SURREAL ECB BALANCE SHEET: Slog vindicated by independent Slogger.

Mario Draghi’s debt monetisation: it’s already under way…and here’s how he does it:

For those of you without opera glasses to hand, you can view this schematic diagram in larger format at

It represents how the ECB can monetise the debt of ‘at risk’ countries using printed capital, whilst allowing the ECB to control inflation and the size of the money supply. In short, it appears to allow the eurozone to pay its debts with printed money and then remove it from the system at a later date – in other words the eurozone can pay its bills…then burn the money it used to pay them with.

The system in principle at least allows for the payment of interest on ‘at risk’ nation debt ( therefore controlling yield rates) and allows for the repayment of the principle capital on existing bonds. All with a ratio of printed money v. real money that would be classed as fraud if it was attempted by any organisation other than the ECB. The clever thing is that the more bonds the ECB buys, the better the ratio…..and the easier the matrix is to maintain.

The viability of the ECBs balance sheet is a nonsense, as under this system it can guarantee repayment of both yields and principles on all the bonds it buys so it doesn’t have to classify them as liabilities.  And once it’s been repaid with its own printed money it can remove it from the system.

It can effectively recapitalise the banks, recapitalise ‘at risk’ nations, and ensure that currently stable nations stay that way….all the while ensuring that cuts the Germans want are made with little risk other than to the population.

And as we know already, the population  doesn’t count in their calculations.

Many thanks to Doctor A for the full explanation.

Earlier at The Slog: Arrests and suicide in Greece – the aftermath of Lagarde’s List of tax dodgers

33 thoughts on “SURREAL ECB BALANCE SHEET: Slog vindicated by independent Slogger.

  1. The Salvador Dali of creative accounting or another cock-up in the making?

    Talking of which – from the DT “Cambridge University students given 60 free condoms a week” – Is this a case of one upmanship?


  2. This makes no sense at all. Apart from the link not working, the difference between yield and coupon seems to escape the writer, which doesn’t augur well for what would have to be a complex argument. What is `real’ money as opposed to `printed’ money? The euro is (thankfully) a fiat currency so it’s all printed.
    As for removing `printed money from the system’ at a later date, I believe that’s called `sterilization’ and is indeed a standard practice of central banks.
    I suspect this is an example of a little knowledge being a rather dangerous thing.


  3. And now there is a computer ‘glitch’ with Lloyds and Halifax banks, and people cannot access their own money…..


  4. I can’t see the schematic in detail, but I think this may be an example of what is known as Modern Monetary Theory (MMT): injecting cash when needed, with the intention to withdraw it again when the situation has improved. If so, it’s a sort of Kenesianism – supposedly net effect nil over the economic cycle (however that is defined, and Gordon Brown kept redefining it), but in practice dishing the cash out is always easier than taking it back so we end up with monetary inflation.


  5. I was in my Lloyds branch at lunchtime today.

    Teller: Computer is telling me to ask if your address is correct.
    Me: What does it think my address is?
    Teller: I don’t know, the computer’s down..


  6. Signor Viderci

    I could easily be persuaded to agree with you, as both text and illustration were given to me by….a senior City CEO and his economists.
    You see like so many to be a chap who knows everything, whereas I have to be guided by those who know something. It’s funny how those who know everything cause outcomes suggesting they know nothing.


  7. Pingback: John Ward – Surreal ECB Balance Sheet: Slog Vindicated By Independent Slogger – 5 October 2012 | Lucas 2012 Infos

  8. Real cash is what I earned, spend and is in my wallet. Printed cash is what is given to the banks. by our friends in the government. It’s nothing like the former.


  9. John,

    It sounds like someone has done a better job than me in explaining how a real economy works. As Sackerson pointed out it is a part of MMT except it is perverted by the lack of a Job Guarantee. Stimulus should be bottom up, with the private sector free to compete for the extra money.

    It is a simple matter of sectorial balances. when the private sector wishes to save, ie spend less than it earns, goverment must spend more than it taxes unless you wish to see the economy tank, which austerity always does.

    Not rocket science is it?


  10. Bellevue

    It sounds as if Draghi is simply waiting it out until the US and its lackeys finally keel over. Such “glitches” are becoming more common on the other side of the channel.

