by “Diogenes”
Preamble: First of all, when I heard of Central Bank decision to increase the rate, I have to admit that number looks suspiciously familiar to me. Yes, I knew Central Bankers manual. If you wish I can send you this
That number 17% was used by my professor of macroeconomics who was lectured Central Bank staff consequently. It was in all American books on Macroeconomics, from 80s – old recipe how to fight inflation.
Paul Volker, then Governor of FED has to deal with double digit inflation from price shock, subsequent increase of liquidity and inflation expectations by the market – hike of crude oil prices caused by OPEC.
Paul Volker was appointed chairman of the board of governors for the Federal Reserve System in August 1979. The Federal Reserve board led by Volcker is widely credited with ending the United States’ stagflation crisis of the 1970s. Inflation, which peaked at 13.5% in 1981, was lowered to 3.2% by 1983. Volker raised the Fed funds rate from 11 to 20% . Professor used exactly 17% interest rate in his lecture. Mr. Volker killed then double digit inflation (caused by plenty of liquidity) to 3% by 1981. Cost of that exercise was deepest and longest recession of US economy since WWII.
The Ladies that run Central Bank of Russia now are belong to macroeconomic sect dogmatic and they won’t be able to change their mind quickly.
Consequences of the decision (IMHO):
1) IT WON”T STOP devaluation: Currency speculators wont be scared – they will continue to play against ruble because their collective efforts can push and depreciate ruble more then 17% in a day or two. Why to deposit ruble for a YEAR and earn 17% if one can make same return in a week?
2) Rate of 17% will be impossible burden on real sector industries and banks (except largest – with access to CBR refinancing) even so only very profitable business has margin big enough to afford loan at 20 plus%. Note: In 90s casino’s were good borrowers of the Banks
3) Russian stock market will tumble. Stocks evaluation use cost of capital, so called WACC – weighted cost of capital, in denominator- higher rate is – lower stock price.
4) This is not a cure, but poison medicine. Rate increase is a wrong prescription for this situation. It will led Russian economy to deep and prolonged recession and they know it- this is written in their manual.
PS Central Bank will try to increase rate few more times to the range of 20% ( or 30%?) to no avail for exchange rate, unless those ladies are fired.
best regards
Diogenes
The new rate matches exactly the golden ratio.
10.5 x 1.618 = 17
There should be a different interest rate for national businesses and for citizens who want to buy a car/apartment. Or there should be discounts to which only locals can qualify.
Why is Russia not selling their US-Treasury bonds ? And why were they using their dollars to buy that toilet paper instead of buying industrial machines and new technology ??? Is that a smart way to move your country towards progress ???
This devaluation by over 50% in less than a year is horrific. No matter what arguments there might be, the simple Ivan from the street is going to get so hurt he won’t give a shit about the magic strategy that Putin is supposed to have. Damage has been done already, his credibility is vanishing with the speed of light. Syria is bombed on a daily basis now, Venezuela is on the brink of collapse, Cyprus was looted right in front of Putin.
On the other side, China, who is supposed to be the newest friend of Russia is making lucrative businesses with US at a rate higher than ever. India does the same. The elites from China and India are sending their kids in droves to USA and not to Russia. Even Lavrov has his daughter in USA.
If I was China, I would be more attracted by the idea of making a deal with the NWO and take part of Siberia. After all, China is providing all the manufacturing that western companies need.
Russia is making everything possible to keep Ukraine in one piece by providing enough gas, coal and even money, while undermining the rebels. Does anyone understands anything anymore ?
Maybe the strategy chosen by Putin involves a lot of silly sacrifices and deaths before it shows any benefits, but so far I am baffled. Maybe we are all so uneducated that we cannot understand the game.
On the other side, maybe Putin is indeed that fake hero that fooled all of us plus some countries that are in ruins now. I hope that’s not the case, but it’s about time for him to show some real action !!!
Some thoughts on the points that you are making :
a) If Putin was a western stooge as some are now preposterously claiming, then the West would be awarding him with Nobel prizes, not risking WWIII and economic calamity just to get rid of him.
b) Putin has demonstrated to be a very shrewd reader of situations. He realized very quickly that the Euromaidan movement was the beginning of a war against Russia. That is why he swiftly moved for Crimea. He also demonstrated his acumen in the case of the Syria crisis in 2013. He has also been proven correct with his updating of Russia’s nuclear arsenal. Putin has also demonstrated his excellent sense of timing with the Novorussia counterpunch back in August.
c) The Russian monetary policy has been in place since the fall of the USSR, it is not that easy to radically alter a policy that has been entrenched for so long and has also been elevated to some kind of religious dogma by virtually all mainstream economists. Some kind of powerful justification may be required for him to impose sweeping and radical changes in monetary policy. These things are quite serious. I am also guessing that he is consulting the Chinese over subsequent steps.
d) I am really tired of listening to even intelligent people claiming that China is somehow on the same boat with the Imperialist West just because the Chinese have lots of business dealings with the Western world. Let me underline here that extensive economic relations do not allies make. To illustrate this point let me provide some examples from history. The USSR and Nazi Germany were massively trading with each other until the 22nd of June 1941. The British Empire and the German empire were massive trade partners throughout the late 19th and early 20th centuries. The French had a similar economic relationship with the Germans up until the carnage of the trenches was unleashed. The US and Mexico have also been massive trade partners for centuries. Are they allies? No, they are in a master – slave relationship. Nowadays, China and the US have forged the grandest economic relationship history has ever seen. Does that make them allies? If they were in fact allies then you can bet your bottom ruble that Russia would be cut in at least two by now. Obviously the Chinese are far more intelligent and strategic in their thinking and full well know that having Russia as a close ally is necessary for their survival and protection from the US. If the US and China were friends in any kind of way, then why does the US have so many military bases running a tight ring across the entirety of the Chinese borders? In matter of fact the only part of the Chinese perimeter that is not under threat from anyone is indeed the northern border with Russia. Haven’t you heard about Obola’s so called Pivot to Asia? The effort to redirect as much of the American military power around China? Another part of the Pivot was to create as many military alliances with China’s neighbouring countries as possible. Another cornerstone of the current American policy towards China is the doctrine of Air Sea Battle. A plan to basically annihilate China, much like the old American plans for attacking the USSR. You can easily verify all of my above claims from a variety of sources.
e) Russia and China are the most natural allies that world history has ever seen. Both countries are the grand factors in eurasia. Both countries have the exact same mortal enemy. Both countries have a long history of staggering sacrifices against Western imperialism. Both countries find themselves firmly outside of the privileged clique known as the west. Their respective economies are also astonishingly complementary. One is a demographic and industrial colossus, the other is a landmass and natural resources giant. Going against the west on their own is quite conceivably impossible. In any case, by fully joining forces their respective tasks become infinitely more manageable.
