How are government bonds monetized
I think that you have to take a closer look here and get a realistic picture of the likely effects.
The mechanism of buying government bonds is clear, and when it goes through the banks, there is not much excitement. See BVerfG, see H.-W. Sense as a perpetual accuser - the response from the general public is very restrained, actually nonexistent.
> A similar debt relief could in principle also be presented for private debts. ”>
It could be represented as a functionality, but it is very questionable whether it would have the same effect.
Who guarantees that banks and the private sector would not fall into a DEBT RUSH if the conviction that the central bank was buying up the loans (debt) was solidified?
The banks would earn a crisp from the fees and only want to earn money from them, would not have to bear any risk for bad loans because they do not exist - thought through rating agencies would be superfluous - and the private sector (non-banks) could get into debt without end. Because creditworthiness would de facto no longer play a role in this scenario. The banks would be fine with any credit rating, because the ECB must be fine with each one if it - its GOAL - wants to save the euro at ANY price. That is Polleit's insight (4), albeit consistently pointed.
So far so good.
Where is the missing link to the system crash, i.e. H. the facts that lead from the crisis or the crisis solved in this way to the collapse of the system?
I see two options:
First, the aforementioned high or even hyperinflation, which will occur when the borrowers use the money to drive up asset prices. This is exactly what they will do, because in the end there is only this reason, from their point of view, good reason to go into debt more at a profit. The population will of course notice that the CHEAP money is losing value.
Second, it is the REAL ECONOMY, which functions even more poorly in this scenario, which will lead to the population politically saying goodbye to the euro, i.e. countries leaving the euro zone.
The ECB cannot prevent that.
> "Seen in this way, a collapse scenario for the euro is not impossible, but it is not inevitable, and not if the ECB succeeds in monetizing the debt on a large scale." - bto: Right!>
My conclusion is different:
Seen in this way, a collapse scenario can be prevented to the extent that it would occur with CONTINUED debt build-up under the GIVEN conditions with RESTRICTIVE bond purchases by the ECB, but the CONSEQUENCES of this prevention will one way or another lead to an inevitable collapse.
The MONETARY Deus ex machina does not exist (and neither does another).reply
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