    Funny how they don’t seem to happen here.


  11. The method seems to be

    Do not let the money reach the general economy otherwise inflation will take off.

    The model appears to have been used by Japan for the last decade by buying up all its own debt.

    In theory they can do this forever with only one downside.

    *A population with no future prospects, personal or business.

    * This bit explained by an article I read 2-3 years ago where small businesses in Japan were allowed to keep functioning but they were only allowed to operate on the just enough to keep going principle. Like busting a gut 70+ hours a week and not able to keep enough of what they were making to take a day off. Ditto the population. They are also working on high debt levels to do this so psychologically it will grind you down.

    Anything greater than the “just enough” is taken.

    Could be wrong but it does appear where we are going.

    If it is one question, how do you ever come back if the debt can never be paid down? Or you don’t and not open to discussion.


  12. Another round of obfuscation and smoke and mirrors. At the end of the day, we are being royally screwed ,without benefit of lubrication. If you wish to preserve your wealth,look to hard assets, land, bullion,antiques etc.
    Fiat (paper money) is only good for hanging on a nail on the outside Kazi. (tip of the day.) Invest in wheelbarrows.


  13. @whoflungdung
    Thanks for the Micheal Hudson link above.
    This was a revelation for me.
    Is it just coincidence that he’s being interviewed by The Athens News?!


  14. A very confusining diagram but the basics are simple I think. The ECB is using complicated subterfuge and methodology to monetise PIIGS debt (printing) and side step its legal and treaty obligations. The complexity is part of the game. The German electorate (and also Dutch and Finns) are to be confused and a combination of printing and Target2 financing is being used to prop up the uncompetetive economies in the EZ.

    I think that Target2 is now so high that it will be too hard for Germany to withdraw from the EZ- however they probably could do so if they engaged in their own round of DM printing to the tune of maybe 300 to 500B Euro equivalents – ie about the UK’s level of QE. But this has never been about economics, always politics. In my view in the end if the ECB can print away the problem (big if) then the Euro and possibly too the EUSSR will survive.

    Heaven help the German taxpayer.


  15. I have studied the diagram (BTW thanks Super Sid) – i think i get the basic idea, but i’ m no expert in economics. So two questions:
    a) is this debt monetisation plan connected to the superpowers (also pointed in Slog’s past articles).that are to be given to the FSM?
    b) What do experts say? What’s Dr A’s opinion? Is this gonna work?


  16. Fiat from the Latin meaning – it shall be. Fiat currencies have no value that’s the whole point which is the sole reason they have had to go to such a complex extent to make the principle of the matrix work without massive devaluation.
    Although I gather you’re a trader so I would presume that you would be happy with devaluation as it makes you money. But if you effectively allowed 1 trillion Euros of Central bank reserves to float through the system how much would a loaf of bread cost?

    Again the sole reason for the matrix is to stop the need for direct sterilization, how do you sterilize 1tn Euros from an economy quickly enough to stop it having a detrimental effect, you do it via a monetary cycle that doesn’t ever put central bank cash ‘printed money’ within the wider market or in this case you limit the amount within the wider market.

    Have another look at the diagram.


  17. Afternoon Nick,

    Well first things first, it’s a simplified diagram, so real money is money that is already in circulation, printed money is money that the ECB has to create. The difference between the two is important as controlling where it goes is part of the process of stopping inflation in the currency.

    The debt moneterisation plan only works because of those superpowers and even then they have to be combined with (as reported on the slog previously) the fact the ECB can effectively never go bankrupt.

    When they founded the ECB a clever economist decided that even though no one would listen to him saying the Euro wouldn’t work he would build in a clause allowing the ECB to run as large a negative balance sheet as it liked. As long as the FSM can pump ‘real money’ (money that is already in existence) into those at risk countries so they can pay the Principal amounts at maturity, then the ECB can print the money to pay the interest on the debt.

    The reason it’s done like this is because no one has to admit the system is bust, the moment they do the whole thing falls like a house of cards (which is why mutual debt forgiveness doesn’t work).

    As for will it work, the honest answer is I don’t know and my guys can’t tell me. All we can say is that it’s just about complicated enough that no one can prove its happening and as long as no one can prove it is actually happening it will work.


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