine", Singer discussed several unsettling parallels between 1920's Germany and the present day monetary policy of United States.
In the 1920's, Germany shifted much of its war debt onto the general public through Quantitative Easing. Germany did this by printing money which helped the the state counteract incredible debt, but it came with crippling consequences to its citizens. Singer stated on Friday, "The path [of inflation] can be tortuous. It is not a straight line, but it is a road with lots of twists and turns". The potential benefits of Quantitative Easing seem to be ephemeral while having the potential to create catastrophic consequences in the long term.
Instead of using other alternatives to raise cash, Germany chose to induce inflation to fix it's financial situation at the expense of the populace, and according to Singer, a similar endeavor is occurring in the United States today. The consequences of these actions are looming.
Not applying historical comparisons to our financial present like Singer did on Friday dooms society to repeat avoidable failures of the past. With his bold statements and comparisons, he challenged us all to take a moment to reevaluate new regulations, current financial and accounting practices, monetary policy, etc. with a broader perspective.
Special thanks to Sami Hamdan and Michael Johnson for their contributions on this article.