27 JANUARY 1939, Page 36


Just what has induced this attack of the jitters at this particular time it is not easy to define, but there can be no doubt that Dr. Schacht's dismissal from the Reichsbank, plus the rapid advance of the Franco battalions on Barcelona, have touched off a situation that was already playing on most people's nerves. The market was thus in a mood to fall a prey to any sort of alarmist interpretations which Paris, Amsterdam or Johannesburg might choose to place on the course of political events and even when rumour has been silent a nameless dread has afflicted the City. It is early yet to make any firm deductions from Dr. Schacht's dismissal, but I feel pretty confident that the City is justified in inter- preting this move unfavourably. Even allowing for the fact that the Nazi party had already partially liquidated Dr. Schacht and turned a deaf ear to most of his recent warn- ings, the official advent of Herr Funk robs Threadneedle Street of its last real contact with the German banking system. Whether one should assume that we are now about to witness a rake's progress in German finance I am not at all sure, nor would it necessarily be a " bull point " for markets if we did. What is clear is that Germany is facing a growing conflict between her intensification of military production and some of the implications (e.g., reduced exports) of her development along totalitarian lines. Already there is an obvious pressure of production on available resources of labour, but so far credit inflation has been held within bounds. If political events -allow, the City will watch the progress of Germany's finances very closely over the next few months.