In order to keep the amount of EUR-money at a constant level, other EUR-countries have to pull out this same amount from the system. So far, the Bundesbank had to sell over 500BLN EUR of their real value assets (that they build up in over 50 years) to pay for that. In fact, this has been a big and unfortunately legal rip off of the Bundesbank by GIIPS CB’s. And Germany can’t stand it anymore.

The USA had the same problem in the mid of the 20th century, and made some important rules to stop that (transfer of real value assets as compensation between district CB’s, no valueless junk bonds).

http://www.bbc.co.uk/news/business-16086672

“You print it - vee vill burn it!”

Do I agree with dsqaured. Yep, completely.

If the govt had issued a gilt instead of writing a promissory note, it would have mopped up actual money from investors. If it then pledged that gilt as collateral in exchange for money from cbi (via Anglo) then that money would go back into the system, via Anglo bondholders etc. Not much difference on balance.

No gilt was sold though. No money was mopped up to start with. When the cbi handed out money to Anglo it was printing, on the understanding the sterilisation would take place over a length of time according to the repayment schedule for the pro note.

Genuine, temporary printing. You can make it permanent by defaulting on the note presumably.

jeez, I hope you are not accusing “the core” of racial stereotyping.

One of the great puns:

From the biog of the 19th century General Sir Charles James Napier activities in India:

His [Napier's] orders had been only to put down the rebels, and by conquering the whole Sindh Province he greatly exceeded his mandate. Napier was supposed to have despatched to his superiors the short, notable message, “Peccavi”, the Latin for “I have sinned” (which was a pun on I have Sindh). This pun appeared in a cartoon in Punch magazine in 1844 beneath a caricature of Charles Napier. The true author of the pun was, however, Catherine Winkworth, an English girl then in her teens, who submitted it to Punch, which then printed it as a factual report.

http://en.wikipedia.org/wiki/Charles_James_Napier

It is important to note where these kind of misrepresentations are coming from and their purpose. This false propaganda has a willing and attentive audience.

It is important to keep refuting it.

“Plus interbank borrowing the subject of agreements and supports from other Central Banks including the FED, CB’s of Japan, Canada etc who have to be paid back in dollars for their lending swap supports of European banks, would need a lot more euros to repay their dollar loans given that the euro would fall in value against the dollar”

Its a swap, the amounts for both sides (ie EUR and USD) are the same at start and at maturity, plus a minor, known adjustment.

Also, re “If it were to print money without a brake, inflation would kick in a danger of hyperinflation” - isn’t the “without a brake” part the important qualifier?

http://politicalhumor.about.com/library/bl-economic-cartoons.htm?PS=6%3A27

In relation to my answer to DB, even a collateralised loan can be described as “pure money printing” and there’s nothing in the mandate of the ECB — beyond its price stability mandate — that limits the amount of money it can create.

That was my understanding as you have clarified in your par before the second par quote above. Basically the promissory note is the collateral, a promise us taxpayers will pay it back some way, maybe give them some islands also or transfer over some other state assets, most likely though taxpayers to pay through the nose for this.

But I disagree with paragraph above. As far as I know in Stability Growth Pact under ECB mandate, it has a governing mandate above all to reduce inflation. If it were to print money without a brake, inflation would kick in a danger of hyperinflation. Plus interbank borrowing the subject of agreements and supports from other Central Banks including the FED, CB’s of Japan, Canada etc who have to be paid back in dollars for their lending swap supports of European banks, would need a lot more euros to repay their dollar loans given that the euro would fall in value against the dollar. Plus Trichet has warned also of this ‘race to the bottom’ and is the reason for his lack of support and criticism of FED QE1/QE2

political cartoons http://politicalhumor.about.com/library/bl-economic-cartoons.htm?PS=6%3A21

hypothetical question: what would be the implications for the BUBA if the Euro broke up and the porcines left and devalued by 30-40%?

The Bundesbank and the Banque de Luxembourg are now the printing press central banks in the eurosystem.
Whittaker,page 3:”Around 98% of the Luxembourg note issue is in high value notes.”

“Sorry but this critique mistakes the TW paper and blows smoke on the issue. Felix Salmon also mis-summarizes the TW paper a little.”

Felix summarises the paper just fine. It’s you that seems to have invented some different version of the TW paper to defend.

Here’s what you say is going on:

“the Bundesbank is not taking GIIPS bank liabilities or taking GIIPS exposure - it takes ECB exposure, which is different. The problem in the mix is that the ECB is still taking GIIPS collateral and putting itself in a position to have to monetize the collateral gap.”

That’s a reasonable summary.

Here’s what TW are saying:

“To fund these loans, GIIPS central banks borrowed mainly – via the ECB – from other central banks, in particular the Bundesbank. In order to fund these loans, the Bundesbank sold its holdings of German assets.”

That’s not true at all.

Maybe you think there’s some underlying issue that should be discussed (e.g. problems with ECB collateral standards) but defending a paper that’s full of false claims isn’t a good way to have that debate.

But I agree with you that people should read the paper slowly and decide for themselves.

From your piece in June
“In this sense, the Bundesbank is not owed money by the Central Bank of Ireland. It is owed money by the ECB. If the Irish Central Bank refused to pay, it would be the ECB on the hook, not the Bundesbank. The Bundesbank can only lose money if the ECB refuses to pay it back.”

I think the problem here is that many Germans still believe that the ECB don’t print money and that every cent they give out is backed up.

Nice one.

Because I’m lazy and because Karl Whelan seems happy to answer questions which permit yes/no answers, I’d like to know whether he agrees with dsquared’s comment. Since they are both shrewd former central bank economists I’m inclined to take it that, if they are in agreement, then they are right.

What’s interesting, though, is that the Bundesbank appears to be literally printing money - look at the expansion of the base notes.

My own favourite:
http://xkcd.com/552/

The ELA is collateralised by the promissory notes and various promises from the Minister of Finance. ELA differs from other CB loans in that it relies on collateral that is not on the Eurosystem’s eligible collateral list.

In relation to my answer to DB, even a collateralised loan can be described as “pure money printing” and there’s nothing in the mandate of the ECB — beyond its price stability mandate — that limits the amount of money it can create. Anyway, his two other options certainly weren’t correct.

The point about German banks no longer needing funding is consistent with the TW story. In fact they actually specifically provide an example of euros flowing from a Greek bank to a German bank to explain the situation they are highlighting. Two sides of the same coin.

People should read the TW paper themselves on Voxeu.org, slowly, and make their own conclusions. It’s all there.

‘German CB sells perfectly good assets to keep PIIGS in clover and now faces disaster’ is the kind of thing a journalist makes up.