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1943 was the year morale began to plunge, though not just from bombing but also from humiliating defeats in the East and the Mediterranean.
But the impact on contemporaries of the events of July 1943 cannot be exaggerated. Even the most rabid adherents of the Third Reich could hardly deny that the 'end was nigh'. Hans Kehrl faced this reality, on the first night of Hamburg's devastation, when he was woken by a telephone call from his close associate Gauleiter Karl Kaufmann, who begged him to accelerate the delivery of several trainloads of quicklime, which would be needed for the rapid disposal of tens of thousands of corpses. After Kehrl rushed to the Ministry and was informed of the dimensions of the disaster, he suffered a temporary collapse. For the first time in years, this obsessive workaholic was forced to return home where he spent hours roaming around his garden in a daze. Not surprisingly, as the news from Hamburg leaked, the Gestapo picked up reports of shock and dismay from across the country. Mussolini's sudden removal added to the panic. The SD noted that party members were no longer wearing their party badges in public and people were avoiding the Hitler salute wherever possible. Speer found that even party audiences no longer responded to his boasts about the triumphs of the armaments miracle. Amongst senior industrial leaders, the SD reported, there was no longer anyone who believed in the possibility of a German victory. To admit as much in public, however, was extremely dangerous.

The Nazi leadership reacted to the crisis of morale with a determined escalation of violence. On 24 August 1943 Heinrich Himmler, Reichsfuehrer of the SS, took over the Interior Ministry. By the end of the year the regional bosses of the Nazi party, the Gauleiter, had been formally instituted as the overseeing authority of local government. The party and the state were increasingly fused and it was the party that set the tone. The politicization of the judiciary, which had taken on ever more aggressive forms since the beginning of the war, was intensified. By 1943 the courts were issuing death penalties against Germans for defeatism and sabotage at the rate of a hundred a week. Even prominent businessmen were no longer immune. Indeed, Heinrich Himmler and the Gestapo made a point of singling out bourgeois defeatists for especially aggressive reprisals. In the autumn of 1943 two senior branch managers of the Deutsche Bank were arrested and executed for making defeatist remarks.
(pages 602-603) Then there's more about how the black market began to grown from this year onwards.