“All those currency projects which embody new ideas and suggestions for establishing automatically functioning principles are fruitless.”
Part 1
Bring on the Rentenruble. Kill speculation.
Hjalmar Schacht stopped the foreign speculators attack on the German Mark by substituting the Rentenmark which was only accepted in Germany and not Legal Tender for foreign transactions by pure speculators. He also stopped too-easy credit/money creation.
The Rentenmark was backed by land and other industrial hard assets , so was accepted for use by the German people. That ended the Weimar inflation and caused speculator losses among the foreign speculators because the Reichsbank refused to convert their “profits” of US Dollars bought with promise to pay in Marks, instead issuing only Rentenmarks for the USD. [The sellers of USD demanded payment in Marks, which were Legal Tender so good for international trade. The specs expected to pay by waiting until the Mark weakened, using some of their hi-valued USD to payoff their borrowings with cheapened Marks. Instead, the Reichsbank gave them 1 Rentenmarks per BILLION Marks ratio for their profferred USD.]
Thus was the “carry-trade” smashed.
[Note: actually the ratio was 1 Trillion [1,000,000,000,000] in US number system in which US Billion = Thousand-Million. In European system, in which Billion = Million-Million, that same 1,000,000,000,000 is called Billion.]
========
Re: using a Rentenruble to stop foreign speculative attack on the Ruble:
Also, to prevent the abuse of using the central bank to discount notes [a form of abuse of excessive credits], thereby gaining foreign exchange to increase hoarding of foreign currencies, Schacht put a full stop to central bank discounting. Thus for example, corporations who were hoarding valuable foreign currency were forced to spend it as working capital. {Even though the bank would apply a discount rate to supposedly discourage too-easy credits, the devaluation rate of the Mark was far greater than any discount and too-easy credit the result.]
==============================
re Hjalmar Schacht and Germany’s hyperinflation remedy:
Clearly I am not a scholar nor do I have any first-hand knowledge of events.
I do have a crude, working knowledge of what transpired which, however mild and incomplete, seems useful and instructive.
Schacht later wrote that the Rentenmark itself did not stop the inflation. Rather, it was his “credit bar” that ended it.
That “credit bar” was the Reichsbank total refusal [on Schacht’s order] to discount bills which it had been doing excessively and causing the flood of credit/excess money creation. Hence, the inflation. Foreign interests that benefited from a weakened Germany were active in the scheme.
The Reichsbank was a complicated private-central-bank affair that begs clarification to help understanding. It had the flavor of the modern US Federal Reserve. Because it was wrongly seen as simply a government-controlled bank that caused the hyperinflation, it was later often used an example of why a central bank must be private and independent of the government.
If there is interest, I will explain further in some detail
==================================
A toast to the best there is in Man, from Rick and Edgar Snow.
Part 2
A ban on naked short-sales [selling what is not actually owned] to stop attacks on the Ruble may be impractical as it lacks any controls over foreign transactions and Currency Exchanges. A “Rentenruble” or 2nd currency for domestic use only, would permit easier control of foreign Ruble transactions. A “‘Rentenruble ” backed by hard assets would be quickly accepted by Russians internally. It would “temporally” replace the Ruble [legal tender], so Rubles would not be available at any central-bank mechanism for Ruble covertability, only the Rentenruble would be availble [which because it would not be legal tender, would be useless for trade outside Russia and thus stop foreign speculation attacks.
From Account Settled, Hjalmar Schacht 1949
“. . . By the autumn of 1923 the unrestricted depreciation of the currency had reached such a pitch that it threatened to break up the whole structure of Germany’s national life. Wage-earners’ wives were in despair. Whenever they went out to buy food they were involved in a hopeless struggle against the depreciation of the mark. The wages of their menfolk ran through their fingers like water even when, as was finally the case, they were paid daily, In this extraordinarily difficult situation the authorities called upon me to put a stop to the depreciation of the mark and stabilize the currency. . . .
All in all, this struggle with the speculators over the rate of exchange lasted eight months. It was waged with vigour and determination, and private interests were ruthlessly ignored in the interests of the community as a whole. My victory did not make me popular . . . Even the experts did not always grasp my methods, which contradicted every classical theory, and the great mass of the people naturally failed to understand the significance of what was taking place. . . It was in this period that the press first dubbed me a ‘Financial Wizard’, because in money matters in particular the simple and the natural is the most difficult to grasp.
…But everything depends on initiative, on the ability to seize an opportunity, on vigorous action. All those currency projects which embody new ideas and suggestions for establishing automatically functioning principles are fruitless. It is not a question of the percentage of gold or bills behind the notes in circulation, or of note control, or the discount rate, but simply and solely a matter of the temperature and the pulse of economic life. In monetary policy, just as in medical therapy, correct diagnosis is the secret of successful treatment. All that is required after that is vigour and determination in carrying out the recovery plan. “
So a remedy should be boldly clear and thus easy to implement.
That is guidance for all who hope to remedy a problem.
==========================
A toast to the best there is in Man, from Rick and Edgar Snow.
No doubt in my mind that the Russian Central Bank is firmly in the hands of the money printers and their agents (even if they don’t know it).
Orthodox economic doctrine is so entrenched amonst the bureaucrats and that they cannot break free from a lifetime of indoctrination in economic policies at universities all favourable to the money-power.
Foreign product will be more expensive in Russia, and as such the country would be forced to look inward, subsidize it local industries, and fully diversify away from the dollar anyway. Why buy from Germany and other EU country that wants to force Russia to its knees. This present situation can only help Russia in the long term as it seeks to look towards Asia away from the western dominated economy, the EU and the Dollar. There will be short term losses, but the long term benefit for Russia would be immense. The west and EU in particular would be begging to do business with Russia few years down the line as it turns towards Asia. its only the western press that is panicking and scaremongering (psychological warfare) from what i see so far, people in Russia are unconcerned so far.
to GB
Well, if I had a daughter, or even more so, if I was younger, i would move to Russia in an instant. Who in the new age, who is an awake young person would want to go to the States ? Its part of the dying world order…Really. Russia has the people and the government that is part of the REAL NWO.
Kids who get funding from banks to go to university are part of the slag of the dying world.
Just a short time ago (a month?) it looked as if the western sanctions on Russia were a joke. Now it would seem that the joke went sour … very sour… Now my (forever uninformed) thoughts are along the lines:
that the shrewd anglozionist sharks have centuries of hands-on experience in financial & country-wrecking matters behind them … and that hence our jubilation over liberation from them was predictably (!) premature.
