Bank pundits use or make every possible opportunity to vent their ignorance about economic – they are even worse than republican representatives performing their ritual dance around the gold standard – the Loch Ness Monster of economics.

What actually happens when Central Banks “print money” – well you could get inflation, but that is not in evidence: The modest inflation seen is due to energy and food. Energy prices are more driven by political considerations. One half of the world considers it a tax-object, and the other subsidizes it violently. Food prices are a good old fashioned “demand – pull” inflation. Chinese want more delicious calories than corn.

As so often before I use Denmark as the lab-rat, because you have a fighting chance of dissecting what is going on.

We know that Danske Bank borrowed 41 bio. DKK from the ECB – guaranteed by the Danish Central Bank – they’ve admitted that much (so it doesn’t figure in the official statistics – or rather is hidden in the forest of poisonous trees). Furthermore Danske Bank has borrowed 15 bio. DKK directly in the Danish Central Bank presumably in a deal to buy BRF real estate bonds that BRF couldn’t sell or loan against. Danske Bank will make a bit of money on that – fair enough.

What happened to all that nice dough?


Looking at the deposit graph you can see an enormous spike in April – forget that one – I suspect it was “Uncle Nils” preventing a panic attack in conjunction with spring butchering of a couple of small banks.

No, what is interesting in this context is the low point of deposits at the end of February: 92 bio. DKK. It must have been around that time the Central Bank decided it needed to do something urgently. The deposits then jump to 152 bio. DKK – a net of 60 bio. DKK.

The Danske Bank loans of 41 bio. DKK and 15 bio. DKK respectively fit the bill.

This leaves 4 bio. DKK before the books are balanced. Now we move into the territory of uneducated guesses. My personal favorite is Sydbank. The size fit, and the generous irrelevant comments that Sydbank has blessed the Danish financial press with point to something that needs to be put a lid on.

Furthermore recent pictures of the CEO of Sydbank (Frösig) and her tightly clenched jaws – which reveal an ample overbite – do in an unscientific way indicate a somewhat despondent mood in that bank. That Frösig is a law graduate could indicate the bank’s primary focus.

But of more general interest:

These 60 odd million in CB loans rather immediately show up on the deposit in the Central Bank. Up to the time of extension of these loans the various financial institutions had one way or the other muddled through. Now these short term money are unemployed and are left to wither in the Central Bank.

Will they cause inflation? Certainly not!

These loans replace money lost – but not posted as such – in the banking system (remember money is debt – but only serviced debt). Money printing only causes inflation if the liquidity is loaned for consumption or investment. These CB loans are neutralized by deposits.

Furthermore the other graph indicates:

1)      The surplus money has not gone into sovereign bonds. Yup, there are odd 14 bio. DKK presumably relating to treasury notes reaching maturity. But with the falling interest rates on sovereign bond of late the excess liquidity is seeking placement.

2)      A foreign desire for Danish bonds as a safe haven has been used as an explanation for the low interest rates; but that is honestly not in evidence.

3)      The credit squeeze on business at the moment is not due to lack of money, but more to the fact that banks can’t finance un-posted losses.

A piece of free advice:

Next time a bankers or investment experts face appear on your favorite channel: You are about to hear something false, misleading or utterly irrelevant and you should ask yourself what is he hiding?