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interestrateripoff

Von Havenstein & Q E

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http://university.unitedstatesliberty.org/654/textbooks/adam-fergusson-when-money-dies-nightmare-of-the-weimar-collapse/

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In a lengthy interview many years afterwards with Pearl Buck, Erna von Pustau, whose father was a small Hamburg businessman who ran a fishmarket, made the same point: ‘We used to say “The dollar is going up again”, while in reality the dollar remained stable but our mark was falling. But, you see, we could hardly say our mark was falling since in figures it was constantly going up -and so were the prices — and this was much more visible than the realisation that the value of our money was going down … It all seemed just madness, and it made the people mad.’ In other words, the causes of the mark’s depreciation, which certainly escaped Germany’s politicians and bankers as well, had little enough to do with how the people, individually or collectively, reacted to it. Most of them clung to the mark, the currency they knew and believed in, long after the eleventh hour had come round for the umpteenth time. Most had no choice; but all were encouraged or bemused by the Reichsbank’s creed of Mark gleich Mark — paper or gold, a mark is a mark is a mark. If prices went up, people demanded not a stable purchasing power for the marks they had, but more marks to buy what they needed. More marks were printed, and more, and more. Inflation, already in its fourth year when revolution overthrew the old regime, added a new, overwhelming uncertainty to the many uncertainties that attended the birth of the Weimar Republic.

.........

Schacht was faced with incredible disorder. During the previous ten days expenditure had exceeded revenue by 1,000 times. The floating debt had been increased fifteen times. The government would shortly be unable to pay cash wages to the Army, to the police, or to its own officials. Already the officers of the Ministry of Finance itself were being paid partly in potatoes. The budgetary estimates included on every page the outrageous reminder, in brackets, that all figures were in quadrillions.* (US notation, with 15 noughts. Government expenditure at this time amounted to 6 quintillions (US notation, with 18 noughts) to which revenue had contributed a mere 6 quadrillions, one-thousandth as much.) The Rentenbank Directorate tended unashamedly to the Right, comprised of large landowners, big industrialists, agricultural interests and the like -the class of people whom the inflationist policy had enriched and who had escaped paying their just dues to the State — so that there was not much hope of a democratic outcome.

What followed Dr Schacht’s appointment and the fledging of the Rentenbank on November 15, exactly a month after the original Ordinance, was astonishing. On that day, when the discounting of Treasury bills was at last halted by the Reichsbank, Dr Havenstein had unparalleled resources coming to the rescue of the mark which only the previous day had fallen to 6,000 milliards to the pound. According to Dr Schacht the unissued paper marks then in the hands of the Reichsbank and its branches would have filled 300 ten-ton railway wagons.

The engine of inflation had been put out of gear, but still the country’s finances hurtled downhill under their own stupendous momentum. In the course of the next five’days, as the first Ren ten-marks appeared, the mark in Berlin fell, and was allowed to fall, to 12,000 milliards on November 15 to 18,000 milliards to the pound on November 20, the equivalent (for sterling had recently been depreciating in New York) of 4,200 milliards to the dollar. The face value of the total circulating notes doubled again in those five days, and the paper mark became worth exactly one-million-millionth of the gold mark. It was at that point, when it was only necessary to strike off 12 noughts to effect a simple conversion, that the paper mark — still the only legal tender — was at last stabilised.* (Had the mark been stabilised at its rate on November 15, the unworkable and difficult coefficient of 1.66 recurring would have been needed for all conversions.) A million million marks equalled a gold mark. A gold mark equalled a Rentenmark. Mark gleich Mark, once more: the vital question was whether anyone, whether everyone, would believe it. Confidence was all. Dr Luther, the Finance Minister, compared the exercise to building a house beginning with the roof.

There were problems, many of which had already been thrashed out at the end of the summer. The gold and gold-equivalent reserves had been so frittered away during the Ruhrkampf that they were inadequate to back the new currency. The Rentenbank’s notes were therefore guaranteed in equal amounts by mortgages on landed property and by bonds on German industry — trade, commerce, banking and transport — to a combined amount of 3,200 million gold marks, about £160 million. The maximum note issue in Rentenmarks was to be 2,400 million. The Rentenbank was independent (as the Reichsbank had been) of government interference. In return for special credits of 1,200 million to the Reich — including 300 million Rentenmarks at nil per cent to pay off the floating debt — the government guaranteed not to discount any more Treasury bills with the Reichsbank. During the five days following November 15, when the paper mark was allowed to lose another half of its value although discounting had stopped, the gold-mark equivalent of the discounted Treasury bills fell from 320 million to 191.6 million. By the device of waiting for a round number, the Rentenbank had done the Reich a most advantageous turn.

