He’s back and Germany’s Hans Werner Sinn had another bad day.
There is just too much money sloshing around in the EU and it comes from all the wrong places. The usual suspects are at it again.
About 80 percent of the monetary base of the Eurosystem are caused by credit or open market operations of the central banks of the six crisis countries (Greece, Italy, Portugal, Spain, Ireland, Cyprus), although these countries account for only a third of the economic strength of the euro area up.
How do they do this?
The rental of the printing press
A pictorial metaphor of electronic payment transactions that are behind the Target balances is so: The south prints the money he needs to buy in the north patrimonial goods and objects, as well as redeem old notes, and the central banks of the North shred the previously already spent money because it is no longer needed as a lubricant for domestic transactions. It is thus quasi awarded the (electronic) printing press from the north to the south, which establishes the target assets and liabilities.
That is bad behavior but let’s see about this excessive note issuance:
At this point in our story we can almost feel the frustration and anger building inside our northern European readers. “Yet another way the euro system help siphon of my hard earned money to profligate southerners!”
But that is NOT the case! Excessive note issuance is (almost) inversely related to sovereign bond yields! The deeper a country has sunk into the euro-quagmire, the less the NCB has resorted to excessive note issuance!
This looks rather tame but back to HW Sinn as he dishes out more bad news:
The undercutting of the capital market with the printing press is now the main reason that the German banks and insurers can not earn risk-adjusted interest rates and more insurers are even forced to withdraw their interest guarantees.
Which in the end means that German banks would be just fine and that Germany’s hard workers will lose, yet again, on their life insurance nest egg.