In 1931 Germany was the epicenter of the emerging dollar squeeze. It had previously faced great difficulty paying back the reparation debt it owed and had been forced to borrow as a result. The country had become a popular destination for the “carry trade,” in which investors would lend their dollars to Germany to earn a higher yield than they would get in dollars and Germans would borrow in dollars to get the lower interest rate. Once again, this type of behavior is classic in the “good times,” when there is little perceived risk and large cross-country credit creation, and sets up the
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