The pause, in fact, struck another blow at the insensible, many-times-overkilled national creditor, from the War Loan lender to the mortgage granter, from the life insurance policy owner to the cooperative society member, from the savings bank depositor to the debenture holder, all of whose chances of justice now finally crumbled to dust. For them the extinction of the National Debt was the extinction of hope. Germany’s debtors, public and private, had been relieved of their obligations to a value estimated at £10,000 million.* (Philip Snowden, Chancellor of the Exchequer, in 1930 estimated that the war had cost Great Britain an identical sum — on much of which interest is still being paid, War Loan of more than £2,000 million never having been redeemed although its terms have altered.)

Even at the time outsiders were astonished that the German middle classes, as well as the more organised bodies such as savings banks or trade unions, acquiesced unmoved in a remedy, however efficacious,’which consecrated their spoliation by extinguishing all debts and annihilating the savings of the great majority. The seal of permanence had been put on the people’s losses; as Bresciani-Turroni described it, ‘the vastest expropriation of some classes of society that has ever been effected in time of peace.’ These classes, wrote Addison from Berlin in 1924, ‘accepted both approaching and accomplished ruin with no less stoicism than the first painful symptoms of convalescence — heavy taxation and widespread unemployment.’

Perhaps they did so because their despair was complete; but more likely because most of them simply did not understand what was happening. The Rentenmark was, in its literal sense, a confidence trick. The real value of the mortgage guarantee was exceedingly doubtful, if not entirely illusory. Moreover, although the discounting of Treasury bills ceased, the discounting of trade bills had to continue, and did so apace. The ‘miracle of the Rentenmark’ was that from November 20 onwards the price of the paper mark remained steady while the number in circulation did not stop growing. Depreciation stopped, in other words, but the inflation of the money supply went on.

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Still I can't really see any flaws with printing more money to stimulate demand. I mean what could possible go wrong....

The lessons of the Weimar will have fully been learned...

Edited by interestrateripoff

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The lessons of the Weimar will have fully been learned...

Yes, unlike now they didn't really know what they were doing back then. They were rather stupid and clueless you know...

Thanks for the post.

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http://university.unitedstatesliberty.org/654/textbooks/adam-fergusson-when-money-dies-nightmare-of-the-weimar-collapse/

Still I can't really see any flaws with printing more money to stimulate demand. I mean what could possible go wrong....

The lessons of the Weimar will have fully been learned...

Copy the idea from the economist - now what BoE need to to is to do a spend £1 free £1 week where half of amount spend on debit/credit card are refunded via newly created BoE money. Let's limit that to £200 per person, so that will only cost 30 million adults x £200 = £6bn max - what a bargain. This is also fairer such that all can enjoy the fruit of the inflation (not just those in the financial sector). The government also get some VAT and corporation tax out of that amount. Pretty prefect I think.

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This text is so topical.

In a lengthy interview many years afterwards with Pearl Buck, Erna von Pustau, whose father was a small Hamburg businessman who ran a fishmarket, made the same point: ‘We used to say “The dollar is going up again”, while in reality the dollar remained stable but our mark was falling. But, you see, we could hardly say our mark was falling since in figures it was constantly going up -and so were the prices — and this was much more visible than the realisation that the value of our money was going down … It all seemed just madness, and it made the people mad.’ In other words, the causes of the mark’s depreciation, which certainly escaped Germany’s politicians and bankers as well, had little enough to do with how the people, individually or collectively, reacted to it. Most of them clung to the mark, the currency they knew and believed in, long after the eleventh hour had come round for the umpteenth time. Most had no choice; but all were encouraged or bemused by the Reichsbank’s creed of Mark gleich Mark — paper or gold, a mark is a mark is a mark. If prices went up, people demanded not a stable purchasing power for the marks they had, but more marks to buy what they needed. More marks were printed, and more, and more.

I just came across the piece below that just show how even smart people completely fail to comprehend what is happening.

http://www.streetsmartpost.com/2010/09/29/the-u-s-market-likes-the-sinking-economy/

Wednesday, September 29, 2010. 9.15 am.

European markets are worried about their economies, and have been down eight of the last ten days. Markets in Japan and China are struggling again on concerns about their economies.

