Monetary Schizophrenia in Germany

Wolf Richter's picture

Wolf Richter

A pact with the devil—that’s now the official metaphor for the “unlimited” bond purchases that the European Central Bank has promised in order to bail out the holders of decomposing Eurozone debt. Bundesbank President Jens Weidmann himself referred on Tuesday to Goethe’s Faust, a play based on the ancient tale of a scholar who sells his soul in exchange for knowledge and pleasure. Part Two of that play—and it ends tragically—sketched “the core problem of today’s paper money-based monetary policy,” Weidmann said, and the “potentially dangerous correlation of paper money creation, state financing, and inflation.”

But it’s too late. Germany has cracked in two—and part of it has eagerly embraced that pact with the devil. The ZEW Indicator, which measures investor sentiment, jumped by 7.3 points, the first increase after four months of sharp declines. And the ECB’s promise? It “contributed to the improvement,” said the press release. Even German investors love all that money sloshing through the system—look at the stock market!

Yet there is the other side: Germans in the real economy. They’re losing faith in the euro, the bailouts, and the ECB: 65% now feel that they’re worse off under the euro than they would have been under the Deutsche mark. A trend that isn’t expected to turn around anytime soon.

And both sides clashed. Over the weekend, Finance Minister Wolfgang Schäuble, who supported the ECB plan, raked Weidmann over the coals for “semi-publically” debating his opposition to it. Until that moment, Weidmann appeared to have the government’s lukewarm backing. But that has evaporated. Chancellor Angela Merkel then had an opportunity to back Weidmann but ostentatiously didn’t. She allowed merely that his comments would be welcome—reducing him from an important advisor in the government’s financial decisions, the traditional role of the Bundesbank, to a pesky commentator.

And comment he did—at Tuesday’s Goethe Symposium in Frankfurt. “Today’s money isn’t covered by any tangible assets. Banknotes are printed paper; mavens among you know that in the case of the euro, it’s actually cotton.” Central banks “had been created in the past to give regents free access to seemingly unlimited financial means,” he said. With catastrophic consequences. Fly in the ointment: he failed to point out that it’s now banks, not “regents,” that luxuriate in “free access to seemingly unlimited financial means.” Nevertheless, the independence of central banks is important “to prevent state appropriation of monetary policy.”

And the best protection against the temptations of monkeying with monetary policy? “An enlightened and stability-oriented society.” Hence it’s crucial that “central bankers, who manage a public good—stable money—justify themselves publicly,” he said—a vigorous stab at Schäuble for his efforts to gag him.

But Weidmann, isolated at the ECB and now in Berlin, enjoys broad and vocal backing from other directions. One of them is his predecessor Axel Weber, who’d resigned from the ECB and the Bundesbank last year in protest over the bond purchases going on at the time—and has since become chairman of the board of UBS. From Basel, Switzerland, he said that he was afraid that the low interest rate policies and the expansion of the central bank balance sheets would lead to “new turmoil in the financial markets.”

Not since World War II had central banks interfered so massively in the economic cycles, he said—with an eye not only on the ECB, but also on the Fed, the Bank of Japan, and other central banks that are printing money hand over fist. While he conceded that the ECB’s measures brought some calm, “monetary policy cannot solve the fundamental weaknesses in the structure of the monetary union.” But “the difficult solutions, the structural solutions, are at this time not on the political agenda.”

Merkel, who is desperately trying to hang on to power and become one of the very few leaders to survive the debt crisis, has been playing it both ways. On one hand, she’s supporting the ECB’s bond purchases, hoping to benefit electorally from the miracles they can perform short-term for the financial markets. On the other hand, she’s trying to hang on to voters who are giving up on the euro; hence her emphasis on “strict” conditions for the ECB’s bond purchases and bailouts. The election is next year, and so far, voters appear to go along with her.

When the German Constitutional Court nodded with a stern smile on the ESM bailout fund and the Fiscal Union treaty, politicians breathed a sigh of relief. The German revolt was over. But steam is billowing once again from the decrepit pipes of the Eurozone, this time in France, where the Fiscal Union treaty has been silenced to death. Read.... A French Rebellion Against Unelected Bureaucrats: “European Coup D’Etat And Rape Of Democracy”

And here is the hilarious but brutally truthful video, now practically a classic, from down-under comedians Clarke & Dawe that in 2.5 minutes summarizes better than anything else the entire Eurozone debt crisis.

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THE DORK OF CORK's picture

"And the best protection against the temptations of monkeying with monetary policy? “An enlightened and stability-oriented society.” Hence it’s crucial that “central bankers, who manage a public good—stable money—justify themselves publicly,” he said—a vigorous stab at Schäuble for his efforts to gag him."


Central bankers don't do money or at least should not.

National goverments can & should print money.

Banks , central banks all banks do credit - they don't do money outside of the shiny stuff which in the Irish central banks case at least is supposedly held by the CB and not the exchequer and they certainly do not manage the public good -Central banks only function is to bail out their little credit sisters.

THE DORK OF CORK's picture

Total Irish domestic demand (current)

Y2007 Q1 : 43,003 Million

Y2007 Q2 : 42,115 Milllion 


Y2012 Q1 : 30 ,915 million

Y2012 Q2 : 29,947 million

Don't be fooled by the banking spin in Ireland..(we are their best pupil)


 Economic Adjustment Programme for Ireland — Summer 2012 ...