This is one of the rare instances when I would love to be contradicted…
It is not the official Western sanctions that are hurting. It is the stealthy manipulative ones. Russia must now go through a period of painful transition until all Western leverage over the Russian economy is history. It really is a tragedy that the Russian people are still paying the price for the high treason that was committed against them circa 1990.
The USA shale oil industry is being liquidated by the drop in the price of oil. Credit and equity markets are experiencing turbulence and panic as the oil price collapse ripples through the financial markets. The IMF + BIS are orchestrating an end to USD as the world reserve asset, unit of account and unit of transaction. The monetary and market turmoil is not so much directed at Russia, but at elements in the USA government who refuse to adjust to the rise of China, Russia, India, Brazil, etc. as significant world powers. Since the USA Congress has refused to adjust the governance and the SDR basket the IMF + BIS have moved to Plan B. Plan B is to destabilize world markets, until the SDR is accepted as the world reserve asset by the USA.
Russian companies such as LUKOIL(LUKOY) are beginning to list and borrow in Shanghai, Singapore and Hong Kong; rather than London or New York. Lukoil pumps crude at 25USD, so 60USD is still very profitable, especially since their expenses are paid in Ruble. Vladimir Putin has said Russia will not close itself off from the world. Russia is at the crossroads of Eurasia. Perhaps, temporary capital controls and interest rate rise will be used to protect the integrity of the ruble until it can stand as a free floating currency; the Russian economy is strong and Russia has allies in SCO, BIS, and IMF so the ‘sky is falling’ crowd are adding to the crescendo which will usher in the new SDR basket of USD, Euro, Reminbi, and Ruble as the replacement for the USD system whose timeline is ending. The recalcitrant elements in the USA government will have political cover by scapegoating Russia, which will protect these cowards from the American public who are going to lose their ‘free stuff’ which they feel entitled after 70 years of ‘exorbitant privilege’. The world thinks the USA is sovereign and an invincible empire; but it is a cat’s paw for the IMF + BIS which now sheds the USD for a shiny new SDR monetary system.
This theory is subject to change without notice, apology or defense. It is offered as a way of looking at the reality of politics, power, and economics outside the narratives designed to maintain stability of world trade through a monetary transition. Why would the USA try to drop the oil price to harm Russia? This theory is for the naive, as it is the USA which is most damaged by these events. The interesting question is whether the New World SDR system will enable a multi-polar world or whether it destroys all sovereignty of people and nations.
I have been making the point about the world oil market, light tight oil (the genuine name for shale oil) and the Ukraine crisis since the summer. Along with several other long standing factors, it is the central proximal factor in the current situation. I firmly believe that the sweeping sanctions on Iranian oil exports was an attempt by the US to remove a major producer from the world market so that room was created for the terribly expensive North American unconventional oil production (people tend to forget that Canada is also a major player in this equation with their even more expensive tar sands oil production)
Once the removal of Iran (and Libya) from the world market became insufficient for the maintenance of some kind of viability for North American oil production, then new geopolitical events became necessary to get the job done. Enter ISIS and enter Euromaidan. Two desperate and brutal attempts of knocking out two more major oil exporters. Iraq and above all Russia. Another note here. I am dismayed that I often read in alternative media that Russia is the world’s second or even third oil producer. No, Russia was the number one oil producer in 2013 and will definitely be so again in 2014.
In any case, the American efforts at staving the collapse of the North American unconventional oil bubble seen to be failing. The more they fail the more their belligerence towards Russia will become. These are extremely dangerous times we are going through.
Not sure the author has it correct.
1. Please be advised that that most Western Banks have stopped pricing USD/RUB. As such, FXCM can no longer offer this instrument to our clients and will begin closing any existing client trades in USD/RUB effective at Noon EST today, December 16th, 2014,
2. Why sell foreign reserves to stabilize the Rouble against speculators ?
3. If anythint, long term Russia is a buy
Another bonus from Rouble devaluation:
In the most ironic twist of all amid the “currency crisis” enveloping Russia, we suspect the world’s central bankers will be looking on jealously as The CBR manages to achieve precisely what The BoJ and The Fed are desperate to achieve. In raising inflation expectations, The FT reports, Russians are hurriedly turning their depreciating Rubles into jewelry, furniture, cars, and apartments as the currency’s collapse prompts a shopping spree that will likely lead to a surge in GDP. As one anxious shopper noted, “none of us know what’s happening. We’re all worried that the currency will keep falling,” and so “it’s time to buy furniture!” And sure enough, shopping centers are currently experiencing a spectacular rush.
Vlad should say
“We do not blame the US or Western peoples for this situation but the financial speculators inside the western banks but Russia must protect itself from the attacks of these western banks and so we regret to announce Russia will default on all loans from banks based in The US and UK but only those countries.”
G says, “Why is Russia not selling their US-Treasury bonds ? And why were they using their dollars to buy that toilet paper instead of buying industrial machines and new technology ??? Is that a smart way to move your country towards progress ???”
Rus Central Bank is by law independent & the decisions you mention rest by law w it, not Putin. Read Starikov online book pp24-40.
Western Banks cut off liquidity to Russia entities
“Regardless, what all of the above means is that Russia now has at best a few weeks in which to find an alternative source of short-term funding. One coming from the East.
The question is will Putin swallow his pride and proceed with the next logical step as the Eurasian axis realizes the time to abandon the dollar has long past, that now only actions matter and not words, and joins forces with China in a new monetary union, one which combines the Ruble and the Yuan, and is backed by China’s gold and Russia’s natural resources…”
Out of chaos….comes order!
The SDR Purpose of BRICS
“The theory that the BRICS economies are moving away from the USD is factual, but only towards the multilateral framework of the SDR, as developed by the central banks themselves and the global institutions. Though countries such as Russia and China may use gold to support their currencies in the interim, it is more likely that gold will become part of the SDR basket composition next July, along with the Chinese renminbi, and possibly the Canadian and Australian dollars.
It is heartrending that so many are losing and will continue to lose as the transition continues. Everything from pension funds, real estate, and possibly even continued devaluations in gold and silver, at least in the short terms, will be bombarded by the liquidity squeeze taking place.”
Maybe….Vladimir Putin is telling the truth about his ‘partners’ and the chaos and alternative narrative is for the hive mind. It would be hard to accept if we knew this entire narrative cycle is to maintain stability through a transition of monetary systems. Each state needs a scapegoat narrative to keep its citizens from revolution. I think the rent seeking elites may be the big losers of this transition. They have no where to go with there money. The majority of humanity was already leveled in 2008. We have nothing to lose, but our lives! Now the hedge fund and rentier elites will be bailed in to save the world order. The real elites are the institutions of BIS and IMF, which will slip from US control to a more equitable division of power. It is necessary as the rentier elites have destabilized the master slave division of the world hive, so out of chaos…order!
