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Dr. Ingo Sauer

lines on the record: 162
first: 2024-03-18
most recent: 2024-03-18
sittings or episodes: 1
sources: podcast

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“Also, the central banks at the end become vulnerable. And that can happen in five years from now, in two years from now. It's going to happen in stages. But a weak currency at the end means that the euro devaluates further and that this becomes the main reason for price increases inside the country, not demand and supply and labor markets, it's driven usually for the strong inflations by devaluation pressure because the institution behind becomes vulnerable.”
2024-03-18 · Forward Guidance · Dr. Ingo Sauer on Hyperinflation, Central Bank Insolvency, and The ECB (European Central Bank) · IDENTIFIED FROM THE TRANSCRIPT
“That the Bundesbank could suffer losses which are in a magnitude that it becomes very difficult to recapitalize the Bundesbank after such an event because it ranges about $1,000 a billion euros that the Bundesbank claims against the other national central banks against the system. Those claims are called target balances. So that's the second concern. So first that the euro itself becomes a weak currency and probably after we enter that stage at some point the euro system can fall apart and then some central banks suffer losses because they're not 100% compensated for their claims they accumulated against the rest of the system. I don't know when it's going to happen. I'm just saying like if there is pressure on bond prices then”
2024-03-18 · Forward Guidance · Dr. Ingo Sauer on Hyperinflation, Central Bank Insolvency, and The ECB (European Central Bank) · IDENTIFIED FROM THE TRANSCRIPT
“On markets, then the euro system itself becomes vulnerable and the euro is going to be a weak currency, probably not as bad as the Argentine pesos, but could be like half as severe, let's say. And there is another problem that this system of central banks, it's a currency union. We still have all these national central banks issuing the euro and it can obviously, like it happened always for currency unions, it can one day fall apart. And there are huge claims and liabilities between these different national central banks. And some countries will suffer or some national central banks will suffer enormous losses. So my concern is, because I'm German,”
2024-03-18 · Forward Guidance · Dr. Ingo Sauer on Hyperinflation, Central Bank Insolvency, and The ECB (European Central Bank) · IDENTIFIED FROM THE TRANSCRIPT
“And the European Central Bank accumulated a lot of risky assets, mostly government bonds. And as you know now, the crisis countries and my country probably in the near future becomes one more crisis country. But at the beginning after the European debt crisis, which first peaked in 2012, but even before our national central banks actually, so it's not the ECB which issues the money supply, but it's the national central banks. It's a system of central banks, so the euro system itself, they intervened and they bought a lot of government bonds, and then we had in the aftermath we had like after 2015. And again, for Corona, we had huge purchases.”
2024-03-18 · Forward Guidance · Dr. Ingo Sauer on Hyperinflation, Central Bank Insolvency, and The ECB (European Central Bank) · IDENTIFIED FROM THE TRANSCRIPT
“To defend this currency on foreign exchange markets, if that is not the case, at first speculators react, but then the general public, like it was the last 10 years in Argentina, they change this currency because they want the hard currency to different currency. And at the end, even so legally, the central bank does not face any problems and cannot become insolvent. insolvent at foreign exchange markets which they try to regulate, but that regulation never really works out. And therefore, we can apply the concept of solvency, not liquidity, but the concept of solvency is applicable to central banks.”
2024-03-18 · Forward Guidance · Dr. Ingo Sauer on Hyperinflation, Central Bank Insolvency, and The ECB (European Central Bank) · IDENTIFIED FROM THE TRANSCRIPT
“So there is a liquidity constraint since you can leave the gold standard like Nixon did in 71 central bank legally can never become insolvent. But the concept of solvency is applicable to central banks. They become vulnerable on foreign exchange markets. Therefore, we have to look at the balance sheet to really measure their vulnerability or their capitalization or their undercapitalization. This at the end, you can show it in the 1920s, actually quite good, this at the end defines the value or the valuation of those notes. So at the end, all this currency, all these nodes, they are valued by the public if and only if the institution behind is solvent enough.”
