Germany doesnt invade the rest of Czechoslovakia (respects munich) but invades Poland

PlasmaTorch

Banned
The Nazi economy was dependent on looting the territory of each nation it conquered. Without Czech resources, most particularly their gold reserves, the Reich's economy probably collapses before Hitler can invade.

Lots of people claim this on other threads, but they never seem to cite a source. Do you have any? While its true that germany had an employment rate of over 100% (too many jobs and not enough workers), that doesn't necessarily mean they were destined for a collapse.

The other problem is that the Germans crucially needed Czech industry for their war effort. The factories of companies like Skoda and the well-developed Czech military-industrial complex were critical to building up the Wehrmacht. Without it, they would be in far worse shape militarily. The OTL Nazi invasion of Poland was actually a more even fight than many assume; they took heavy casualties. Without the Czech population and economy, it would be even more so.

You are correct about the contributions that czechslovakia made to the reichs war effort, of course. But poland, an even fight? It was nothing of the sort. The poles fought better on a man for man basis than the soviets did in barbarossa, but their defeat was never in question.

Did you know that 95% of germanys war deaths only came after they invaded the USSR? Their victorys in poland, denmark, norway, france, the low countrys, greece, and yugoslavia came at an astonishingly small price. The battle of poland could be twice as bloody as OTL and it still wouldn't affect them.

Even if Britain and France didn't declare war, they would look very negatively on this and would probably heavily sanction Germany, putting further pressure on their economy. Given that the Nazis didn't have enough motor transport in OTL, that 70% of what they did have was captured during the Battle of France, that they not only don't have that but also don't have Czech industry, and that they probably took worse losses in Poland, any chance of Barbarossa succeeding, slim enough IOTL, is DOA in this TL.

Another big question is if this butterflies the Molotov-Ribbentrop Pact somehow. That would make the Nazi position even worse.

Going after poland before czechslovakia would be a bad move, true. Maybe a worse strategy than OTL when you take everything into consideration.
 
Lots of people claim this on other threads, but they never seem to cite a source. Do you have any? While its true that germany had an employment rate of over 100% (too many jobs and not enough workers), that doesn't necessarily mean they were destined for a collapse.

You are correct about the contributions that czechslovakia made to the reichs war effort, of course. But poland, an even fight? It was nothing of the sort. The poles fought better on a man for man basis than the soviets did in barbarossa, but their defeat was never in question.

Did you know that 95% of germanys war deaths only came after they invaded the USSR? Their victorys in poland, denmark, norway, france, the low countrys, greece, and yugoslavia came at an astonishingly small price. The battle of poland could be twice as bloody as OTL and it still wouldn't affect them.

Going after poland before czechslovakia would be a bad move, true. Maybe a worse strategy than OTL when you take everything into consideration.

The Wages of Destruction IIRC makes the relevant argument pretty well. The math is quite simple. The Nazis were spending an outrageous amount on their military (28% by the late 1930s, even higher than the Soviets in the 1980s and they had to maintain a higher standard of living for their citizens and do it all without the Soviets' oil and gas revenues) and numerous other programs, private industry and capital was being crushed (the Nazis managed incredibly to liquidate one fifth of all private small businesses and reduce the country's stock exchanges by more than half), and there was a huge national balance of payments deficit. They simply couldn't have gone on like that for long. A recession was widely predicted at the time and seems impossible for them to avoid in hindsight without looting their neighbors.

I said a more even fight, not an even one. Subtle difference. They will eventually win, but I can see the campaign going on for a while longer and costing them more, and they didn't even have the men, time, or resources to win against all their enemies in OTL. With that difference, they're completely screwed.
 
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PlasmaTorch

Banned
The Wages of Destruction IIRC makes the relevant argument pretty well. The math is quite simple. The Nazis were spending an outrageous amount on their military (28% by the late 1930s, even higher than the Soviets in the 1980s and they had to maintain a higher standard of living for their citizens and do it all without the Soviets' oil and gas revenues) and numerous other programs, private industry and capital was being crushed (the Nazis managed incredibly to liquidate one fifth of all private small businesses and reduce the country's stock exchanges by more than half), and there was a huge national balance of payments deficit. They simply couldn't have gone on like that for long. A recession was widely predicted at the time and seems impossible for them to avoid in hindsight without looting their neighbors.