It seems like Russia is nearing a critical moment in its dealings with the west,and China too.As the Global Oil crisis enfolds China is making major gains at the expense of oil producers particularly Russia,Venezuela and Iran.If it is serious about realignment of global economic power then it only has to take a stance in backing the currencies of these embattled (brics)nations to announce the end of US Imperial Dollar domination.The time has come for China to shit or get off the pot.
“Bring on the Rentenruble. Kill speculation.”
Yes. What came after was obviously not so good but the German govt. in the early 1930s showed exactly how to create a financial system that was free of the banking mafia.
.
“Orthodox economic doctrine is so entrenched amonst the bureaucrats and that they cannot break free from a lifetime of indoctrination in economic policies at universities all favourable to the money-power.”
Sadly true. They are brain washed from age 16 so even the honest ones serve the banking mafia without even knowing it.
The situation requires someone from outside that world but who has the brains to figure it out. This will be Vlad’s big test.
.
“that the shrewd anglozionist sharks have centuries of hands-on experience in financial & country-wrecking matters behind them … and that hence our jubilation over liberation from them was predictably (!) premature.
This is one of the rare instances when I would love to be contradicted…”
The sanctions were a failure for the obvious reasons – the USUK banking mafia have spent the last thirty years looting USUK through offshoring their industrial base.
(This is the banking mafia’s root problem. They want to use USUK as their weapon but they are so greedy that over the last thirty years they have been destroying that weapon.)
Anyway, as the USUK economy is now 80% banking fraud they no longer have any leverage using standard economic sanctions and have to rely on bullying countries who actually produce something real (Saudis, Japan, Germany etc) into sanctions instead.
Don’t forget it’s the (disguised) oil sanctions from Saudi that are the root cause of this. The banking mafia are just feeding on the chaos caused by the oil shock.
Anyway the banking mafia are 1) incredibly vulnerable at the moment because all their eggs are in one basket and 2) because of this they are fighting with proxies.
It’s a bit like the film “Aliens”. There are swarms of adult aliens to fight through but only one nest. So you can fight the swarms or attack the nest.
If Vlad can ignore the banks’ proxies and go directly for the USUK banks then he can take them down. If he just fights the proxies they will whittle Russia down bit by bit.
Diogenes is quite correct….raising the question as to who the RCB takes it’s directions from?
Schacht later wrote that the Rentenmark itself did not stop the inflation. Rather, it was his “credit bar” that ended it.
That “credit bar” was the Reichsbank total refusal [on Schacht’s order] to discount bills which it had been doing excessively and causing the flood of credit/excess money creation. Hence, the inflation.
To: Anonymous 17 December, 2014 00:57 A toast to the best there is in Man, from Rick and Edgar Snow.
I studied economics for years and was curious how Germany recovered, but learned almost nothing. Nobody ever told me about the Rentenmark. I never was certain having more than one currency could work, but it worked in Germany thanks to legislation. We always forget how the law of the land can influence the economy.
If you can, please tell us if different interest rates were introduced and how bonds were handled. The bond yield has a powerful effect on the economy. It is a sort of interest rate and has an important place in economic theory. As best as I can tell, nobody has mentioned it on the blog.
There are indications of different CB interest rates in Russia and I dont see how they can coexist without inviting speculation, but perhaps there is a way.
Thanks for posting.
I have a day’s worth of reading about the Ruble and the current crisis that I summarized in a pretty sunny opinion on the other post, by Aleksei Kattunen. It was a large but quite readable comment so I’ll just link it here: Grieved said…
@ Bob Kay – it will be fascinating one day to read the history of how BIS separated from the US and its Dollar. Especially since we read that the Exchange Stabilization Fund – a wholly US enterprise – created all these post-war entities in the first place, and the Bretton Woods system. So behind all of this, lies what?
I buy your thesis entirely, that the monetary power of this world is currently transitioning to the Next World Order, and the US is kicking reflexively, as any trust-fund baby would at the loss of easy income. Any thoughts you may have about how the power shifted – i.e. what and who is behind that apparent power – I would love to read.
@ Stavros H – you said “Russia was the number one oil producer in 2013 and will definitely be so again in 2014.”
Your word is good with me, so I’ll take that as a fact. You know about Russia’s theory of the origin of hydrocarbons I assume? And how it differs from the western, untested theory of fossil origin? Engdahl has a great story about this if not:
Confessions of an “ex” Peak Oil Believer
My point is that Russia will continue to be a leading energy resource long after the Peak Oil theory and its western adherents have themselves become fossils.
I have always regarded the oil companies as being the managers of the realpolitik of this and the last century. I suppose bankers in some way are behind them, but the energy giants get the job done. This makes Russia one of these indispensable players in the world, arguably coming to a point one day more powerful than the US. Maybe it’s already happened?
What you’re saying is that the US is regressing in intelligence, acting more like a teenager than a power broker. That would be dangerous indeed. I suspect that the powers of this world make income from the US and its disaster capitalism, that destroys nations and breaks apart systems. But at some point those powers are going to have to settle for calm and order, and rein in the US. We shall see.
Stavros…that’s the best name for the president of the US so far…
Obola
Stavros
“
It is not the official Western sanctions that are hurting. It is the stealthy manipulative ones. Russia must now go through a period of painful transition until all Western leverage over the Russian economy is history. It really is a tragedy that the Russian people are still paying the price for the high treason that was committed against them circa 1990. “
the only thing, though is that saying “Wisdom is born through suffering”
I don’t see the Russian people being defeated by hardship…God bless them.
If you think a weak currency is good, you need to hear about my experience. When Soros attacked our currency in the beginning of the 90s, we got massive unemployment and poverty. I had a good job, but lost it and I survived on a Russianlike dacha, where I could grow food in a cold country with short summers. I could pay all my bills but only spend about a hundred dollars a month on food at the currency rate of the time and I had a child to feed. One summer I almost stopped eating.
I had no modern tools, everything had to be done by hand. I carried wood from the forest every day the first winter when I had +12C in the morning. Some years I had potatoes until Christmas and was happy. Divine Providence provided me with a strong physique and a piece of land and we survived, but others were not so fortunate. Poverty is a terrible thing. If the ruble rate is not stabilized, the russians will suffer.
If Putin’s regime is to cause the industrious to import substitute and diversify the economy by creating domestic wealth (which was Hitler’s mortal sin), the financial enemy must be annihilated or domesticated.
Meanwhile, the Kremlin may at least talk up defaulting on loans located in US/UK, stating simply because that entity is at full spectrum war against Russia.
Russia should institute capital controls, like China has done forever. This isn’t particularly hard.