2024-03-18 · Forward Guidance · Dr. Ingo Sauer on Hyperinflation, Central Bank Insolvency, and The ECB (European Central Bank) · IDENTIFIED FROM THE TRANSCRIPT
“Unfortunately, but let me make that comparison between private and central banks. So legally, a central bank obviously can never become insolvent. And nobody can force the central bank to hand out whatever they have money on its liability side, but it's not a real liability. And even if you are in the gold standard, you can easily leave the gold standard and no institution whatsoever can force the central bank to pay for these bills, right? That doesn't mean that the concept of solvency isn't relevant for a central bank. And actually, the confusion also comes from the fact that central banks do not face a liquidity constraint, like commercial banks do, right, and like the central bank does when it runs a gold standard, then every time they bring your dollars, you have to pay out gold.”
2024-03-18 · Forward Guidance · Dr. Ingo Sauer on Hyperinflation, Central Bank Insolvency, and The ECB (European Central Bank) · IDENTIFIED FROM THE TRANSCRIPT
“So before we take our time machine back to 1923, so yeah, the notion of insolvency for a private bank, it's pretty well understood. The loans are not as good and the value of those loans is less than the liabilities, the deposits. And then there can be a bank run, liquidity. So that causes the bank to fail. The notion of a central bank being insolvent, I would say, yeah, that does challenge many economic orthodoxies because central banks print money. One would think it is kind of impossible. So you do think that this is relevant to the euro system and the European Central Bank right now. Tell us why that”
2024-03-18 · Forward Guidance · Dr. Ingo Sauer on Hyperinflation, Central Bank Insolvency, and The ECB (European Central Bank) · IDENTIFIED FROM THE TRANSCRIPT
“Because there is no research about those recapitalizations. I really try to establish such kind of research to get some awareness for this problem.”
2024-03-18 · Forward Guidance · Dr. Ingo Sauer on Hyperinflation, Central Bank Insolvency, and The ECB (European Central Bank) · IDENTIFIED FROM THE TRANSCRIPT
“This workings of these stronger inflations when the currency itself is debased. It's not on the markets, demand and supply, labor markets and so forth where money is used. It's really the currency is the best itself. Money itself loses its value because the institution behind becomes insolvent, not in a legal sense, but in an economic sense and the central bank becomes vulnerable on foreign exchange markets. We have to probably to deal with that problem. And in the 1920s, they could only stop these inflations by recapitalizing each of these central banks. I studied the four great inflations, the four famous hyperinflations in Poland, Hungary, Austria, and Germany. We also are not very prepared to recapitalize our central banks if necessary.”
2024-03-18 · Forward Guidance · Dr. Ingo Sauer on Hyperinflation, Central Bank Insolvency, and The ECB (European Central Bank) · IDENTIFIED FROM THE TRANSCRIPT
“Obviously, there are many, many reasons for inflation. In this paper, I speak about the very strong inflations. So you have inflation for several reasons, demand and supply issues on labor markets. This cost-driven inflations, demand pull, cost push, but there is a different type of inflation. In the 1920s, it's better to see that those inflations actually were driven by central bank insolvencies. And as a matter of fact, my complete profession overlooked those central bank insolvencies, and therefore we are badly prepared if such an inflation like we had it in the last 10 years in Argentina, for example, is going to happen here in the euro area. I'm very concerned about my currency and therefore I want to bring”
2024-03-18 · Forward Guidance · Dr. Ingo Sauer on Hyperinflation, Central Bank Insolvency, and The ECB (European Central Bank) · IDENTIFIED FROM THE TRANSCRIPT
“My pleasure tells us what about your book long paper about 1923 so we will be going back 101 years to the hyperinflation where the German mark was devalued to over 4 trillion marks to one US dollar and prices skyrocketed by well over a billion percent you also write about hyperinflation in 1923 in Austria-Hungary and Poland so what is the common notion about what causes hyperinflation and what does your paper and your book long paper 360 pages your research find that actually causes hyperflation”
2024-03-18 · Forward Guidance · Dr. Ingo Sauer on Hyperinflation, Central Bank Insolvency, and The ECB (European Central Bank) · IDENTIFIED FROM THE TRANSCRIPT