Eh, I don't think I can agree with that. In this thread, J VonAxel goes into detail about the economic position of the nazis prior to WW2. He makes a few points that throw doubt onto the Tooze theory. I'm going to repost his comments here, just as food for thought.


"According to the latest economic-historic studies, with access to the Reich’s internal books. The Nazi’s spend roughly 52 Billion RM on the Wehrmacht in the budgets of 34 to 39. And some 15 Billion RM on infrastructure projects, but less than 3 Billion RM of that was spend on the famous autobahn. These figures include the so called “shadow budgets” consisting of the renowned Mefo Bills and make work programs.

These same studies belay the notion that the Reich’s economy was spiralling out of control. With inflation and economic collapse mere 'moments away', forcing the Nazi’s to go on a spree of plundering the National wealth of their neighbours... In fact the ratio of National Debt(incl. Mefo and MWP) to real GNP had remained steady under the Nazi regime to around 30% significantly less than the 45% of the USA. And to further illustrate how small the debt was, should the Nazi’s have chosen to not double the defence spending again in 39 (10bn RM in 37&38 to 21bn RM in 39) they would have been able to replay the entire deficit of some 10bn RM in one budget year. Something that would take the current US around 7 years and only if they completely stop all other spending(ie never going to happen).

At the same time it cannot be denied that the sourcing of raw materials, was creating shortages and delays in the economy. Something that in my opinion had less to do with foreign currency reserves then with the fact that the Reich’s economy had increased by around 70%, in the period of 32 to 38. Suddenly doubling you nations demand for resources will inevitably cause troubles, (even more as the entire world economy was going through a recovery and expansion period,) something that has since happened several times. For the latest example look at the steel prices and availability in the 00’s during China’s massive economic boom.

These same studies however also show that Nazi monetary and macroeconomic policy was severely limited. Basically focusing on keeping the inflation as low as possible and ensuring consumption spending was curtailed, by managing the supply-side. They also confirm that the recovery to full-employment from 32 to 36 was happening without any help from the Nazi’s, they did however managed to avoid by accident the recession of 37-39."
 

Interesting. Contradicts nearly all of what I've heard on the subject. I think I remember finding some good sources in this thread. The general consensus seems to be that it was possible for the Nazis to maybe avoid collapse by drastically reducing spending, particularly on armaments. The problem is that they most likely wouldn't have been willing to.
 
Lots of people claim this on other threads, but they never seem to cite a source. Do you have any? While its true that germany had an employment rate of over 100% (too many jobs and not enough workers), that doesn't necessarily mean they were destined for a collapse.

A source? Sure, Hjalmar Schacht, president of the German central bank, in January 1939 wrote a letter to Hitler, telling him in no uncertain terms that the armaments policy could not be financed any longer, and that even to that point, it had been undertook "in spite of the inherent dangers to the currency". Continuing at the same rate would have meant inflation, quickly, and then possibly further economic woes.

Hjalmar Schacht said:
We are, however, faced with the fact that approximately three billion Reichsmark of such drafts cannot now be paid, though they will be due in 1939.
...
Exclusive of the Reichsbank there are approximately six billion Reichsmark 'Mefo' drafts which can be discounted against cash payment at any time at the Reichsbank, which fact represents a continuous danger to the currency.
...
We are convinced that the effects on the currency caused by the policy of the last ten months can be mended, and that the danger of inflation again can be eliminated by strict maintenance of a balanced budget.

Frankly I don't think you could quote a more authoritative source. Naturally we know what Hitler's reaction was: he fired Schacht and then took Prague.

You are correct about the contributions that czechslovakia made to the reichs war effort, of course. But poland, an even fight? It was nothing of the sort. The poles fought better on a man for man basis than the soviets did in barbarossa, but their defeat was never in question.

The outcome was never in question - OTL. We're talking about an ATL here, however.

Did you know that 95% of germanys war deaths only came after they invaded the USSR? Their victorys in poland, denmark, norway, france, the low countrys, greece, and yugoslavia came at an astonishingly small price. The battle of poland could be twice as bloody as OTL and it still wouldn't affect them.