It was difficult to buy Yuan outside China until the last few years. And there are still limits on how much you can send out of China.
It’s not like there aren’t a lot of different real life capital control experiments to look at. Even little Malaysia used them in the late 90’s.
I think there are two issues here: currency speculation and the effect of the falling oil prices.
– on the issue of currency speculation I think the main issue is not to fight battles you are bound to loose. That can cost you many billions for which you get nothing in return. Many speculators are after the ruble and they may well be helped by the US government. They are also helped by continuing propaganda that stresses that the Russian economy is completely dependent on oil exports and that even the long term view is bad as Russian oil installations get older and less productive.
Apart from some type of currency control the only thing Russia can do is letting the ruble go down as fast as possible with the least possible damage and only start fighting when it has become so low that it has become defendable.
– the other issue is inflation. I have always believed that the effects of raw material prices should not be counted as inflation as they are one time effects and not structural. In my eyes the oil crisis of the 1970s was caused because the West considered the rising oil prices as inflation.
Russia has lost in this year, let’s say 100 or 500 billion Dollars.
With fraction of that money, let’s say 50 billion Dollars, Russia was able to become independent of import of foods and become a food exporter.
Beware of Five Eyes
One final thought about the effects of the falling ruble on the Russian companies. Some companies are bound to go broke. Russia will come under pressure to make their foreign creditors good.
It should resist this pressure. It should support companies – many good companies might otherwise go broke because they have borrowed too much in foreign companies – but in such a way that the money doesn’t flow to foreign (or Russian) creditors. So it should use a kind of structured bankruptcy procedure to achieve that.
Putin is pursuing the correct strategy. Russia will have to absorb heavy blows from the west before it can counter attack!
It is better to let the west expend its fire power before Russia acts. After some time the initiative will inevitable pass to Russia.
How many people followed the events of 1998? was Russia ever supposed to recover from that? Receive another dollar of foreign investment. barely 3 years later westerners were scrambling over each other to invest in Russia again! Because Russia’s fundamentals are good.
Europe has no place else to go for gas. All the American hot air not withstanding! Ditto China. And Turkey and ultimately Japan.
As for the 5th column, the intensifying crisis will eliminate them. By the logic of their own failure.
The process may not be pleasant but Russia will just have a bowel movement and get rid of them.
White House spokesman Josh Earnest……
Earnest said the direction of the Russian economy is in Putin’s hands.
http://www.reuters.com/article/2014/12/16/us-usa-russia-congress-idUSKBN0JU26120141216
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Bloody Imperialists, pathological liars,
Natoists, new Nazi….
Written in Croatian
Centralna ruska banka ne treba interveniurati već Rublju pustiti da pod špekulantima pada;to je moguće ukoliko građani Rusije nisu kreditirani pod valutnom klauzulom niti je država zadužena prema vani a zarada dolara države premašuje uvoz robe – treba učiniti zapadne proizvode preskupim i pospješiti vlastitu prehrambenu industriju i time nauditi ekonomskom agresoru koji sada mora financirati i Ukrajinu gdje valuta gubi svaku vrijednost te će i tamo zapadna roba postati preskupa a ruska roba jeftinija i konkurentnija a slabljenjem Rublje milijuni ukrajinskih građana kao gastarbajteri napustiće Rusije i bez para naći se u domovini a ukidanjem viza između EU i ukrajine preplavit će EU i ubrzati njen raspad.
…godinama je ruska politička elita imala iluziju o zapadu-agresoru a sada ako im je stalo do vlastite suverenosti okrenuti se sebi i ruskom nacionalizmu te kao konačni cilj udaljiti prozapadne pijune te dovesti nacionalno osvješćene Ruse koji ne gaje ni trunka emocija prema ikome izuzev prema vlastitim građanima.
I’ve read that Central Bank of Russia went on floating exchange rate regime on November 10th. That means that the ruble’s nominal exchange rate will fluctuate with oil and other commodity prices: when the price of oil rises the ruble will appreciate, and vice versa. By embracing a floating exchange-rate regime, Central bank of Russia was inviting instability, and that raises some serious questions about the whole thing: either Central bank of Russia is run by Rothschild syndicate (the 5th column, Anglozionists), in which case Russia’s sovereignty is just a mirage, or they are all working together and this is just an episode of a scripted play. Clearly, Central Bank of Russia is not working in the interest of Russia, and should be burnt to the ground. That would be the best thing to do all over the world — without ability to print the currency at their will, bankster scum is powerless. Immobilizing that vermin is a first and foremost step toward economic prosperity.
You are correct. Russia is a member of the fed. That is the bottom line.
Putin has or hasnot a plan to end that.
As it stands no member of the fed is sovern, they dont control their monry nor boarders.
Is it all just a pony show?
Here is a short description of central banking:
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Central Banking
The primary function of a central bank is supposedly to monitor and control a nation’s money supply by either printing money, removing money or raising and lowering interest rates.
The modern central bank prints paper money divorced from an underlying asset, which means that the bank can print as much as it chooses.
In simplest terms, central banks inflate by creating money. The more money they create, the cheaper money becomes. By cheapening money, the government deprives individual citizens of part of the value of that money. As the value is eroded, the citizen becomes poorer, even if he or she doesn’t notice it right away.
There are three often-mentioned ways for central banks to help stimulate or deflate the economy.
• One way is for the central bank to buy or sell Treasury IOUs.
• Another way is to raise and lower the rates of the so-called discount window, the amount that the central bank charges to its member banks for short-term borrowing.
• The third way is to move short-term interest rates up or down.
The main manner in which central banks move the economy is by adding to or subtracting from the amount of money in circulation by buying or selling government bonds.
Even raising short-term rates constitutes a kind of tax because when rates are raised, bonds can lose their value, and citizens holding onto bonds can suddenly find themselves poorer as the market reacts to rate news.
While the manipulations of the central banking mechanism sound innocent enough, free-market economists fervently blame almost every economic disaster of the last 500 years, with the exception of Tulipomania, on government intervention in the money supply or the marketplace.
Today, thanks to the Internet, central banks are under attack as never before. Their franchise provides the great central banking families with the funding they need to try to move the world toward global governance. Nothing in the world is what it seems today because of central banking and the monetary distortions that it causes.
The boom-bust cyclicality of modern economies can be laid directly at the feet of central banking, with its monetary stimulation, which first expands an economy and then contracts it when the expansion has gone too far. Thus, central banking is responsible for the manifold disasters that have overtaken the Western world in the past century at least.
Wars, industrial collapse, recessions and depressions can all be laid at the feet of central banking and the great families that insist on its ongoing implementation. In the age of the Internet Reformation, however, more and more people understand how central banking really works and the devastation it causes.
