A Template for Understanding Big Debt Crises

by Ray Dalio

Further, there was little appetite internationally to extend Germany credit on a scale that would allow it to spread out its reparation burden. This was for two reasons. First, most developed world economies were burdened by war debts of their own (primarily owed to the United States) and were also in the midst of severe recessions. Second, the German government (and most Germans) weren’t creditworthy. For instance, when the head of the Reichsbank approached the Bank of England for a 500 million gold mark short-term loan to meet the second reparation installment, he was “politely refused.”62 According to the British Chancellor of the Exchequer at the time, “the difficulty was that there was a vicious circle. Germany said she could not stop the emission of paper money and repay her obligations unless she was able to raise a foreign loan, and she could not raise a foreign loan unless she could pay her obligations.”