It's obviously wrong to compare casualties over a period of 6 years with those over a period of 3 months (of actual fighting).

As to double losses not affecting the German armed forces, in OTL, in Poland they took the equivalent of 3 divisions' worth of losses, and they were fielding some 100 divisions. Of these, however, the Germans sent into Poland some 60 divisions including the 3 Slovakian ones. The rest had to man the French border. Losses for 3 divisions amounts to 5% of the campaigning force.

In this ATL, the Germans probably have 70 divisions in all. Assuming they are leaving only 22 along the French border and 6 in the Sudeten, they are attacking with 42 divisions. Double the OTL casualties to 6 divisions' worth of men, and the casualties are 14% of the campaigning force.
 

PlasmaTorch

Banned
A source? Sure, Hjalmar Schacht, president of the German central bank, in January 1939 wrote a letter to Hitler, telling him in no uncertain terms that the armaments policy could not be financed any longer, and that even to that point, it had been undertook "in spite of the inherent dangers to the currency". Continuing at the same rate would have meant inflation, quickly, and then possibly further economic woes.

Fair enough. Schacht was a smart guy, but he got some things wrong. He tried to convince Hitler that the fiat currency they printed should be put under the control of a private bank, instead of a state bank. Schacht was over ruled by Hitler, and decades later, he admitted that Hitlers setup did not result in the price inflation that Shacht predicted.

Frankly I don't think you could quote a more authoritative source. Naturally we know what Hitler's reaction was: he fired Schacht and then took Prague.

No, Hitler fired Schact because he refused any extension of the ofa and mefo bills. Hitler also suspected that Schact was sharing secrets with his friend Montagu Norman, who ran the bank of England. His reaction was unsurprising, given how much Hitler despised private banks.
 
Fair enough. Schacht was a smart guy, but he got some things wrong. He tried to convince Hitler that the fiat currency they printed should be put under the control of a private bank, instead of a state bank. Schacht was over ruled by Hitler, and decades later, he admitted that Hitlers setup did not result in the price inflation that Shacht predicted.

In actual history, of course it didn't. War broke out, preceded by annexations and appropriations of gold reserves here and there.


No, Hitler fired Schact because he refused any extension of the ofa and mefo bills.

Well yes. Stopping the junk bond fraudulent scheme of the MeFo bills would help a lot in protecting the Reichsmark, and that that fraud was a deadly danger is stated in so many words in the excerpt I quoted above.

MeFo drafts worked this way: the German state paid armaments producers and others with those. The MeFo GmbH (a limited liability company!!) was an empty-box fraud. But producers accepted the drafts. Then they could keep them for years, if they were being patriotic and all; or they could run to the Reichsbank and ask for actual money in exchange for them, at a discount. They'd lose some 5% of the nominal value, but they'd have money instead of waste paper.
And the Reichsbank had undertaken an obligation to redeem that waste paper, albeit at that discount.

Do you understand now why Schacht was clearly not sleeping well at night, as he thought of those 5 billions of non-existing money? What if something went wrong and started a panic, with all holders demanding money for their junk bonds all at the same time? The Reichsbank would have to put out 4,750,000,000 Reichsmarks (!!!). Yeah, they could print that money, the "fiat" money you refer to. Don't you think that would wreck the Reichsmark?
 
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Eh, I don't think I can agree with that. In this thread, J VonAxel goes into detail about the economic position of the nazis prior to WW2. He makes a few points that throw doubt onto the Tooze theory. I'm going to repost his comments here, just as food for thought.


...

At the same time it cannot be denied that the sourcing of raw materials, was creating shortages and delays in the economy. Something that in my opinion had less to do with foreign currency reserves then with the fact that the Reich’s economy had increased by around 70%, in the period of 32 to 38. Suddenly doubling you nations demand for resources will inevitably cause troubles, (even more as the entire world economy was going through a recovery and expansion period,) something that has since happened several times.

No joking.

