"ECB money comes from nowhere": Former State Secretary calls for higher debt


The corona pandemic hit global markets with incredible force. Suddenly, no more money is a waste to save the global economy. Some financial experts are therefore warning of a severe euro crisis and so-called “hyperinflation”. “Grandiose nonsense,” ex-State Secretary Heiner Flassbeck said in an interview with Sputnik.

The corona crisis leads central banks to unprecedented activism. The European Central Bank (ECB) breaks all its taboos and lets a real shower of money pound down on the European economies. “Extraordinary times require extraordinary measures,” tweeted the President of the European Central Bank, Christine Lagarde. It is now looking at the new “PEPP” bond program worth EUR 750 billion, which the ECB has decided to fight against the economic consequences of the corona virus crisis. The central bank is doing without a self-imposed limit for its new purchases for the first time: Now the previous rule that the central bank may buy up to a maximum of one third of all government bonds in a euro zone should no longer apply to new purchases. This is clear from a published central bank document.

The funds are “absolutely unproblematic and completely correct,” says economist Heiner Flassbeck in an interview with Sputnik. On the contrary: The central bank had to be much clearer: “The state now simply has to Increase debt. He has to have extra money. He has to ensure that the companies are supported, that workers are supported who have break-even income, ”demands the economist. From 1998 to 1999 Flassbeck was State Secretary in the Federal Ministry of Finance and from January 2003 to the end of 2012 chief economist at the UN Organization for World Trade and Development in Geneva.

Liquidity in times of crisis

But how can states guarantee their liquidity in times of crisis? “In the European Union, they borrow from the capital market,” explains Flassbeck. At the same time, there is always the possibility that the ECB will buy these bonds directly on the market. This increases the demand for these bonds, which the state issues. The money comes directly from the central bank – “or indirectly,” notes the economist.

Because: “The central bank money comes from nowhere. The money is created. It is printed. You don’t need cover or anything else, it is simply made by the central bank, ”claims the honorary professor at the Hamburg University of Economics and Politics.

But some experts see massive problems in the ECB’s loose monetary policy and are already anticipating one Hyperinflation. So also the financial expert and bestselling author Marc Friedrich. He sees the measures critically and speaks of a “worldwide panic of central banks”: “The more money that is pumped into the system, the more worthless the euro becomes in your wallet. We will see if the third largest and fourth largest economy is in absolute quarantine mode, the euro will break down at the latest, ”says the economist from the consulting company“ Friedrich und Weik Vermögensicherung ”.

Sinn criticizes “large-scale community action”

The former head of the Institute for Economic Research (Ifo), Hans-Werner Sinn, also warns of increased ECB bond purchases: “It has done this in excess in the past ten years. We swim in the money. There is far too much money in circulation ”, Sinn believes. A new “asset purchase program” by the ECB, “to socialize the new debts is highly dangerous because it provokes either inflation or expropriation of the assets through negative interest rates”, said the economist in a YouTube video of the “Wirtschaftsbeirats Bayern”.

“When inflation takes place, the debtors are rid of their debts. And if there is no inflation, there will be other ways to get rid of this excess money, and it is not so nice: there is already talk of negative interest rates on cash. So that people don’t want to run into cash, the cash should be devalued against the electronic central bank money – every year. It’s almost the same thing as annihilating assets and money through inflation. ”

Such political processes are the consequence of a “large-scale community action on Eurobonds” (“Eurobond” or an EU bond is a hitherto unrealized but controversial type of government bond in the euro zone. divide the funds raised among themselves and are jointly and severally liable for the repayment and interest of these debts – editor’s note).

Paradigm shift begins?

Flassbeck clearly contradicts such views. “It’s all grand nonsense. These are the same people who have been claiming hyperinflation for 20 years because monetary policy is very loose and interest rates are zero. So far there has been no hyperinflation. Japan has been doing this for 30 years. And it still has deflation. Unfortunately there are far too many who claim this nonsense, ”the ex-State Secretary said.

The ECB is still too timid for the economist. In his view, ECB chief Lagarde had to go one step further and say: “The spread (the difference between two interest rates – editor’s note) between Italy and Germany is very important for the ECB and we will make sure that it there are no large spreads between these two countries. And then every market participant knows that he has to stay away from it because he has no chance against the European central bank. “The means with which the ECB is endowed are infinitely large -” always larger than that of the market participants. ”

Flassbecks explains what he believes to be hesitant measures by the central bank with “ideological obstacles”. “You can see it in Germany: there are ideological blockades. Germany is the country that insists that the markets have a role to play and that is a terrific mistake. ”This realization is only gradually becoming accepted in Europe. However, the economic expert is convinced that the crisis will cause a rethink.

Complete interview with Prof. Dr. Heiner Flassbeck for listening:


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