The 21st century may see a real conflict between a power elite that insists on a central banking model for the economy and millions, if not billions, who begin to demand free markets and freer economies.
p.s.
Or you can call it a system in which someon exchanges paper currency produced-at-will by the Central Bank for valuable raw materials, manufactured products and hard labour.
This is how the FEd is printing the dollar currency and giving it to their corporate cronies in United Snakes of America — 9 trillion dollars printed in a less than 3 months, afterwards comes embezzlement:
https://www.youtube.com/watch?v=nE3BmhhWFFQ
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stonebird 13 hours ago
The Rouble trade has been stopped by FXCM (Currency brokers) and others, as of midday today. So all those that were shorting the Rouble will have to find means to cover their potential losses. “Speculators seem to have run for the Stock markets and other placebos.
This is starting to ressemble the 2008 rout. Where massive naked short selling was being used against both Bear Sterns and Lehman. (in the millions of shorts). This followed a meeting by the other major Banks at the time and the FED. Was there “collusion”?. Good question, but here (Russian rouble) it is entirely possible that it is the Major Banks, possibly coordinated by the Fed, that are doing the attacking.
There are differences. US has massive debt, Russia Has Gold and is a is a sovereign nation with the possibility to print it’s own money (not central Bank – BIS) and allow as much credit to Russian firms at whatever terms and rate it wants.
Personally, I think that someone has pulled the plug and it is now all the dirty bathwater will get washed out. (Qatar, and Dubai are down, as are many of the other countries in the world. What’s next? Go see the new developments in Ukraine and Syria where the Republicans want to send in heavy arms and the Israeli airforce is definitely supporting A-Quaida with their recent air raids – and what do you think THAT will do to World Peace?
How about backing the currency with two fungible goods? Oil and gold come to mind but there may be others. A certain amount of Rubles can be traded for a certain amount of oil and a certain amount of gold.
The RCB scheme has parallels to the Reichsbank mess.
When the 1923 Rentenmark was issued, it impacted the German hyperinflation but did not stop it.
Schacht then attacked the wildly excessive credit/money creation by ordering a “credit bar” for the Reichsbank to stop discounting Bills, etc . This action stopped the inflation and the new Reichsmark stabilized.
In fact, Schacht 40 years later explained that the Reichsbank actively and covertly continued to issue credits/money.
The Reichsbank was a PRIVATE + GOVERNMENT scheme of conflicts of interests. Only after he was able to exert control did the Reichstag enforce the “credit-bar”. Finaly in 1924 the mark stabilized in about 2 months.
To help understand, here is some background.
The Goldmark died back in 1914 when Germany ran out of gold. The Papermark then issued and was hit by hyperinflation by 1922.
In 1923 the Rentenmark was issued at 1 Rentenmark = 1 Billion papermarks [also called Old Marks].
The Rentenmark was backed by land and other industrial hard assets so was accepted by the people for domestic use only.
In 1924 after the Rentenmark and “credit-bar” stabilized the value of the money, The Reichsbank issued the new Reichsmark at 1 Reichsmark = 1 Rentenmark.
[Note: European “Billion” means Million-Million, whereas US “Billion” means Thousand-Million. Maybe that helps.]
Also, that made 1 US Dollar = 4.2 Reichsmark. [Earlier pre-inflation, 1 USD = about 4.4 Papermarks.]
At that point, apparently foreign interests had failed to permanently cripple Germany using The Economic Weapon via the Reichsbank. [Who woulda thunk of such treasonous activity.]
The story of how the Reichsbank was created with such conflicting, even treasonous interests is for another post.
from Old Rick trying to be helpful.
Paranoia articles and comments seem to become the rule here.
Why don’t you stop wheening and blaming everything on the West? Grow up and start building your own decent society.
Howard Mark’s answers are more valuable. Investors need a rule of law. It’s unwise to invest in the Russian jungle.
http://www.bloomberg.com/video/investment-strategy-oaktree-s-marks-on-russia-markets-7hsbr1puT32ePy0aaOSyNA.html
More fundementally, Russia relies to strongly on energy and commodities. A modern society is diversified and diversification is a defence against volatility. As Russia’s main source of free cash flow dries up, it moves into negative territory and every wise investor knows he needs to get out or short the junk.
It may be a day-dream scenario but I guess it is ultimately verifiable.
Rumors circulating … (believe it or not)
“Last few days Russia has grossed over $20m plus about 30% of the shares regained by their own Russian monopolies. Earlier, shares of energy companies were owned by foreign investors (Americans and Europeans) resulting in about half of the revenue from the oil and gas industry going to the Russian Treasury. With the situation in Crimea the ruble began to fall sharply but the Central Bank did nothing to support it. No stock exchange support and Putin’s statements he is ready to protect the Russian-speaking population of Ukraine has led to a large drop in stock prices of energy companies of Russia. Putin waited and just smiled and when the price dropped below the ridiculous he gave the command to buy shares from the Europeans and Americans. Out maneuvering the “financial sharks” the shares were soon in Russian hands. Not only did Russia gross big $$$m it also returned the shares to their companies in Russia and now the income from oil and gas will remain in Russia and not go abroad. The “financial sharks” of Europe were left as suckers in a matter of minutes for shares that generate billions of dollars and are left without incomes from Russian oil and gas. Such brilliant operations have never been seen in the history of the stock market. BRAVO Putin!”
“The USA shale oil industry is being liquidated by the drop in the price of oil.”
Smart move by Saudi gang — they de-nut Obama while claiming to be helping go after Putin.
This is an act of war according to Paul Craig Roberts .
There is no reason for an attack to the ruble . The speculators must be hit hard
http://beforeitsnews.com/opinion-conservative/2014/12/is-ruble-collapse-act-of-war-paul-craig-roberts-greg-hunter-video-2947902.html
Morte al Nuovo Ordine
Slightly OT: China set to open 2 silk roads, sits on two int’l megabank boards and set to spend 40% of its investments on infrastructures: bullet trains and, I guess, optic fibres just for starters. Anyway, the figures are staggering:
http://www.sott.net/article/290231-Go-West-Young-Han
To Penelope…
It seems that we are wasting our time giving links to those that just read the article and skip the comments on the thread.
Like BRF @ 03.18 who wrote..
“Diogenes is quite correct….raising the question as to who the RCB takes it’s directions from?”.
the CBR conforms to the IMF diktat.
UK time 12.42PM,
cheers.