Imagine you are the majority shareholder of a company running a factory that produces high-quality furniture, in particular teak wood furniture. That kind of product accounts for 70% of your output. Your company is the main employer in town, and your business is booming.
Suddenly you can't seem to be able to procure more than 30% of the teak you need. Teak wood is very sought after, it's in short supply everywhere, and also the prices are rising, and other companies buy most of it, at prices you find too high to afford.
So you have a factory, that costs you money just by existing, and a workforce, that costs you money just by being on the payrolls, but you are producing some 51% of the potential output, of which 30% is not your mainstay product.

How long before you have to start downsizing the workforce? How long before the "troubles" are reflected by the accounts, causing panic among the minority shareholders? What will be the effects on your customers, and on all the other suppliers that are providing you with other products and services apart from teak wood? They'll also be in trouble. How long before the city's municipal bonds will begin suffering from the dim outlook of the city?
 

PlasmaTorch

Banned
In actual history, of course it didn't. War broke out, preceded by annexations and appropriations of gold reserves here and there.

Except thats not the explanation that Schact gave in his book. There is a reason why Hitlers setup did not result in price inflation. I was reading The Magic of Money today, and one part jumped out at me. Its on page 115-117.

"The Reich's revenue from taxes increased from 6.5 milliards to 14 milliards between 1932 and 1937. The MEFO system was a noteworthy example of the fact that it is possible to make up for a lack of capital by means of credit without any risk of engendering an inflation which causes price rises. The stability of the currency remained assured."

"After the collapse in 1945 I was repeatedly asked whether the success of the MEFO bill scheme did not mean that whenever there was a shortage of capital savings one could compensate by replacing such capital savings with credits granted by the central bank, and thus by money specially printed for the purpose."

"In the first days of January 1939, the Reichsbank handed Hitler a memorandum in which it indicated its refusal to grant the Reich any further credits. The consequences were drastic. On January 19, I was dismissed from my office as president of the Reichsbank with immediate effect. On the following day, Hitler issued an edict which ordered the Reichsbank to grant the Reich all credits for which the Fuhrer asked."

"Later on there was much discussion about the reasons why the MEFO bill scheme did not unleash inflation. The answer can be seen in the foregoing. Every MEFO bill was tied to a quantity of goods. Only bills which effected a transfer of goods from one hand to another were granted. Thus the circulation of money and the circulation of goods remained in equilibrium."

Well yes. Stopping the junk bond fraudulent scheme of the MeFo bills would help a lot in protecting the Reichsmark, and that that fraud was a deadly danger is stated in so many words in the excerpt I quoted above.

MeFo drafts worked this way: the German state paid armaments producers and others with those. The MeFo GmbH (a limited liability company!!) was an empty-box fraud. But producers accepted the drafts. Then they could keep them for years, if they were being patriotic and all; or they could run to the Reichsbank and ask for actual money in exchange for them, at a discount. They'd lose some 5% of the nominal value, but they'd have money instead of waste paper.
And the Reichsbank had undertaken an obligation to redeem that waste paper, albeit at that discount.

Do you understand now why Schacht was clearly not sleeping well at night, as he thought of those 5 billions of non-existing money? What if something went wrong and started a panic, with all holders demanding money for their junk bonds all at the same time? The Reichsbank would have to put out 4,750,000,000 Reichsmarks (!!!). Yeah, they could print that money, the "fiat" money you refer to. Don't you think that would wreck the Reichsmark?

You make a good point about the danger of bank runs, but... Isn't that an inherent risk with all forms of fractional reserve banking? How was the practises of the reichsbank any different from those of the federal reserve?
 
You make a good point about the danger of bank runs, but... Isn't that an inherent risk with all forms of fractional reserve banking? How was the practises of the reichsbank any different from those of the federal reserve?

The difference is that the MeFo bills, regardless of what Schacht wrote well after the facts in order not to portray himself as a swindler, were junk and not "linked to goods". We're talking about drafts issued by a limited liability company with a capital of 1 million Reichsmarks, and by 1938 this company was out for drafts amounting to 12 billions.

This is in reply of the rest of your post too.

Remember the old saying: nobody looks bad in his own memoirs.
 

PlasmaTorch

Banned
The difference is that the MeFo bills, regardless of what Schacht wrote well after the facts in order not to portray himself as a swindler, were junk and not "linked to goods".

