Categories Uncategorized WSJ: Sorry, Professor Sinn, You’re Way Off Target This Time Post author By Philip Lane Post date June 9, 2011 10 Comments on WSJ: Sorry, Professor Sinn, You’re Way Off Target This Time This WSJ article provides another critique of Sinn’s Target 2 analysis. Related ← Lowered Ambitions → Contractionary austerity watch — Greek edition 10 replies on “WSJ: Sorry, Professor Sinn, You’re Way Off Target This Time” Sinn is No friend of Ireland. at least the WSJ take him on… “it is tempting to think that this was Professor Sinn’s intention all along–to ratchet up populist German mistrust of the periphery. He has been the arch-exponent of a biased German narrative of the crisis: a narrative that dumps all blame on lazy Mediterranean types and Irish hucksters, and ignores the failure of Germany to adhere to and enforce the Stability and Growth Pact, the recklessness of German banks in fuelling the bubble, and the inability of German regulators to stop them. The euro has enough real problems without worrying about bogus ones like TARGET2. @Ceteris “ignores the failure of Germany to adhere to and enforce the Stability and Growth Pact” “the recklessness of German banks in fuelling the bubble” They adhered to the madness pact only too well , it would have been best If the net saving countries of Germany and France had more forceful executives that could break the madness pact more often. Why did credit savings flow into the periphery ? Because the German state/banks were not allowed to get into sufficient fiscal debt. What happens when countries have a higher fiscal debt Ceteris ? Yes their citizens bank deposits are subtracted from the money supply. Credit / bank deposits is more limited , less opportunities are available for malinvestment. To reduce leverage in this monetory system you need high fiscal debt levels. Fiscal debt is goverment money , bank deposits are the creation of credit and are leverged relative to the sustainable tax base of a juristiction The stability and growth pact was / is a Trojan horse designed to break sovergin countries through magnificent leverage levels. If goverment debt is limited to 3% / 60% the now dead (no velocity) credit money must flow to Free Gold on the Euro balance sheet. We are witnessing private money getting recapitalised , not the sov goverment money. Nobody is asking the simple question – who bought all that Swiss , British and French Gold sold over the last decade or so (over 2000 tons sold ) The Asians CBs did not buy it We are about to witness the greatest % price rise in Gold ever seen in a non hyperinflationary event. @Professor Sinn ‘… the arch-exponent of a biased German narrative …’ It has taken a little time …. but the peer review process is complete. Straight Rejection Herr Professor. Hope our board reads the WSJ – Have a nice day! Another economist with a central-banking background, Lucrezia Reichlin of LBS, joins the pile-on in a letter to the FT: …it is not clear what Prof Sinn and Mr Wolf mean when they say that “by shifting so much of the eurozone’s money creation towards indirect finance of deficit countries, the system has had to withdraw credit from commercial banks in creditor countries”. In the euro system, under the fixed rate full allotment system of operations, liquidity is supplied at satiation at a fixed interest rate and there is thus no withdrawal of money creation from creditor countries. It’s interesting (but not surprising) that economists who have worked at central banks seem quicker to spot howlers like Sinn’s. I think Daniel Davies (former Bank of England inmate) also picked it up, in comments on Felix Salmon’s blog. So we helped out the German banks losses on Lehmans, through the very same system!!! You learn something new everyday. Can anybody put a figure on this? No one knows this better than the Bundesbank, which was virtually the only Eurosystem counterparty of Lehman Brothers when it defaulted, and was able to defray around three-quarters of the loss it suffered among its partners in the Eurosystem. Posted it in Karl’s thread – Germany a Huge Beneficiary from ECB Operations -already, apparently H.W. Sinn’s interpretation of Target 2 http://dl.dropbox.com/u/4914840/target2positions.tiff is based to a degree on this paper: http://www.lancs.ac.uk/staff/whittaj1/eurosystem.pdf I know we’re overdosing on the whole Sinn thing but here’s a slightly edited version of my article for VoxEU http://www.voxeu.org/index.php?q=node/6625 Karl, Pardon the simplicity, but is this not the lady-bird version of what’s going on: Deposits (backed by questionable assets and a dubious guarantee) have flown from Irish Banks. The consequence of this is: Irish Banks owe a shed-load to the Irish CB, the Irish CB owes a shed-load to the ECB, the ECB owes a shed-load to the Bundesbank. If/when the questionable assets/dubious guarantee is not made whole by the Irish tax-payer – the Irish banks default on the Irish CB, the Irish CB defaults on the ECB and the ECB defaults on the Bundesbank. Where does the SNB fit into all of this , the Bundesbank and SNB are very closely linked yes ? I realise @Karl Whelan is away, but there is a question that is bothering me, perhaps someone knows the answer? Does the Target2 deficit indicate the scale of investment that has taken place in previous years in Ireland? (Malinvestment may be a better word, since the capital that flowed in has flown out). If so, does that mean that BOP surpluses will pay this off? How long will it take? Comments are closed.