Schacht wrote, with reference to his reforms, “…It is not a question of the percentage of gold or bills behind the notes in circulation, or of note control, or the discount rate, but simply and solely a matter of the temperature and the pulse of economic life.” (see Anonymous part 2).Temperature and pulse means the present, no longer a question of back-up assets (past production) but of prospected production (more neatly encapsuled perhaps in the concept of current productivity). There are too many implications there for immediate consideration. I personally am inclined to think in terms a hybrid or dual money system, one part of which might be based on a basket of selected values (real and monetary, and, as one reader wrote, no Euros and no Dollars).
Schacht wrote, with reference to his reforms, “…It is not a question of the percentage of gold or bills behind the notes in circulation, or of note control, or the discount rate, but simply and solely a matter of the temperature and the pulse of economic life.” (see Anonymous part 2).Temperature and pulse means the present, no longer a question of back-up assets (past production) but of prospected production (more neatly encapsuled perhaps in the concept of current productivity). There are too many implications there for immediate consideration. I personally am inclined to think in terms a hybrid or dual money system, one part of which might be based on a basket of selected values (real and monetary, and, as one reader wrote, no Euros and no Dollars).
Why Saker do not post the comments of former economic minister of Russia which Putin called the world best economist and worked for him.He said that Raising Interest rates by central bank is the right decision. So according to former Putin economic minister Diogenes is dead wrong.
Dear The Saker,
The usual smoke and mirrors – whilst everyone is going on about the engineered ruble crisis – look what was going on elswhere in Europe on the same day:
http://www.channelnewsasia.com/news/business/china-s-li-cements-new/1532960.html
This is very significant news for the Balkans and Greece. Russia and China are getting the deals done. I have to say the Poles only whinging about their food market is rather amusing.
Rgds,
Veritas
Fire those ladies? I recommend reading Oil, Ruble, and Ideology for a balanced view of real economics, rather than a narrative which could have been written by The Empire of Chaos.
I was an Interbanktrader, responsible for most of EWS currencies, with the largest German retail fund, as customers middle of it.
Central banks were literally sold out (buy / sell commitment to the intervention points).
The game ended when the OeNB turned off the money tap and there was no refi for the short positions any more.
The the rate for short swaps shot into the height T / N up to 1,000% whereby the speculation on a devaluation of the Oeschie was no longer profitable.
EWS crises 1 & 2 (1992 & 1993)
But went even better. With the Irish Punt, I had some liquidity for an O / N swap (weekend – 3 days)and I got out 22.000%.
According to rumours, for the W / E 45,000% had been paid at the top.
In any case, the actions of the OeNB should serve as a model for Russia. Dry the market up one week and the nightmare is over.
http://www.dasgelbeforum.net/forum_entry.php?id=333208
“3) Russian stock market will tumble. Stocks evaluation use cost of capital, so called WACC – weighted cost of capital, in denominator- higher rate is – lower stock price. “
yes the key number in Discounted cash flow valuations is WACC- growth rate of earnings.
But in my experience in the past, analysts use that to combine WACC and the market price to estimate the long term growth rate, not to value the company. the markets value companies, analysts explain why…
OK I left the market some years ago but I really doubt it has changed (or at least not improved).
Stavros H said…
Some thoughts on the points that you are making :
a) If Putin was a western stooge as some are now preposterously claiming, then the West would be awarding him with Nobel prizes, not risking WWIII and economic calamity just to get rid of him.
Putin deserves a nobel prize for pre-empting all kinds of mayhem with a Kiev controlled Crimea. As the silence on the matter by all world leaders shows, the idea of Crimea remaining in ukraine just does not bear thinking about.
My comment posted above was not complete. Here is the entire text:
Anonymous said… Bring on the Rentenruble. Kill speculation.
Yes, there is interest and I would like more details.
Then you wrote.. It is not a question of the percentage of gold or bills behind the notes in circulation…and you also wrote… That is guidance for all who hope to remedy a problem. You also wrote…. Schacht later wrote that the Rentenmark itself did not stop the inflation. Rather, it was his “credit bar” that ended it.
That “credit bar” was the Reichsbank total refusal [on Schacht’s order] to discount bills which it had been doing excessively and causing the flood of credit/excess money creation. Hence, the inflation.
So, apparently Hr. Schacht fixed the problem of hyperinflation in 1923. Nobody could deny that this is all well and good, and he is certainly to be commended. But what caused the problem in the first place? As I understand it from reading “When Money Dies…’ by Adam Fergusson, prior to the first war the German Mark was backed by 25% gold and 75% discounted commercial real bills maturing into gold in not more than 91 days. These bills were self liquidating and noninflationary. There was no inflation under this system. The amounts of these bills, and hence the currency could and did expand and contract as economic conditions warranted. The system was overturned to finance the war with France. The French did the same thing. This was the root cause of the inflation problem.
Currently, the speculators (read gamblers) are moving away from all commodities and into the man made risks of highly leveraged bets on financial instruments via derivatives on currencies and interest rates etc. They move always together, tilting the boat from one side to the other until it capsizes. When a certain critical point is reached it does not end well.
Russia could easily stabilize their currency by creating an environment for and with a stable currency. There would be no need for capital controls nor additional monetary regulations. Bob Kay was more than correct in noting Russia already has a strong hand with the oil, gold, and nukes. If they just get the currency properly backed they could be the major force for good in the world for a long time to come.
@Romandière:
More fundementally, Russia relies to strongly on energy and commodities. A modern society is diversified and diversification is a defence against volatility.
Russia is no more or less diversified now than it was the day before the ruble crisis.
Anyway, are you aware that Russia is the second largest exporter of defense/aerospace equipment on the planet?
And by the way, what exactly is the US’s leading export? Treasury bonds–debt! So how’s that for diversification.
Russia will survive this shabby attempt at currency sabotage and move on. Just like 1998.
Technical comment from market practicioner: The main channel to speculate on ruble (or any other “commodity” currency is not spot market, but derivative market, using either forward contracts or options. Those instruments has imbedded leverage.Non-delivered 9settled in USD) Forward contracts (NDF) are NOT even visible to Central Bank because these are OTC (Over-The-Counter instuments). This staff NOT even mentioned by CBR or in any public discussion, that tells you A LOT about professionalizm of these peopele in charge of CBR
Oil price dropped in 2008. Since then there has been three periods of QE ( the US).
Unfortunately it’s debt deflation.
The Dollar is practically the world currency. At some point the monetary system has to be renewed
.
We will see what people can afford to pay for oil. The trend is worrisome. But concerning the Russians they can reform their economy.
One can get more than 17 percent with one of these instruments. When rates decline (and they will sooner or later) you can sell it with a capital gain, or wait a little longer and the issuer might even pay you a premium to buy it back from you so he doesn’t have to pay 17 percent every year. So you get 17 percent plus premiums. That happened after rates declined in the late 1980s.
