Thread by @consbyname

During 1930s Germany, rather than overt monetary financing, I prefer to think of Germany's actions as covert monetary financing. They were able to carry this out using two tools, Öffa bills, and later, Mefo bills.

So what were they and what do I mean by covert financing? 1/?

On the 1st of August 1930, the company Deutsch Gesellschaft für öffentliche Arbeiten AG was formed. The name roughly translated to "German Society for Public Works AG". However, this was actually a shell company, the purpose of which was to provide cover for the then 2/?

Chancellor, Heinrich Brüning and President of the Reichsbank, Hans Luther to coordinate and raise funds for public investment and building initiatives.

In 1932, the first Öffa bills were created and issued by the DGFOA and subsequently discounted by the Reichsbank despite 3/?

the company being a shell organisation with inadequate equity.

This "off book", covert money creation would continue at pace, and would ultimately result in approx 1.26 billion Reichsmark worth of bills being issued, with durations ranging from 3 months to 5 years. 4/?

Von Schleicher's second cabinet expanded the bill scheme, with Öffa bills now also being issued by mainly public financial institutions such as the Deutsch Verkehrskreditbank AG, which promptly issued a further 1 billion Reichsmark worth of bills.

By 1933, Adolf Hitler had 5/?

become Chancellor of Germany, and having seen the success of the Öffa bills, saw a way to covertly circumvent the Treaty of Versailles and begin the re-armament of Germany as the money creation would be hidden from international scrutiny. Luther disagreed with this, and 6/?

was replaced just two months after Hitler became Chancellor by Hjalmar Schacht. Schacht was a vocal critic of the reparations imposed on Weimar.

Schacht devised and proposed a new system based on a similar one to that of the Öffa bills which were called Mefo or MEFO bills. 7/?

The Mefo bills were named after their issuing company Metallurgische Forschungsgesellschaft or "Metallurgical Research Corporation",and as Schacht later explained, they "enabled the Reichsbank to lend by a subterfuge to the Government what it normally or legally could not". 8/?

This funding device essentially allowed the rearming of Germany based on just 1 million Reichsmark in capital whilst leaving no paper trail. This allowed Germany to circumvent money markets, avoiding both scrutiny from other countries regarding their deficit, and the 4.5% 9/?

interest limit laid out in the Treaty of Versailles.

Despite MEFO having no physical existence or operations and existing only on paper, Mefo bills served as bills of exchange and were convertible into Reichsmark on demand. The bills were primarily used for paying 10/?

Armament manufacturers and had a six month duration, although this could be extended by indefinite three month extensions.

At the time, the total volume of Mefo bills was kept secret, but we do know that by 1939, some 12 billion Reichsmark worth of Mefo bills issued, 11/?

in contrast, 19 billion government bonds were issued over the same period.

The grift worked like this:

Arms manufacturers were paid in the Mefo bills issued by the Government created shell company.

Arms guy goes to bank, swaps bills for cash.

RB converts bill for bank. 12/?

The resulting spending (alongside other programs of Schacht's) contributed to the economic boom, which as shown, was somewhere in the region of 8-10% of GDP for five years running with little to no inflation.

So how was inflation avoided? That's for another thread. Fin/