Neither are federal reserve notes! The fiat currency they print is not redeemable in gold, silver or any other commodity, and receive no backing by anything. The ability to redeem notes into gold ended in 1933, with the gold reserve act. The ability to redeem notes into silver ended in 1968, with the removal of silver certificates from circulation. Federal reserve notes are as worthless as the MEFO bills.

We're talking about drafts issued by a limited liability company with a capital of 1 million Reichsmarks, and by 1938 this company was out for drafts amounting to 12 billions.

At the risk of sounding repetitive, this also applys to the federal reserve. Like the reichbank, it uses fractional reserve banking, which means it can have only a fraction of the capital thats actually needed to back all the money they print. This has only gotten worse in the past few decades, owing to the fact that most of the currency they 'create' is just 1s and 0s on a computer: Digital money which isn't backed by anything.

With that being said, there comes an obvious question. Why do your points create a problem for the reichsbank, but no problem at all for the federal reserve? Whats the fundamental difference between them?
 
Neither are federal reserve notes! The fiat currency they print is not redeemable in gold, silver or any other commodity, and receive no backing by anything. The ability to redeem notes into gold ended in 1933, with the gold reserve act. The ability to redeem notes into silver ended in 1968, with the removal of silver certificates from circulation. Federal reserve notes are as worthless as the MEFO bills.



At the risk of sounding repetitive, this also applys to the federal reserve. Like the reichbank, it uses fractional reserve banking, which means it can have only a fraction of the capital thats actually needed to back all the money they print. This has only gotten worse in the past few decades, owing to the fact that most of the currency they 'create' is just 1s and 0s on a computer: Digital money which isn't backed by anything.

With that being said, there comes an obvious question. Why do your points create a problem for the reichsbank, but no problem at all for the federal reserve? Whats the fundamental difference between them?

Several.

The first one is that now is now and then is then. At the time, the gold standard had only recently been abandoned, and central banks all over the world still retained huge amounts of gold reserves. If Nazi Germany had had plenty of those, that would have been one thing; but as you'll remember, both the gold reserves and the valuable foreign currency reserves were dwindling at the same time as these unbacked debts rose and rose. Today, economic operators are used to work within the current framework; at the time, the change was recent, relatively speaking.

Then there's maturity. Any country today issues public debt instruments... and they are carefully staggered over years or decades, and usually they cannot be redeemed before maturity. You can sell them, of course, provided you find a buyer, and who knows at what loss. Nazi Germany had barrowloads of MeFo drafts that expired in 1939, and another very sizable expiration, this time of national bonds, in 1940 (the latter were simply postponed by fiat, don't you know there's a war on, don't be unpatriotic, and all of that). On top of that, the MeFo drafts had a guaranteed buyer (the Reichsbank, and that's why Schacht was worried no end) and a guaranteed maximum loss if you decided to drop them in advance.

Another aspect is expectations. Nowadays, nobody expects the US Dollar to go belly up. In 1939, they were just 10 years after the Great Depression, and the Germans had seen the 1919 hyper-inflation too. As long as things went well (read, we're granting our benign protection to the Bohemians and our tanks are rumbling down St. Wenceslas Square), confidence was up; and that's another, indirect way of connecting the dismemberment of Czechoslovakia to the fact that inflation was kept in check. But suppose no fresh blood pumped in, and a minor private bank or industrial company tanking? What would follow?

Another aspect is in the surreptitious way in which this was achieved. This was effectively public debt, but it was not in the state's books (obviously the German state also issued state bonds etc., and they were a hefty amount too). To continue with the comparison with a private company, it's as if the company has a huge debt that, however, its shareholders and creditors know nothing about. As long as nobody noticed, or, let's say, as long as those who noticed felt the advantage of ignoring the problem was worth the risk, all's well. But suppose someone started mentioning the trick, and someone else decided that this was unsafe, and made a run for the MeFo drafts?

The latter two problems are typical of Nazi policy, not just nazi economic policy: go for broke, risk everything, don't hedge, don't be cautious. As long as you win, fine. If you lose, however, you lose big time.
The corollary was, of course, that you had to keep doubling the ante. We know how that ended.
 
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