In the U.S. indications are much more clear that the U.S. economic recovery began stumbling in the 2nd quarter, and its problems worsened in the 3rd quarter. But the U.S. market seems unconcerned.

Economic reports so far for the third quarter show considerably slower growth in the quarter than in the second quarter, with substantial declines in the housing industry, auto sales, retail sales, manufacturing, jobs, consumer spending, and so on. There have been twice as many preannouncements from corporations warning about their 3rd quarter earnings than warned in advance of the 2nd quarter earnings reports.

Yesterday it was reported that Consumer Confidence unexpectedly fell to 48.5 in September, from 53.2 in August, and is now at its lowest level since February. And it was another example of how the deterioration is taking place faster than economists are lowering their forecasts. The consensus forecast was for a decline, but to only 51.5.

And the Richmond Fed’s Mfg Index joined the string of other Fed districts reporting deteriorating conditions, including the NY State Index, the Texas area index, and the Phila area index. Yesterday it was reported that the Richmond area index declined to –2 in September, from +13 in August. And the Richmond area New Orders index fell to 0 from 10 in August.

It’s difficult to understand why forecasts for 3rd quarter and 2nd half economic growth are not coming down faster, or how the stock market can be considering that all is well. Yesterday there was a brief plunge of 85 points in the Dow in reaction to the reports, and then instant recovery to a positive close, the Dow closing up 46 points, recovering virtually all of Monday’s 48 point decline, leaving it now down only 2 points for the week so far.

Will We Be Protected from Another Banking Crisis in Time?

The 27 largest developed countries met in Basel, Switzerland a couple of weeks ago and finalized banking reforms designed to prevent future financial crises. There’s been considerable criticism because the reforms will be phased in slowly, and will not be fully in effect until 2019.

Will that be in time? Perhaps. But it may be close. In their eagerness to get ahead of each other, the big banks seem to keep themselves out of trouble for 9 to 10 years before their greed and/or risk-taking catches up with them again.

For instance, after the financial crisis of 1973, the Latin-American debt crisis for major banks did not take place until 1982. The following bank crisis was not until the real estate bubble burst in 1989 and 1990. The Asian crisis for banks took place in 1997. And it was then ten years, in 2007, before the latest crisis began. At that rate of roughly every 9 or 10 years, it might be 2016 or 2017 before we’d need to expect the next crisis, and if the new regulations are mostly phased in by then, and fully phased in by 2019, it could be in time.

That is, if we can also trust the reforms will work, and that the banks will not find ways around them. Probably not a good bet.

Headlines From Elsewhere:

Bloomberg BusinessWeek: “No End in Sight for Britain’s Bank Rescue. The markets are not favorable at the moment. The U.K. committed more money to rescuing banks during the credit crunch than on any project in British history outside of world wars. The cost keeps rising as the government continues to pay interest on the money it borrowed to fund the bank takeovers.”

Associated Press:Sour Economic Mood in Living Room and Board Room. Americans in both the living room and the boardroom are growing more fearful about the economy, creating a Catch-22 for the job market: Shoppers won’t spend until they feel more secure, and business won’t hire until people start spending. The eroding views were revealed Tuesday by two separate surveys, one that found everyday Americans are increasingly pessimistic about jobs, and another that CEOs have grimmer predictions about upcoming sales. “The economy is stuck in an unvirtuous cycle,” said Mark Vitner, an economist at Wells Fargo. “Consumers are waiting for more jobs to be created and businesses are waiting for consumers.

Yesterday in the U.S. Market.

A positive day, which even the bulls struggled to explain, given the report of an unexpected decline in consumer confidence yesterday morning. The most popular explanation; that the still deteriorating economy will prompt the Fed to initiate some type of economic stimulus. But their next FOMC meeting isn’t until November, and to make a move between meetings would send a signal that it is panicked about the economy.

I’m beginning to wonder if it’s not the big program-trading firms (the major banks), holding the market up with buy programs when it threatens to go down, afraid of what will happen when the next downturn does get underway.

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Its definately a warning to keep in mind of over-doing it. But there is a big difference if you are a nation like America with inflation at 1% and falling, and trying to hit the 2% inflation target that has long been the standard. And deciding to print to add liquidity as base interest rates are already at 0%.

And on the other hand inflation running at 100's of % a year, and still turning on the printing press.

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Yes, unlike now they didn't really know what they were doing back then. They were rather stupid and clueless you know...

Thanks for the post.

Yep luckily we've got Mystic Merv and Helicopter Ben in charge. World experts at using the printing press to get growth and no inflation.

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  • 239 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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