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Friday, June 17, 2016

In Furious Tirade, Citi Lashes Out At "Utterly Misguided" Central Bankers, Invokes Weimar Republic's Von Havenstein

In what may be merely a peculiar case of serendipity, just last night we mentioned the name of the infamous president of Weimar Republic's Reichsbank, Rudolf von Havenstein, in the context of the BOJ's proud announcement that it now held more than a third of all Japanese government bonds at the end of March (so even more currently).
BOJ SAYS IT HELD 33.9% OF JGBS AT END-MARCH.
First one to 100% wins the Rudy von Havenstein economics prize
Well, either Citi's Gregory Marks was following our amused observation, or in an act of odd confluence of thought invoked the spirit of Rudy von Havenstein completely independently, when overnight he unleashed a furious tirade at both negative rates and "utterly misguided" central bank policies in general and negative rates in particular in "Let's Take Stock: The Efficacy and Merit of Negative Rates."
The full note, which is on par with Deutsche Bank's just as angry recent rant against the ECB, is presented in its entirety below.
Let's Take Stock: The Efficacy and Merit of Negative Rates
There once was a gentleman named Rudolf von Havenstein. You probably have never heard of him. His Wikipedia page is not even a full page long. He started his career in law, working in the Prussian Justice Service and then became a judge. From there he went to the Prussian Ministry of Finance. From 1900 to 1908 Havenstein was president of the Prussian State Bank. From 1908 to 1923 he was president of the Reichsbank.
I do not know him personally (he died in 1923). My assumption is he was a pretty well regarded person in the academic/finance/law/market community. After all, he was head of the central bank! His name was on the German Reichsbank notes (from 1908 to 1923)! How can he not have known what he was doing? Someone in that position has to know what they are doing. Right?
During Havenstein’s time at the Reichsbank, it was widely believed that the rate of inflation and the money supply had nothing to do with each other.

For some context, the gold standard was suspended during WWI and Keiser Wilhelm II did not enact an income tax (unlike France) to pay for the war, choosing to pay by borrowing. The war was lost and over with, but the debt remained. In order to ‘help’ the government and people, old Havenstein went on a printing spree. Good idea right? Remember, at that time it was believed that the rate of inflation and the money supply had nothing to do with each other. The end result was crippling hyperinflation, economic collapse and a negative shift in the political spectrum.

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