In the above report they at least openly stated that they must take money from people so as to make private banks profitable. (think about that for a second ...... if so what is the function of private banks ?)

This is the extreme rentier dynamics that Micheal Hudson talks about.

There is no role for credit banks in a energy starved world - they can only function as parasites which is their natural gift.


The non national Euro experiment means we must export to countries where malinvestment is currently occuring  so as to pay off previously malinvested debt...eventually when Germany is destroyed via migration following footlose capital & subsequent malinvestmet the capital will move back into previously broken countries ... and the cycle repeats......downwards into a entropy pit.

Its a entropy cycle - bank credit money only lives to run down existing social  energy systems.

A global cul de sac.

Given that domestic customers  are so much closer then external markets the energy lost from these pointless exports is huge.

This could otherwise be used to sustain domestic demand and rational investment.

Countries need to renationalise their money systems.


The last time total quarterly domestic demand was in the 29,000s was in the Year 2003

Back then stuff was a bit cheaper I gather and the population of the Irish state was far lower at 3.979 million rather then 4.484 million of 2011.

THE DORK OF CORK's picture

Gross domestic fixed capital for. in Ireland at current prices.

Y2007 Q1 : 13,994 million

Y2007 Q2 : 11,828 million

Y2012 Q1 : 5,082 million

Y2012 Q2 : 3,646 million.




disabledvet's picture

And then she pecked him on the cheek! And then he got all flustered! And then! And then!

LawsofPhysics's picture

...and then the world goes to war. Come on, you and I have seen this play before.  There are families that have been very successful throughout history, they really believe themselves to be superior and they really believe they have earned all their wealth.  Don't question what is is of real value they provided, just pay their demands or they will send your children war.  No thanks, not this time.

THE DORK OF CORK's picture

Countries need to go back to real printed NATIONAL money and get these God Awful bankers off our backs.

Their only role should be insuring final settlement and therefore rational trade between nations.....if they cannot do that they can fuck off from my country.

The banks have set up a system where there cannot be a final settlement between nations and therefore no logical trade (this was the Bankers primary role in previous times)

In Irelands case this lack of settlement means a Permanent state of Bankruptcy

They (The international credit Banks) have used this lack of clarity for their own ends.

Real Goverments should just create domestic Fiat and renationalise their economies and forget about the banks double entry system as it is far too corrupt


I would appreciate a hard as nails Norman ruler that can break this Venetian banking system wide open....we have a shortage of them in Ireland at the moment.



Ireland has just posted the biggest quarterly current account surplus ever as far as I can gather at 3,235 million euros......we are bailing out the UK & others , in particular the city of London which has been running a massive current account defecit since the big bang of 1986.



Nussi34's picture

There are idiots who in every country who are fiat money deciples and corrupt *** who betray their people like the man in the wheelchair...

Sandmann's picture

“semi-publically”   = semi-publicly

The simple issue is that the Political System is now detached from the Public and is simply an analogue of the Banking System. If the Public as Voters and Consumers decide to behave in a Contrarian fashion the System is finished. The levels of Alienation are such that the current Muslim Mayhem around the world may be the spark that setys off the anger in Western societies and helps a great many in the West to revise their opinions of Adolf Hitler and what he actually stood for. The Propaganda that has passed for "History" in cycles of indoctrination that have passed for "education"  is coming unstuck as people wonder how they got from there to here, and why they are so far off-track.

Western Society is disintegrating because it was held together by easy credit as a social lubricant



AUD's picture

he failed to point out that it’s now banks, not “regents,” that luxuriate in “free access to seemingly unlimited financial means.”

Bullshit. Most central banks are stuffed to the gills with government debt. They just acquire it via commercial banks these days to make it seem like the monetary system is not a ponzi scheme.

Nevertheless, the independence of central banks is important “to prevent state appropriation of monetary policy.”

is also bullshit. Weidmann can suck my dick.

Heyoka Bianco's picture

While I can appreciate Axel Weber's commentary, it's hard to get behind a former douchebag central banker whi quits, to become the douchbag chairman of UBS, another Satanic shitpit of greedy, thieving bastages. Really, you think you have any moral authority left, Herr Weber?

AND you fucking name is "Axel", I bet you write really shitty one man postmodernist plays too.

q99x2's picture

Maybe they should put up a wall.

Ar-Pharazôn's picture

buahahahahahah it's cotton!!!!!!!

Ar-Pharazôn's picture

that is very interesting. thanks LMAOLORI

Coldfire's picture

History repeats because no one was listening the first time.

nah's picture

$40 a barrel bitchez

stinkhammer's picture

Sie leben in einer Hundehütte!

Umh's picture

Paper money is indeed the devil's creation. I have no idea how he talked people into it, but now years later we are screwed by it over and over again. For me to take a "note" from someone I know is vastly different from trading a derivative chalked up by some wise guy who has an inside advantage.

cifo's picture

I wouldn't call it "schizophrenia", but rather "split personality".


Sandmann's picture

Germany has always had a "split personality" because Janus-like it faces both East and West and has more land borders than any other European state with traditional threats from France in the West and Russia in the East with Britain playing a spoiling role by allying itself with Russia twice in the twentieth century