If Putin is an economic liberal as Saker has said in other posts, then he will probably go along with RCB actions until the currency speculation calms down. In the meantime, I would be interested to see what he does to lighten the pain on anybody who is unemployed as a result of the tighter credit. The higher unemployment is what made Volcker so unpopular, even though many economists agreed with his actions.
Stavros H said, “I firmly believe that the sweeping sanctions on Iranian oil exports was an attempt by the US to remove a major producer from the world market so that room was created for the terribly expensive North American unconventional oil production.”
Stavros, I think their motive was different in keeping Iranian oil off the market and in wrecking other oil-producing countries.
Reflect that the quantities of money involved for the oil majors are immense– the more so because they are also into financial and other enterprises. There is only one product that can be bought w such large quantities of money– power.
For them, everything is subjugated to the goal of world-rule– an oligarchy by their class over a reduced population. It is an obsession and a religion to them. Over generations they have destroyed the cultural barriers to corruption so that they could suborn the many 2d tier lawyers, accountants, generals & CEOs they needed.
Never discount what they are doing as motivated by mere greed. We are dealing with principalities of darkness. It is not that they do not espouse one of the world’s great religions or a secular ethical derivation. It is rather that they actually HAVE a religion which is oppositional to our every civilized belief.
It appears the false rumors that Rosneft had to buy US$ to pay off debts may have contribute to the Western shark attack on Russia which was magnified by short selling the Ruble
http://www.acting-man.com/?p=34797:
“On Friday Russian Oil giant Rosneft issued 625 Billion Rubles in new bonds that apparently were immediately bought by the Russian CB. It’s known that Rosneft is due some big payment in USD to cover debts it incurred in buying TNK-BP. In 2013 it borrowed $55 Bln, some of it apparently short term. So on Monday the market thought that Rosneft had a big wad of Rubles ready to buy $10 Bln worth of the USD, so everyone tried to front-run it, so the Ruble collapsed.”
re: The Russian’s reactions to the ruble.
Here are some firsthand observations of the Russian’s reactions to the ruble. The author is Friedman(Stratfor) who went to Russia last week. The second part where Friedman tries to whitewash the Empire’s motivations is nothing but hypocrisy but the first part where he details his observations and discussions is quite interesting:
“…The Russians suffered terribly during the 1990s under Boris Yeltsin but also under previous governments stretching back to the czars. In spite of this, several pointed out, they had won the wars they needed to win and had managed to live lives worth living. The golden age of the previous 10 years was coming to an end. That was to be expected, and it would be endured. The government officials meant this as a warning, and I do not think it was a bluff. The pivot of the conversation was about sanctions, and the intent was to show that they would not cause Russia to change its policy toward Ukraine.
Russians’ strength is that they can endure things that would break other nations. It was also pointed out that they tend to support the government regardless of competence when Russia feels threatened. Therefore, the Russians argued, no one should expect that sanctions, no matter how harsh, would cause Moscow to capitulate. Instead the Russians would respond with their own sanctions, which were not specified but which I assume would mean seizing the assets of Western companies in Russia and curtailing agricultural imports from Europe. There was no talk of cutting off natural gas supplies to Europe….”
http://www.stratfor.com/weekly/viewing-russia-inside#axzz3M4wAaCr6
“So on Monday the market thought that Rosneft had a big wad of Rubles ready to buy $10 Bln worth of the USD, so everyone tried to front-run it, so the Ruble collapsed.””
This looks like the point of having a second banking system. Now, everyone knows too much now about everyone else’s business, so can predict and speculate. If they can turn to another system you get “market forces” ie they can’t be set up as they can do the business at the other place. bye bye speculation.
Anonuymous in reply to
Anonymous 17 December, 2014 04:26
…if different interest rates were introduced and how bonds were handled. …
The Reichsbank set the discount rate and did the bulk of credit/money creation by its too-easy acceptance of many kinds of privately-issued paper. In normal times, raising the discount rate acts to discourage presenting bills [e.g. private paper] to the bank for converting to legal tender.
In 1923, the devaluation of the mark was moving so fast that a discount rate would easily be worth swallowing because in days the devaluation of the mark would be so much greater than the discount. Getting legal tender on Monday morning at almost any cost [discount] and spending the legal tender or receiving foreign currency and hoarding it hoard against further devaluation of the mark Monday afternoon was worth , say, a 15% discount bec the legal tender value of the mark already dropped 25% by Tuesday.
In Schacht own words [1949 Account Settled]:
“The third of the decisive measures adopted to put an end to inflation came into operation at the beginning of April, 1924. Big business interests had once again used the excessive credits they had asked for and obtained to start hoarding foreign exchange. In order to make them realize once and for all that they must subordinate their operations to the monetary policy of the Reichsbank, I suddenly barred all further credit against bills. In normal times these bills were the usual means of obtaining credit from the Reichsbank. It was unprecedented that the Reichsbank should refuse to discount good commercial bills.
When its credit was called on to an excessive degree, that is to say, when too many bills were presented, the Reichsbank would merely raise the discount rate, and continue to raise it, until the deduction was more than the bill holders cared to pay and they preferred to do without the credit. However, in times of currency depreciation such as we had just experienced, this discount screw necessarily failed to operate effectively. It did not matter in the least whether the presenter of a bill had to pay 10 or 15 per cent discount when within a few weeks, or even within a few days, money itself would depreciate by 50 per cent and even more. This was the reason why I did not have recourse to the usual method of raising the discount rate, but adopted instead the harsh but only really effective means of blocking all credit. The measure was immediately successful.”
[Note i read an English translation of Account Settled.]
from Rick in reply
Anonymous in reply to
Sasy 17 December, 2014 12:59
Schacht also added:
“During the terrible period of inflation after the first world war the Reichsbank was overwhelmed with thousands of suggestions, plans and schemes for stabilizing the currency. . . . For some reason or other the arithmetical nature of finance seems to inspire the mathematically-minded, and their efforts always tend in the one direction, towards the creation of an automatically functioning solution operating according to fixed mathematical rules. But the currency problem is not a problem which can be solved according to fixed rules. If it were, then perhaps a capable professor of mathematics would be the best financier after all. Monetary policy is not an exact science but an art. As such it is a sphere which will always remain mysterious to the man who is not capable of mastering that art, while appearing simplicity itself to the man who is.
The art of monetary policy consists in keeping the relationship between the value of money and the value of the other commodities as steady as possible. Part of this art consists in constantly observing and correctly judging not only the movements of money but also the production and consumption of other commodities. Therefore it is essential that the financier should have a wide knowledge of national and international economic affairs. This is all the more necessary because economic conditions, costs of production, etc., are constantly being changed by technical inventions and new organizational measures.”
Perhaps that helps.
from Rick in reply to Sasy